Nothing focuses the mind like a crisis. Those like me who are old enough to recall the first flush of economic reforms in the 1990s, and compare it with today's slow creep, tend to gloss over the events that set off the flurry in the dovecotes of Raisina Hill. Our minds don't dwell on the Chandra Shekhar government having to pawn 67 tonnes of gold to Britain and Switzerland, or on an inscrutable PV Narasimha Rao coming on television — a rare unscheduled appearance by an Indian prime minister — to tell the nation that there were no soft options anymore.
The story of India's liberalisation begins with Manmohan Singh's line from Victor Hugo: “No power on earth can stop an idea whose time has come.”
The idea being to change the way the Indian economy works so thoroughly that it would never again have to live through the summer of 1991. But we seem to be on a slippery slope in 2012, in fact in a situation which almost makes 1991 look like a Sunday sch-ool picnic. The government is in spend, spend, spend mode though it does not have the means. Inflation is galloping and refuses to go away like Banquo ghost at the banquet. The public debt is mounting, subsidies are ballooning, and the nation's credit rating is threatened. And as always, the reason for all this is that familiar old chestnut: policy paralysis.
Can we gain on the roundabout what we are consistently losing on the swings? I think we would have had a fighting chance it the government was not hemmed in by voluble, often loopy, allies, an Opposition smelling blood and officials cowed down by an epidemic of graft charges. Eight years into his prime ministership, Singh's government must desperately wish it was in a better place.
India's reformers have shown themselves as eminently capable crisis managers, not once but twice. They pulled the economy through 1991 and then through the 2008 global credit meltdown. And it was when we were cruising along fairly well that the government allowed politics to tie economic logic up in knots. So a quarter of a century after VP Singh introduced value-added tax credits, consultations are still on with states over a unified goods and services tax. And so fuel prices in India remain administered a decade after they were ostensibly freed by AB Vajpayee's Cabinet. India's reforms have famously been described as the hour hand of a clock that you rarely see moving. I do worry that it may come to a complete halt one of these days.
The recent state election results can't have been music to the Congress's ears. So it seems to have taken its eye off the ball in passing vital legislation. Bills allowing more foreign capital in pension funds and banks, among the 30 that are on the table in this session of Parliament, have been watered down. Another one on insurance is likely to go the same way. On the rare occasion that the Congress is convinced about a particular reform initiative like raising rail fares, we have Mamatadi going ballistic. The government had to back off instead of staring her down. States ruled by regional parties have tasted blood on how far they can push the government at the Centre. So no to foreign supermarkets, no to opening up many sectors of the economy to foreign investment.
The UPA is approaching the end of its second term. It wants to be risk-averse now. Its welfare agenda has been fleshed out through a string of entitlements for work, food and education. Can these become universal social security? Yes, if there are fundamental changes in governance. Nandan Nilekani is leading the charge through biometric identification in what I see as a rare success because it delivers the goods for both the Congress and the beneficiaries.
However, good intentions bring pain like a rise in prices. Inflation is testing its politically acceptable threshold. And with this inclusive growth is becoming a little hazy. Inflation is undermining the growing list of “rights”. Inflation control needs prudent management more than bold decisions. Free fuel prices can tease suppressed inflation out of the system. Fixing everyday bottlenecks in agriculture and infrastructure, likewise, can ease structural inflation.
So there we have some of the answers. Singh may not be a happy camper today. The reforms he crafted may have stayed the course. But I don't think that's good enough. The need now is for a wider consensus on a second generation of reforms that ought to keep the economy on a 9% growth path. But will our politics of pandemonium allow the market changes for this? The jury was out on this once. Now it seems the verdict may be disheartening.