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Topic

Introduction

Topic of the week for discussion: 23rd

to 29th

April 2012

Topic : Why is India afraid of economic reforms?

We are going through a difficult year. You would see a rush of importantreforms and after 2015, India would be one of the fastest growingeconomies of the world. The new government, if in a majority, would startwith the reforms in a big way because there is a sense that it needs to pick

up. This was Kaushik Basu, Prime Minister Manmohan Singhs chiefeconomic advisor, speaking at the Carnegie Endowment meet inWashington.

The precondition is that there has to be a majority government withoutwhich the reforms process would be difficult to take forward. Is it possiblegiven the fragmented nature of our polity? India is deep into the era of

coalition politics. A single party getting a comfortable majority is no more arealistic possibility, what with the presence of national parties shrinkingacross the country. Each coalition will be under pressure from itsconstituents to play safe and populist.

The fundamental requirement for the reforms process to go forward is abroad political consensus on the nature and direction of the reforms.Without an agreement on these among a majority of players in the politicalspectrum, theres little hope. Even a party with absolute majority will beapprehensive of going full steam with new ideas if there is absolutely no

support from others. It is politically suicidal.

The problem with the reforms process is its advantages are not visiblequickly. It appears to help some section accumulate wealth, leaving the restwith the crumbs. It creates aggrieved sections faster than it creates sections

which reap the benefits. Moreover, the distribution of the wealth generatedthrough the process looks to be inequitable and unfair. It is easy for rivalpoliticians to cash in on the perceived imbalances in the society frommarket-friendly economic initiatives. The accent on grievance politics inrecent times is a reflection of the state of affairs.

There were two important lessons for the political class from the electionsof 2004 and 2009. In 2004, the BJP played the reform card too hard with itsIndia Shining campaign, which fell flat on its face. In the 2009 elections,

the Congress put reforms on the back burner and played the aam admi cardand was successful in getting a repeat mandate. The message from both wascurt: reforms dont sell. Applause from corporates, foreign investors and

rating agencies make little sense if these dont get the votes.

http://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://www.ndtv.com/article/india/major-economic-reforms-unlikely-before-2014-polls-in-india-pm-s-chief-

economic-advisor-199852

http://www.firstpost.com/topic/person/manmohan-singh-profile-618.htmlhttp://www.firstpost.com/topic/person/manmohan-singh-profile-618.htmlhttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://www.ndtv.com/article/india/major-economic-reforms-unlikely-before-2014-polls-in-india-pm-s-chief-economic-advisor-199852http://www.ndtv.com/article/india/major-economic-reforms-unlikely-before-2014-polls-in-india-pm-s-chief-economic-advisor-199852http://www.ndtv.com/article/india/major-economic-reforms-unlikely-before-2014-polls-in-india-pm-s-chief-economic-advisor-199852http://www.ndtv.com/article/india/major-economic-reforms-unlikely-before-2014-polls-in-india-pm-s-chief-economic-advisor-199852http://www.ndtv.com/article/india/major-economic-reforms-unlikely-before-2014-polls-in-india-pm-s-chief-economic-advisor-199852http://en.wikipedia.org/wiki/Economic_liberalisation_in_Indiahttp://www.firstpost.com/topic/person/manmohan-singh-profile-618.html

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Policy Paralysis

The Congress-led UPA in its second term has all but dumped reforms. And itdoes not appear apologetic about it. Other parties, including the BJP, are nottoo serious about it either, though they routinely blame the government forkicking economic innovation under the carpet. The regional parties theTrinamool Congress is a shining example have turned hyper populist andwould have nothing to do with reforms. For all parties, it makes political senseto stand dissociated from these.

Economic reform has come to assume a negative connotation among a largersection of people including intellectuals in the country. It now stands asan idea inimical to the interest of the common masses. Theres a clear sense ofdistrust towards it. It was apparent in the protest from the political partiesagainst FDI in retail bill moved by the government in Parliament and in theopposition to several proposed legislations, including the pension bill.

The political parties are responsible for the situation. They have created a

climate of panic over reforms, and now find themselves trapped. Any partysupporting reforms aggressively will be digging its political grave. Thus,whether it be 2014 or 2019 or 2024, no party would wholeheartedly goagainst status quo.

But this needs to change. There should be minimum consensus on reforms anddeliberate de-linking of it from politics.

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