In A recent book, Documenting Reforms- Case Studies from India (Macmillan, 2006), several eminent authors have traced the successes and failures of the reforms from 1991. The work, supported by a World Bank grant, covers reforms in macro-economic policy, improving governance, regulatory reforms and reforms in physical infrastructure. The book raises some interesting questions. For example, given the continuity of decision makers in the ministry of finance in the early nineties, why were there so many reforms in the financial markets and so little in banking ? Were the reforms part of strategy or merely reactive to crises like the foreign exchange crisis and the stock market scams of 1992?
The goals of reform broadly fall into two areas. The first task is that of refocusing the State upon public goods, while dismantling its involvement in areas where no public goods are being produced. The second task is of producing public goods of high quality and quantity at efficient costs. Against this touchstone, the results have been mixed. Economists have focused on reforms only in the context of the economic policy, but the public goods definition enlarges the ambit. Law and order are the most important public goods, and should be the first task of the State. And much greater attention needs to be paid to reforms in the judiciary and in the police.
Given the multilayered polity, it is also clear that the consensual process of reform is important for success. In fact, the first phase of the reforms process appears to be public discussion and debate. This lesson appears to have been well learnt by the change makers. It is heartening to see several ministries are putting out proposed policies for comments and there is considerable dialogue between stakeholders and the government, before major changes are undertaken. Even senior ministers spend time listening to groups likely to be affected, before embarking on major policy changes.
Another lesson is that mechanical imitation of best practices often fails, and a good solution is always one that is likely to work in India, not the best one found elsewhere. Transposing developed country solutions may not work. There is also evidence that new institutions have led change, and it is hard to teach an old dog new tricks. Newly created agencies like Sebi, NHAI, Trai and NSE have been at the vanguard of change, while old ones like RBI, EPFO etc have been reluctant to accept change. Even with new institutions, those with a clear mandate have delivered better. Sebi has been eminently successful in regulating financial markets, while in the case of Trai, the original version had to be modified significantly to make it an effective vehicle of reform.
The issue of poor enforcement of regulations comes up in several areas. In the absence of reforms in the administration, police and judiciary, the new rules are being enforced by an old system, and the mismatch has led to weak enforcement. It is seen that competition can overcome weak enforcement, and is a powerful tool in keeping wrong doers in line. This appears to be a major reason that equity markets and telecom reforms have succeeded, and reforms in the oil and power sectors have not.
The most heartening of the lessons is that despite enormous complexities in the political economy, it is possible to obtain radical change in many areas. There is also a distinct role for leaders of change. Several changes have happened that were not directed by political will. The changes in the electoral process were an endogenous attempt to reform the system. Changes in telecom arose out of pressures from the market and the dominant players that constituted that market. Changes in financial markets were brought about by a group of dedicated tech-savvy individuals who brought transparency and safety into the markets. In reverse, in the absence of committed change leaders, reforms in the judiciary and in oil and gas have suffered. It is true that a discerning political leadership sets out a broad agenda for change, but it is equally true that there is a large number of unsung heroes who not only made that change possible, but also, in several areas, envisioned that change.
Finally, it is important to remember that though much has been achieved, much remains. There have been several opportunities that have been half-seized, and several others that have been missed out on altogether. There is time yet, but not for very long before the burden of unfinished tasks drags down the performance, and the gains of the last 15 years.
S Narayan has been petroleum and finance secretary in the Govt of India
