For a capital-scarce economy, allowing overseas investors to deploy funds in high-growth sectors is, perhaps, the first step in seeking to spin jobs and multiply income. Each piece of structural adjustment faces its own dynamic of resistance, pacing out its passage through departments, ministries and social and political stakeholders. Political debates in Parliament, and outside, are a manifestation of this democratic phenomenon.
Yet, among the plethora of voices on both sides of the fence, one fact is indisputable: two decades of reforms have increased economic freedom by a very large degree.
It is tempting to seek a method in this. As Prime Minister Manmohan Singh said on Wednesday, in a democracy, reform — be it of economic policy or of institutions — is essentially a political process.
Wider consultations as in the direct tax code, insurance and pension legislations assist in expanding the area of the possible. This gradualism is more sensible than a big-bang approach and there is recent evidence to demonstrate the deeper wisdom in this argument.
Last year, the government bit the bullet when it raised the prices of diesel and LPG announcing a determined fight back to revive the economy and walk the talk on fiscal discipline. The decision was greeted with countrywide protests over fuel price hikes. But these agitations soon died down as the reason for fiscal rectitude began to sink in, over weeks and months.
There are a few bends in the policy on big retail, which the government has sought to address. It has been nearly a year since the government opened the gates to foreign investors in multi-brand retail. Yet, not a single superstore has opened in India. There is also an important policy prescription on this: half measures tend to linger.
It is often the case that contrarian opinion, if politically important, influences the pace, if not the direction, of reforms. With the economy’s growth showing little signs of recovering to levels India was used to before the great crash of 2008, the government cannot afford to turn its attention to factors other than those that ought to raise the trend line.
With barely a few months to go before the next Lok Sabha elections, the UPA government can actually use the political space to the economy’s advantage. The year of a general election is usually a casualty to populism. There is a brilliant opportunity for the government to turn this perception around by announcing a flurry of reforms initiatives. There can’t be a more politically correct move than to enhance people’s job prospects and raising income levels.