In a nation’s history a year is just a point in the continuum of time. Yet, some periods stand out. In post-Independence India, 2012, among other things, will perhaps be remembered as the year in which economic reforms came to maturity after 20 years of adolescent angst. India’s economy needed an overhaul after sputtering for over three years.
For a capital-scarce economy, allowing overseas investors to deploy funds in high growth sectors is perhaps the first step in seeking to spin out jobs and bolster income. Each piece of structural adjustment faces its own dynamic of resistance, pacing out its passage through departments, ministries and social and political stakeholders. Four days of debate in both Houses of Parliament on foreign direct investment (FDI) in multi-brand retail is 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. For instance, the set of choice of desirable jobs for a young graduate has expanded vastly from medicine, engineering, and government services earlier to working in a coffee bar to a retail superstore now.
A modern, competitive economy will have to offer its citizens an abundance of options to positively exploit a basket of opportunities. This is precisely the reason why it is vital for the government to press ahead with the other critical reforms, most of which need to be voted in law by Parliament. Hiking the FDI ceiling to 49% from the current 26% in India’s rapidly growing private insurance sector, which was being hobbled by lack of capital, and allowing FDI in the pension sector are more about reversing the slowdown in India’s economy, and less about allowing foreign investors access to household savings. India is in dire need of resources to fund its infrastructure requirements to build highways, ports, airports and railways. Frugal households could well turn out to be the primary financiers of these mammoth projects. India’s savings rate could reach 40% of GDP in the next few years and can potentially be sustained at high levels for well over a decade, primarily due to its armies of young people entering the workforce. International experience has amply demonstrated that pension funds and insurance companies have helped jump-start infrastructure investment in several countries including Australia, Canada, Mexico and Chile. It’s about time India emulated this model which could potentially catalyse every sector, from farm to factory.
Economic reforms and policy-making, like cricket, are all about timing. Quick decision-making and speedier implementation are vital to turn around the Indian economy, which until recently, was an engine for global growth. In the final analysis, profit maximisation, policy reforms and politics should cease to be mutually exclusive objectives. The slog overs of the second innings of India’s reforms have started.