Pranab Mukherjee’s admission to Congress lawmakers that a decision to open Indian retailing to foreign companies could have risked mid-term elections effectively puts a lid on the UPA’s boldest reforms gamble. A legitimate concern now is whether the Congress has lost all appetite for reform. The answer to that may lie in its aborted attempt to improve the way goods move from producers to consumers. The Congress can’t have been unaware of the collective howl any hint of change, however well-intentioned, will draw from India’s army of shopkeepers. A mere proposal for big-box retail amply serves to carry the protest to global investors. Why does a government chance a referendum — knowing what the answer will be — unless the audience is outside the hall? If that were indeed the method behind the past fortnight’s madness, the message should have gone home: India will reform, at the pace it is comfortable with. Don’t push us.
The man India tasks with setting the pace is entirely capable. India’s finance minister is a canny politician not given to biting off more than he can chew. Despite this, Mr Mukherjee has in the last three budgets set out a fairly ambitious agenda for straightening out the kinks in our economy. He is himself devoting considerable energy to getting stakeholders — state governments for the goods and services tax and lobbying interests for the direct tax code — on the same page for a rule-based tax regime. The finance ministry is piloting legislation on insurance, pensions and banking. Reports of the Congress losing its voice in parliamentary committees examining these bills is true to script of the party backing off if there is a hint of external pressure to speed things up. Financial deregulation, although it doesn’t evoke the mass hysteria of job losses, broadly falls in this category and could lose steam.
India’s final reforms frontier, however, lies within its states. Original reforms addressed the way India conducts its business with the world. They ran aground when it came to changing the way we do business at home. And it has stayed that way for two decades. Labour laws offering a false sense of security and fragmented markets for bicycles and bananas and everything in betw-een keep India from achieving its true economic potential. Efficiency in retail, apart from the foreigner bogey, faced insurmountable odds because it encourages labour mobility and unifies product markets. It had no chance. But a common goods and services tax does. And the Congress is likely to push ahead with it. The embarrassment over retail will have re-established the no-go areas in reforms. Wider consultations over taxes and half measures like freeing petrol prices while keeping the lid on diesel assist in expanding the area of the possible. This gradualism is more sensible than a big-bang approach. With one caveat: half measures tend to linger.