DISEQUILIBRIUM: Reforms aren’t a switch

Like a television loop, which runs with monotonous and unerring synchronicity, the last four years has seen many reruns, but in the absence of any killer application which provides a breakthrough benefit, there is only more of the same. Deep administrative reform has without a doubt been a huge success, but beyond that the reticence and hesitance to undertake anything material or transformative despite a humongous mandate remains most galling. Despite the odd tinkering here and there like changing the Planning Commission’s name, scrapping Foreign Investment Promotion Board and on Sunday, news came in that the century old procurement arm of the government — Directorate General of Supplies and Disposals will close down on October 31 (since it is moving to the commerce ministry’s  e-market platform set up last year), it has been a zero sum game. At the turn of the 1990s, reforms were as much prompted by an impending economic crisis than any form of intellectual persuasion; clearly more by the former than latter. Twenty-five years later they have become a necessity.

Exigent circumstances led to the desperation as rupee-rouble trade had collapsed with the dismantling of Soviet Union and an acute balance of payments crisis was like a guillotine hanging over our collective heads. India remains capital starved, energy, power and oil deficit and our problems cannot be solved through gradualism and incrementalism. For a decade, India awaited change, but instead several opportunities were frittered away by the Congress led dispensation to undertake path breaking reforms which could widen and deepen the economy so that it could neutralise the capital deficit and move to the next level of competence.

One can argue that the corrupt Congress government was hemmed in first by the Left and then by unruly allies like DMK and TMC which did not allow it to go ahead with unpalatable reform. But that flies in the face of the civil nuclear deal on which Manmohan Singh was willing to scupper his government. Actually, the last 18 to 20 months have seen a rapidly decelerating economy, accentuated now by a stock market fall. All this while, the real economic metrics were masked by a secular rising equity market and FPIs who were bullish on Indian equity and debt. Though this market madness has resumed, the ugly underbelly of a dysfunctional economy stood out during the correction, courtesy a falling GDP print. Global stocks gained another $2 trillion in market capitalisation this week, they are now worth an astronomical  $87 trillion, highest in history, equal to 111 per cent of global GDP. Gushing liquidity, both domestic and overseas has managed to cover all the warts, showing up in $400 plus billion of forex reserves.

Agreed that the BJP’s first few months were spent in untangling all the knots left behind by the previous corrosive UPA regime and these were myriad in nature and context. In parallel, there was this strange obsession and bull headedness to go in for legislative reform, which failed dramatically. A case in point being the draconian UPA land acquisition bill on which the BJP as the principal opposition has signed off. When it came to over turning it, realisation dawned that it was not possible to do anything with it, so that states were mandated to deal with it and some like Tamil Nadu actually worked around it. Reforms aren’t a switch that can be flicked on and off, they aren’t episodic, they have to be in continuum. For the BJP 2.0 reforms means making life easier for those who live at the margins, and this to their credit, they have managed to do successfully with several of their schemes. For instance, direct benefit transfer to deliver cash subsidies or deregulating diesel prices. On the latter, nine excise hikes followed by one cut under duress has meant that government has soaked up Rs 283,000 crore of extra revenues without a pass through to the consumers who should have been biggest beneficiaries. Equally, they have failed to deregulate gas and kerosene pricing or fertiliser pricing (though attempts have been made). 

On crucial reform, life is at a standstill — relaxing  government controls over corporate downsizing — India’s Industrial Disputes Act sets  a floor of 100 workers after which government permission is required to lay off employees, many firms choose to stay below this threshold deliberately. Strategic sale of companies or privatisation — all we have got from the government are lists. but no real action. In his 2015 budget speech, the finance minister spoke about privatising IDBI Bank making it a seminal announcement, after all where has one heard of the government exiting a PSB, but alas, till October 2017, there is no movement forward. Even asset sales of beleaguered PSUs hasn’t fructified, though many lists have been drawn up by Niti Aayog. Ending retrospective taxation of cross border investments has remained a question mark, ditto for allowing over 50 per cent foreign investment in insurance and defence or reducing restrictions on foreign investment in multi brand retail and single brand retail.

Similarly, throwing open coal mining to private/foreign investment. Then we come to the ball of wax on ease of doing business, where the surround sound is deafening. Business owners getting a permit in 10 days or offering a single window for clearing new businesses remain a chimera. The delicate state of the Indian Railways has remained constant, financial health is imperiled and state of infrastructure worrisome.

The PM himself concerned over the slow pace of roll outs on flagships schemes and ideas has been constantly haranguing the bureaucracy to come forward with transformative ideas. Alas, none has materialised yet, forcing the PM to change his Cabinet and bring in bureaucrats to push the envelope. In both cases, it stands to reason that he wasn’t particularly enamoured of the political class to implement his vision speedily and forthwith. You sow and reap, the alphabet soup of DeMo and under prepared GST have left the economy enfeebled and enervated. Demand destruction just when the economic rebound was taking shape after two successive droughts and a large community of agitated and aggrieved traders and exporters suffering immeasurably due to a badly executed GST has left the slowing economy vulnerable and in strife. That the PM himself has reacted with cutting excise rates on petro products and easing life for traders and exporters means that at least someone in this government is listening to the populace and their litany of misery. Add the youth who are coming off the conveyor belt, the farmer who is facing pricing erosion and an upset middle class, then there is a lot of anger welling up which needs mollifying.

Sandeep Bamzai