Accordingly, New Deal was associated with elements like increased government regulation, control over banks, an emergency budget de-linked from the regular budget so that it could be based on deficit financing, hikes in prices to farmers, rural welfare projects, rural electrification, rural roads, price controls on industry, greater resort to State planning and social security. Lest we forget, Supreme Court judges were also chosen so that they didnt block what Roosevelt proposed. Economists still debate what these policies achieved, though policies themselves evolved over time. Henry Morgenthau was Treasury Secretary and this is what he wrote in his diary in 1939. We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot.
Perhaps we should remember this when we react to governments 100-day roadmap to revive the economy. Reacting to three Cs of continuity, consolidation and confidence is fine and it is also true that decisive mandate to Congress and UPA ensures stability for next five years. The Left is convincingly out of the way, a further reason for rejoicing. Having said this, let us consider the reform wish-list put forward by industry leaders, chambers and pro-reform lobbies sale of public sector equity, divestment of equity in public sector banks to less than 50% (allowing for FDI too), pension reform (Pension Fund Regulatory and Development Authority Bill), hike in FDI caps for insurance (26% to 49%, Insurance Regulatory and Development Authority), telecom and aviation, FDI in retail (such as multi-brand), private participation in defence, labour market laws (Contract Labour Act more than Industrial Disputes Act), airport privatisation, scrapping of APM (administered price mechanism) for petroleum products and power sector reforms (mandatory unbundling of generation and distribution before obtaining Central funds). Land acquisition from farmers and APMC (Agricultural Produce Marketing Committee) Acts have also been mentioned, though that this more a State subject.
As a reform wish-list, one cant complain about this agenda. According to reports, Ministries have been asked to formulate 100-day reform packages and Finance Ministry is working on a 45-day revival package. These reforms are supposed to get India back on a 9% growth trajectory, though time-line for that is uncertain. Understandably, 100-day packages wont be purely economic. For instance, there is bound to be stuff on national security, intelligence and external affairs. Forget 9%, thats a pipe-dream until global economy recovers. For the moment, we are talking about getting back to a trajectory with 7.5% from a full-year average of 6% for 2009-10, with 6.5% in second half of this year ensured even without additional policy action by the government. There are three reasons why one believes the reform wish-list and euphoria (Sensex and elsewhere) to be unrealistic. First, scapegoat of Left obstruction from 2004 to 2009 is over-done. There was considerable opposition to such reforms from within Congress too, including the proposition that India stands insulated from global developments because banking, insurance and foreign exchange werent liberalised. Second, Congress doesnt have numbers in Rajya Sabha and to the extent legislative changes are necessary, they will continue to be stuck.
Third, perceptionally, the mandate will be viewed as vindicated of UPAs left-of-centre policies Bharat Nirman, NREGS, farmers debt relief, with 6th Pay Commission thrown in. Thus, one is likely to get amendments to FRBM Act, with fiscal consolidation off the radar screen until economy recovers. After all, 13th Finance Commission is supposed to recommend how fiscal consolidation can take place and that report isnt due till 31st October, a convenient fig-leaf. There will be some procedural improvements in FDI policy, since there is a lot of confusion now. There may even be 10 (or 20%) equity sales of PSUs directly, or through IPOs, though there will be debates about what is non-strategic and profit-making. More importantly, we will have more expenditure on Bharat Nirman, expansion of NREGS to cover every individual (rather than one person per household), another farm debt relief package, a national food security act and subsidised wheat and rice for every BPL household, social safety nets, a specific package for those affected by export slowdown (garments, diamonds) and perhaps even some reduction of tax rates (at least the surcharge). Thats precisely the reason New Deal images are worrisome. Hopefully, some day someone will be candid enough to write the counterpart of Morgenthaus diary.
The writer is a noted economist