Taking a decision is easy but implementing it is an entirely different task, and that is the challenge that the UPA-2 Government now faces. Will it be able to tot up the numbers in Parliament to push through what many see as the second wave of reforms after 1991, or will it take its agenda to the public, arguing that ‘interested’ parties have stalled its progressive measures?
To overcome its so-called ‘policy paralysis’, the Government announced several far-reaching changes in the country’s economic policy landscape-FDI in multi-brand retail, pension funds and insurance, allowing foreign airlines to take stake in local carriers, increase retail prices of diesel and an increase in the FDI cap for broadcast carriers. But, will our elected representatives go-ahead and approve these decisions or will they have a myopic vision to realise short-terms gains?
Consider this: as Finance Minister, P Chidambaram, first introduced the pension bill nearly eight years ago. This was tabled by Pranab Mukherjee again in March 2011. Similarly, the insurance bill was first introduced in the Rajya Sabha by Chidambaram shortly after he brought in the one on pension.
Today, the Manmohan Singh Government appears to be caught in a numbers game and this is what may just force it to take a step back, notwithstanding his bravado that “If we have to go down, we have to go down fighting.” Again, while the recent decisions have fuelled investor sentiments, it remains to be seen how they will propel growth and inclusiveness. More importantly, the Government faces a stiff challenge in controlling spending on fuel, food and fertiliser subsidies as election year 2014 nears.
The Government’s reformist moves also highlight the disparity in thought that exists between the States and the Centre. As a result, only 9 of 29 States say they will allow multi-brand retail. Also, a majority of the States have deplored the Centre’s move to increase FDI in pensions and insurance. While the Centre’s announcements only signal its intent, the opposition that the States have voiced to such moves may kill any moves to address the so-called ‘structural problems’ that afflict the Indian economy, like rigid labour laws and archaic land acquisition rules.
Also, with the balance of power shifting to States, particularly, regional parties, the impact of any move to liberalise the economy is also getting diluted. In fact, today most of the opposition to the Central Government’s moves to open up the Indian economy have come from regional parties – Mamata Banerjee’s TMC and Jayalalitha’s AIADMK – who have been using such decisions to trigger friction between the Centre and the States. And unless there is an agreement between these centres of power, the recent reforms announced by the Government may go into a cold storage.
There is also a problem that many have come to see reforms as being associated with only big players and the ‘haves’ and not the common man. Inclusiveness, which the Government has long been saying is its goal, loses value as one goes down the economic ladder; instead increased regulation takes its place.
Today, the Indian economy is witnessing a tough phase: inflation is high, both fiscal and capital account deficits are ballooning and subsidies are putting Government budgets under the water. As the former Chief Economic Adviser to the Finance Minister, Kaushik Basu noted at a meeting of the International Chambers of Commerce, “today, political and economic alignment are very crucial for India’s growth…, nothing is there that the world can take for granted and we have to be very careful and cautious. If we don’t undertake the important role of economic policy changes in the country, one-and-a-half-year down the line we will again see inflation going up and growth falling down, which is not a good policy down the road.”