Prime minister Narendra Modi told a foreign journalist a while ago that when he assumed office, he had asked his office to give him a list of urgent radical reforms. But they could not agree upon a list. That may be so, but it indicates more the conservatism of his office rather than a robust assessment of the situation. It is not hard to understand why the IAS keepers of our economy may not see the need for any urgent reforms. It is not their job, nor do they have the competence to reflect on those issues. It is the politician who has to raise the standard of reforms, perhaps based on evidence from outside experts and then select civil servants to implement them.
This is what Narasimha Rao did. He inherited a crisis for which no IAS officer had prepared the government. How else does a country get down to forex reserves of only-two-weeks-of-imports’ worth? India was lucky that a team came together, some members from within the system and many from the outside. Neither Montek Singh Ahluwalia nor C Rangarajan were career civil servants. Manmohan Singh had been in and out. Yet, they knew how to gauge the dire situation and tackle it.That was then. What now? Vijay Joshi who has written a fine book, India’s Long Road: The Search for Prosperity (Allen Lane), is a veteran of this area. Along with Ian Little, he wrote about India’s economic reforms way back in 1996 and another book on macroeconomics for India two years before that. It was they who pointed out that reforms have a political-cycle rhythm in India. Only in crisis times does the polity reform, but then there are endemic problems to make reforms a constantly recurring topic. Reforms are always partial as political courage is in limited supply. In India’s peculiar electoral cycle, where every six months there is an election somewhere, the central leadership loses heart with the first reversal in a state election, no matter how small the state. The courage to face unpopularity and think in five-year cycles is rare.
I should not ascribe my views to Joshi; so, read his book, which is very good. He is particularly radical on the need to reform the state as an instrument of growth as well as redistribution and advocates a basic income scheme which he demonstrates to be feasible. What follows here are my views.
This time around when the BJP came to power, the crisis was not so alarming. UPA-II had run for five years with a rate of inflation higher than the rate of GDP growth in every quarter but, that apart, there was no panic. No wonder, the Modi-led PMO could not come up with a list of must-dos. But reform and restructuring are constantly required in any economy, let alone India which is far short of realising its potential. Fantasy tales of ‘demographic-dividend’ and ‘outstripping China’ apart, the ground situation is abysmal in terms of malnutrition, open defecation, waste management, stagnation in manufacturing, continual crisis in farming where four-fifths of farms are unsustainable in terms of affording their owners a decent livelihood. The public sector gets too much mollycoddling—Pay Commission induced salary hikes, OROP, non-performing loans of a grossly inefficient PSU banking sector, all these stand witness to the root of India’s problems, but will not be reformed any time soon.
The BJP/RSS believe in socialism as passionately as the Congress and CPM do. This makes them resist reform of the civil service, in particular, and of the public sector, in the larger sense. The state has weak competence. Despite that, governments of all political persuasion load it with more tasks—new entitlements (food security while PDS shops constantly fail), environmental regulations (without correcting chronic underpricing of water, power and public land), additional rewards and perks (without improving incentive structures or efficiency enhancing arrangements), etc. Nothing is removed as having lost utility; only left as a continuing expense while more is added. The state cannot deliver good quality education at any level—primary, secondary or tertiary. Yet, it will not relent. IITs are set up like roadside dhabas without adequate staff only because every state wants one at the very least. The consumers go away to private providers if they can afford or moulder in colleges where they are barely functionally literate after three years.
There is not much hope that the state will be reformed any time soon. It would need a horrendous crisis, of a magnitude one would not wish, before Indian politics changes its ways. But, along the way, fiscal discipline can be improved—as is being done now. One hopes that the extra salary hikes can be absorbed without throwing the fiscal targets away. The economy has been opened up to FDI. There is a smarter exchange rate policy and the new monetary policy framework is admirable. GST will become functional one of these days. On such small hopes, one must live.
The author is a prominent economist and Labour peer