Of late, there has been a flurry of international criticism of India's deteriorating investment environment and dismal track record on reform. The latest instance is US President Barack Obama's candid observations that American businessmen find it hard to invest in the country; that there are too many sectors, such as retail, that limit or prohibit foreign investment; that it is indeed the best time for another wave of reforms. There is nothing in these concerns to warrant a riposte by the ruling Congress that international lobbies are spreading gloom and doom on the India story!
These observations are hardly new. In fact, over the last couple of years domestic commentators and India Inc have forcefully made them. The term political paralysis thus has entered the popular lexicon. There is continuing concern that if the window of opportunity - provided by the change of guard in the Union finance ministry under the charge of the prime minister - to kick start the stalled reforms agenda is not seized, the overall growth rate of the economy would enter a downward spiral. If that scenario indeed came to pass, India would not be the future powerhouse of the global economy.
Equally interesting is the reaction of India Inc. Here is an influential segment that has been the worst affected by the paralysis on policy. Last year, two open letters were written by leading industrialists to the political leadership bemoaning the governance deficit in business and institutions. Yet, now India Inc rallies to the government's defence against Obama's remarks. A spokesman of a leading chamber outdid the Congress in stating that no one can dictate to the Indian government or Indian policymakers! The apex chambers, in fact, have been worried stiff about the downtrend in growth and worsening business environment. Even so, they now affirm India's strong economic fundamentals and its resilience at a time of growing global uncertainties.
Industry's two-faced stance stems from various factors. For starters, the late economist IG Patel wrote about the tendency of many in private business "who think even now that rather than incur the displeasure and unpleasantness of opposing government policies and all that, it is much simpler, much cheaper, much more comfortable to be on its right side." (Of Economics, Policy and Development, edited by Deena Khatkhate and YV Reddy, OUP, 2012). The apex chambers thus make it a point to applaud every Union budget as historic even if they have been done in by some of its provisions!
This extends to reform as well. Contrary to popular perception, the private sector is hardly an ardent advocate of liberalisation, as there are deep divisions within big business on the efficacy of reform. Together with a dysfunctional government, this is another source of opposition to reform that is rarely mentioned in popular commentary. Although the chambers make all the right noises about reforms, political support is often used to stall them. Allowing foreign investment in multi-brand retail and civil aviation has its discontents within India Inc.
The right spirit to respond to the growing international criticism is to acknowledge that there are genuine issues that need to be addressed. Prime Minister Manmohan Singh's decision to refer the contentious draft General Anti-Avoidance Rules to an expert panel headed by Parthasarathi Shome is definitely a step in the right direction to assuage investor sentiments. Ideally, this panel's ambit must extend to the retrospective tax amendments as well. Singh has also responded positively to Singapore's concern of being cited as a tax haven in the official white paper on black money.
Reforms in retail, insurance, defence and aviation among others, are necessary to sustain the flagging growth momentum of the Indian economy. Amidst the pervading economic gloom, the UPA government must bestir itself to utilise the window of opportunity to revive these much-needed reforms to boost investments. Of course, they are politically problematical. Virtually all governments in recent times have found the will to proceed with such reforms flagging due to intense opposition from within and outside government. But to salvage the India story, they are imperative.
N Chandra Mohan is an economics and business commentator
The views expressed by the author are personal