A MATTER OF ECONOMICS
Irrelevant Reforms Template
Dr R. Balashankar
The renewed reform debate, triggered by the UPA government’s chief economic adviser Kaushik Basu’s remark at a Washington-based think-tank looks orchestrated. Basu tells a Washington conference that they have to wait till 2014 to see any big ticket economic initiative in India. No sooner the statement is reported the principal opposition in the country jumps up protesting government paralysis and nudging it to immediately take up pending finance sector legislations. One leader even offers support on specific bills. Meanwhile, the adviser backtracks and suggests what he meant about 2014 was about repayment obligations of European banks that had borrowed from European Central Bank (ECB). In the same breath he chides the BJP for blocking “landmark” reforms. The next day Finance Minister Pranab Mukherjee assures his audience in Washington that key bills will get nod this year and he will take tough steps for reform. The opposition has also been cajoled into making amends, he reveals. As if to pressurise India on the pending bills, two days later, the rating agencies Moody’s and Standard & Poor, both American, downgrade India on economic outlook. What more do you need to press the panic button?
The question however is, are these bills really relevant to India’s economic growth? The BJP would nostalgically lament as a ruse to support the bills, “they were planned during the NDA rule.” Is that suggestion valid today? Much water has flown down the Mississippi in the last nine years since these bills were planned. The NDA was the only political outfit that faced an election on an economic reform agenda. ‘India Shining’ was coined out of that plank. The people rejected it and supported repeatedly a Congress under Sonia Gandhi, which clearly turned its back on further liberalisation. The debate whether liberalisation and globalisation helped Indian masses is an endless one. The focus here is only on the pending liberalisation agenda.
The general consensus is that the economy is sufficiently liberalised and globally integrated for India’s needs. Reform fanatics won’t agree, but they are a different lot. “Globalisation attracts a lot of problems, and India is still not ready for it in my opinion. A lot of us come back from England with all kinds of ideas about interventionist ways of solving problems, no matter what the problems are. That was a case of knee-jerk intervention and the only debate was whether you went slow like the Fabians or went fast…”, said Jagdish Bhagwati addressing a seminar on globalisation in India, sometime ago.
India has a problem of poor economic literacy. We are spiritualists. Economic priorities, unlike in the west are secondary to us. Our politicians in the past had a better understanding of economics and an instinct for what is good for the country. Today’s politicians are not only inadequately informed on economics but they believe it is all about what is in the IMF-World Bank template. That is the reason for the present clamour for more reforms. The US and European countries believe that free market is the most important way to growth. Globalisation for them is one set of rigid policies like capital account convertibility, fully flexible exchange rates and no restrictions on borrowing abroad, unlimited access to debt because the exchange rate would stabilise that in absolute free markets. After the fall of the Soviet system most countries welcomed globalisation with euphoria because it was hoped to increase capital flows to developing world substantially. The IMF, World Bank, WTO and the developed West in the 1990s, —the most ardent champions of globalisation—used this occasion to highlight the internal economic compulsions of the developing countries and applied strict conditionalities like trade liberalisation through removal of government interference in financial markets, capital markets and barriers to trade whenever they were approached for loans. Globalisation increased economic insecurity in developing countries because of growing integration of markets, competitive pressures and limitations on the government’s freedom to provide for the welfare of the citizens. Tax burden has increased in the last two decades.
The thrust of India’s approach so far was on developing free markets and reducing the role of the state. We have not yet adopted total convertibility of rupee. The reform agenda India adopted from IMF, in the early 1990s is no longer valid. From a lender to developing countries the IMF has now become the lender and saviour of the developed countries using the resources of the developing countries. The US has been manipulating the priorities of the international funding institutions to the advantage of the developed world, to the extent that it got a physician as head of the financial institution like World Bank.
The 2008 economic crisis of the West changed the entire globalisation perspective and the developed world is looking at major developing economies like India and China to bail them out. But they will not reduce their consumerism and exploitative world view. Today capital is flowing from developing countries to the developed ones. India was largely saved from the 2008 financial crisis because we were still not fully integrated to the developed economies. The developed countries which frantically preached free market to the developing world today are practicing protectionism at all levels and from non-intervention, the state has now become interventionist at every step, even creating barriers for goods and services transfer. Most countries have imposed ban on migration of labour and they are stealing jobs from developing countries. The financial crisis has taught countries many lessons. We too have learnt some. That is perhaps the reason we are going slow on liberalisation of the financial sector. The Pension Bill, Insurance Bill, Banking sector reform and the GST and Tax Code are part of the old IMF template. At one point ten years ago, the BJP might have been tempted to undertake them. Globalisation was at its successful peak then. IMF is also recasting itself now. Government instead of opening the floodgate for foreign players now has to become a vigilant regulator of the policy framework. We are in the midst of risks and uncertainties. Policy planners instead of getting obsessed with old fashioned format should work on making the system work better and governance deliverable.