The Moors Last Sigh

Written by Subhash Agrawal | Updated: Nov 7 2002, 05:30am hrs
It is no secret that the high point of economic reforms was 1995-96 and there has been a general slide since then. India now faces huge macro-economic problems, the bottomline being that we may be heading for an internal debt trap. Sensible solutions exist but require political courage which is lacking in the current political environment. Repetitive elections and competitive populism have kept every political leader in Delhi in a state of constant anxiety. Every political party sees all others as vulnerable, and nobody has the grit to take a bold stand.

Is India heading to become an economic basketcase once again Will privatisation be halted These are the questions being asked by foreign observers, not whether India will attain 8 per cent growth. The recently released report of the Planning Commission and its fanciful targets now read like fantasy.

Regarding privatisation, there are two sets of scenarios in circulation. First, that Prime Minister A B Vajpayee is hell bent on leaving a legacy and will continue to propel disinvestment even in the face of heavy opposition. If all else fails, he may even offer to resign, evaporating all such opposition. The other scenario is the opposite, that he will forsake further reforms to buy peace with the National Democratic Alliance (NDA) and Rashtriya Swayamsevak Sangh (RSS) leaders, especially as the country heads for new instability arising from events in Uttar Pradesh and elections in Gujarat.

Neither of these scenarios is politically or economically viable.

Mr Vajpayee still has two years left in his tenure and is keen to continue. No major Indian leader, let alone a Prime Minister, has ever quit office on an issue of economic policy, so why should he be any different Especially when he knows the Sonia factor makes his NDA regime, as shaky as it is, the only game in town. By taking a high moral road and stepping down, he risks becoming a lonely martyr. Few will follow him. This issue simply does not resonate with the masses, a fact which many pro-reformers forget. None of our poor have seen any extra bread on their table as a result of past disinvestment, a reflection of poor resource allocation and even poorer public finances and not of disinvestment per se. By the same token, lesser parties in the NDA will be sorry to see the current alliance break up, but may benefit if the break occurred over an issue which gives them new respectability, an issue such as disinvestment. In the end, it is not in anybodys interest to stake all-or-nothing on the issue.

Economically, only a delusional socialist would suggest that all privatisation should be stopped. The precarious state of our public finances necessitates further disinvestment every year, even if it is not Hindustan Petroleum Corporation Ltd or Bharat Petroleum Corporation Ltd. It will be impossible to reign in Indias high deficit with zero receipts from disinvestment. Inertia at this time will surely bring inflation to a point which will deeply hurt the very same labour and mofussil constituencies that are now opposing privatisation, and hence impact the NDA in the next general elections.

There is yet another reason for why privatisation will survive. When Left parties oppose it, they do so with ideological consistency and fervour. But for the Bharatiya Janata Party (BJP) and RSS, economic policies have always been subordinate to social and religious issues. These organisations primarily remain wedded to their foremost goal of transforming India into a proud nation. For over 40 years, they opposed the Congress over dynasty rule, democracy and foreign policy. Their senior leaders neither feel very passionately about nor understand economics. On both occasions, in the past when they favoured it and now when they oppose it, the RSS/BJP response to privatisation is reflexive and not grounded in a well-defined economic vision.

In the near future, what is most likely is some combination of various sub-optimal scenarios. Big-ticket sales may be put on hold, at least until after the impending assembly elections in Gujarat which are crucial in more ways than one. Depending upon the verdict there, a new dynamism will likely result in the whole debate. But the government will continue with the sale of smaller firms where there is limited opposition by vested groups, such as in Engineers India Limited, Hindustan Machine Tools and Balmer Lawrie. In the end, privatisation will be delayed but not halted.

The author is an analyst of Indian political and business trends and the editor of India Focus, a political risk report for international investors