dna analysis: Is there a way out of paralysed economic reforms?

It is argued that policy paralysis has brought down India’s economic growth to decadal lows. With the value of rupee slipping to record lows and then fighting its way up against greenback, India Inc is not willing to commit any investment at the present fiscal scenario. Congress tries to clear its conscience by blaming judicial intervention and no support from opposition as well as activism for all the delay in passing out reforms. BJP, on the other hand, pins the blame on the complacency of an economist PM. The truth, however, lies between the two extreme opinions.

Before making an attempt to track the truth, let us first decode the oft-repeated term —policy paralysis. For common understanding it refers to slow decision-making both by politicians (in passing legislation) or bureaucrats (in moving files). The usual reading for such a ‘paralysis’ is that nobody does anything simply because the fear and worry of taking a decision and being blamed or second-guessed by vindictive investigators later, keeps them away from taking a resolution.

Present policy makers at the Centre, however, pass the buck on judicial intervention claiming corruption allegation in issues like coal and spectrum allocation, commonwealth games infrastructure building, buying equipment for defence forces, etc delay the process. Even Prime Minister Dr Manmohan Singh has voiced his concerns about the brakes the law book pulls at every corner and said that investigating agencies should go slow so that economic growth could take place.

“In the public debate on corruption in our country, it is sometimes forgotten that economic growth also implies greater opportunity for corruption. It is important, therefore, that we look at the issue of corruption in the correct perspective. While we must maintain utmost vigilance in preventing corruption, it is also important to ensure that the work of nation building goes on at a reasonably fast pace,” Singh said in his speech at the International Conference on Evolving Common Strategies to Combat Corruption and Crime.

Now let us focus on what the paralysis has gifted us with besides slowing down economic growth and devaluing the rupee.  With slower growth, new investments have hit the hard brake in the country. Under all these, commissioning of new capacities nosedived to Rs327 billion, an all-time low in the past 33 quarters. Stalling of projects at Rs2.6 trillion was at an all-time high during December 2013 quarter. It was higher by 203% as compared to its year ago levels. It shows that business and industry is becoming increasingly worried over economic prospects.

The right based approach – giving maximum to the person who owns the resources – in reform such as mining and land acquisition has put a tag of cost for the investors. A slew of measures taken by UPA government during its regime only show that the focus has shifted from economic competitiveness or import substitution to the ‘right of the people’. The ‘right to employment’, ‘right to food’, ‘right to health’, ‘right to information’ are some of the examples to buttress this point.

In a case of too many cooks spoiling the broth, some also blame the presence of coalition for a situation where decisions almost invariably get blocked. Indian signing nuclear deal with USA or government announcing increase in rail fares, petroleum products forced a key ally of the government to walk out of power.  Tenure of the 15th Lok Sabha is ending in a few months and there are 126 bills that are pending in the lower house. These include setting up of a regulator for coals, biotech and nuclear safety. Important legislations for reforms in banking, power distribution, insurance and commodities futures market are also pending. The list also includes reforms in income tax laws through Direct Tax Code Bill as well as constitutional amendment to bring out uniform Goods and Service Tax (replacing excise and service tax) in the country.

Ironically, it was the Congress which ushered in economic reforms in India. It is a paradox that the policy paralysis too has set in at a time when the Congress is at the helm of affairs. The architect of reforms in PV Narsimha Rao’s minority government, Dr Singh headed the finance team then, and now heads the government. The ‘dream budget’ was presented in 1997-98 when the third front government was in power.

Communication of policy reforms under the debate, however, holds the key for quick decision making. Probably, several stakeholders in the economy continue to remain unconvinced about the benefits of great competition and integration with the world economy. For example, unorganised retailers are wary of FDI in retail. Labour unions of banking, insurance, railways – largest employers in organised sector – are not allowing reforms in the sector.

Whoever, comes back to power will have a tough job on its hand. It is not all about making rhetoric at a public rally and blaming the incumbent government, but a delivery through passage of bills in the parliament house will be the actual test of power.