After a policy paralysis that has lasted for two years, do we now have some signs of change? First there was the petrol price decontrol. Despite the usual protests, the Prime Minister stuck to his guns and the pricing of petrol has now been shown to be the responsibility of oil companies. Then we had the
debacle of Kingfisher Airlines. Vijay Mallya is an entrepreneur who has, if anything, been a symbol of the free market and its opportunities. When his balance sheet became precarious, there seemed to be a demand that Kingfisher be rescued by the government. The reaction on the TV channels by all political parties was very heartening. No bailout using taxpayers? money. If Kingfisher cannot manage its financial affairs, it should either
be sold or shut down. Governments cannot be charities, certainly not for airlines that cater to fewer than 10% of the population.
We then had some very frank talking by Azim Premji, Mukesh Ambani and Sunil Mittal. It has not been the style of India Inc bosses to be so open. The Radia tapes episode silenced them for a while. Now they have come out fighting and are saying that reforms need to be speeded up. The warnings are timely. India cannot take its high growth rate for granted. It has only been in the middle of the first decade of this century that the GDP growth rate has been in the 8%-plus region. We already have evidence that the government has lost control over inflation and RBI has not been effective in taming it either. Inflation rate is now in excess of the GDP growth rate almost every year, and the GDP growth rate is slipping.
It may be that the inflation rate is high for systematic reasons. One part of UPA-2, especially the NAC end, has never liked economic reform and it discounts the high growth rate. It believes the reform has not helped the rural areas all these years. Hence policies have to be designed that shift resources to the rural areas. It is a sort of Corn Laws strategy. Hence the persistently high procurement prices year-on-year. Hence the reluctance to release foodgrains from stocks despite the evidence of rotting. Hence MGNREGA. Inflation in foodgrain prices is then depicted as an urban problem and urban voters, as far as UPA-2 is concerned, are just a nuisance who have been spoilt by the benefits of the reform.
This is, of course, nonsense as well as being politically suicidal. The Congress/UPA may have won the 2004 election on rural votes and the perception that India Shining had not helped the rural poor. I doubt the truth of this perception but let that be. But the 2009 election was won in the urban areas and it was won because Manmohan Singh had gained the confidence of urban India and they delivered the extra 50 seats that Congress won in 2009 compared to 2004.
Yet, in the last two years, the Prime Minister has been thwarted in his desire to push reforms and the NAC has held the upper hand. Now, at last, it looks like the reform train may be getting out of the station. The slew of announcements about FDI in retail and in airlines as well as the ambitious agenda of economic legislation for the winter session of Parliament indicates that the unfinished agenda of reform may now be resumed. Of course, there will be the normal opposition from the Left. But the presence of FDI in retail will be the creative way of helping farmers as well as the urban consumers.
The timeliness of this move to speed the reforms is vindicated by what is happening in the developed countries. We can be more or less sure that there will be no growth in the US, UK or the eurozone countries. It will be 2015 before the GDP level in these countries regains their pre-crisis levels. The 1930s? Great Depression lasted 12 years in the US from 1929 to 1941, when at last the US GDP regained its previous high level.
The so-called emerging economies are the only growth regions. But they can no longer depend on export markets in the developed economies to valourise their savings. There will have to be an aggressive push to export within the emerging economies. This market is price-sensitive and highly competitive. India cannot hope to export with its current inflation record. It will have to get on top of that problem and help the exporters to access the best technology. It is here that FDI will be crucial. The downturn in the developed economies will direct the FDI to the emerging economies. India will have to compete with other emerging economies to get its own share.
There is no time to lose if India wants to be in the vanguard of the emerging economies.
The author is a prominent economist and Labour peer