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Unreformed: is govt ready for a bolder gambit in 2012?

The 20th anniversary of reforms will be remembered more for blocking reforms. Here’s hoping that the coming year will prove different. Gaurav Chaudhury reports.

business Updated: Dec 30, 2011 20:27 IST
Gaurav Chaudhury

In a nation’s history, a year is a just small point in the continuum of time. In post-Independent modern India, 2011, among other things, will be remembered as the year in which economic reforms came to a man’s estate after two decades of adolescent angst.


In the summer of 1991 India flew out 67 tonnes of gold to Europe to get $600 million dollars to tide over a dire import payment crisis. Twenty years later, it said it was ready to help Europe crawl out of a debt crisis as it stares into the prospect of sovereign default by Greece, the cradle from which western civilisation flourished for thousands of years. The symbolism is inescapable.

Decades later, however, historians are unlikely to describe 2011 as the coming of age year where India offered to play as one of the lenders of last resort for a sputtering West.

With manhood comes greater responsibility: to see modern aspirations, and the means to achieving them, are cast wider for a nation of young Indians. The trickle of welfare must rise to a flood as the economy sprints ahead. Above all, a new maturity must show itself in the way we go about governing ourselves.

Economic reforms in India, it is sometimes said, are akin to the hour hand of a clock that you rarely see moving. Sadly, 2011 amply demonstrated this analogy.

Surging protests of policy paralysis, criticism for a series of scandals and concerns in international circles of macro-economic mismanagement, failed to galvanise the United Progressive Alliance (UPA) government into action. Political compulsions coerced the government to quickly bottle up the flurry of reformist intent including allowing foreign direct investment (FDI) in multi-brand retail, aviation and pensions.

On another plane, the government was busy quibbling about the details of defining a poverty line amid a welter of protests from social activists who are accusing it of abdicating its responsibility.

Counting the poor has never been easy. The Planning Commission’s poverty line — remarkably low at Rs 32 a day — could have moved millions out of poverty: on paper. The million dollar question, or, if you will, the Rs 32 question, is: How does one define the poverty line in India, in which old yardsticks may not hold good, either in terms of the food that money can buy or in terms of defining who the poor are. Do these statistics accurately measure what poverty is, and what is the next step in poverty reduction for middle-income countries such as India?

And by keeping the poverty line low, is the government denying that India continues to remain a very poor country despite being the world’s second fastest growing major economy? For, it is difficult to argue that at a family of five members with an income of Rs 4,800 is poor and another one with an income of Rs 5,000 is not.

Yet, amid these noises of despair, there are signs of optimism. One of the primary uses of poverty estimates is to provide subsidised entitlements to the poor. The market is very good at efficiency and growth, but the market does not always address issues of equity. Otherwise, there would not have been the need to legislating free lunch for the poor who have a right to live with human dignity. Access to food forms the core of this dignity. India still has a long way to go before it can get food into every mouth that needs it. The Food Security Bill promises to do precisely that, and rightly so. Food entitlements are an essential means for achieving equity. Growth alone is not going to deliver it. Markets alone are not going to deliver it. That is the government’s responsibility.

Economic reforms are too catch-all a term to be the panacea for all problems. Each piece of structural adjustment faces its own dynamic of resistance, pacing out its passage through departments, ministries and social stakeholders.

Global capital is seeking out all islands of discernible demand, and nowhere is it as visible as Indians buying cars and consumer goods. China and India are the only two sizeable growth markets in the world, significant for any global manufacturer in the long term. If car markers are jostling against each other for next week’s auto show in Delhi, it only reinforces international investors’ belief in the Indian as a global growth hot-spot.

However, investors want hassle-free entry into the Indian economy and the recent corruption scandals appear to have blurred the government’s focus away from key reforms initiatives. A lot will still depend on how the government tackles the groundswell of political opposition that it will encounter in many of second-generation reforms initiatives. What are needed is intelligent reforms and intelligent design of policy as nothing is going to guarantee that one is not going to run into a pitfall.

In the final analysis, profit maximisation, policy reforms and politics should cease to be mutually exclusive objectives. It did not happen in 2011; let’s hope the government is ready for the gambit in 2012.