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Gambling again on economic reforms

Critics cite corruption as the enduring obstacle to change

  • Swati Deb, New Delhi
  • India
  • September 25, 2012
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One is tempted, in addressing the raging debate over second generation economic reforms in India, to employ a well-worn maxim – the more things change, the more they stay the same.

This sums up precisely the story of India’s efforts at such reforms. It is better understood if one keeps in mind Prime Minister Manmohan Singh’s return to 1991 in a recent prime-time speech, when he first unleashed a series of potentially pioneering reforms.

In an attempt at assertiveness, Singh has tried to revive the flailing economy – at least so the ruling establishment claims – by plunging into substantial reforms. These include opening the country to foreign direct investment in the retail sector, reducing subsidies and paving the way for the next round of changes in the pension and insurance sectors.

As is predictable in a vibrant democracy such as India, there has been strong opposition to these measures.

A nationwide shutdown was held last week and opposition parties on both sides of the ideological aisle (including leftists and right-wing Bharatiya Janata Party members), staged raucous demonstrations.

The one-day token protest cost the country an estimated US$2.25 billion in lost revenues, according to the Confederation of Indian Industries.

But since the Congress Party’s decisive electoral victory in 2009, partisan politics has thrown a wrench into the works. The economic growth rate fell significantly in the first half of this year to about 5.5 percent.

India’s GDP forecast has been cut by one percent to 5.5 percent by Standard & Poor’s, while ratings across the Asia Pacific region have felt the pressure of ongoing economic uncertainty.

Despite their aggressive opposition, opponents of foreign direct investments are not anti-reform per se.

Do Narendra Modi and the prime minister share a common bond? Both are up against the wall, one for alleged involvement in the 2002 sectarian riots and the other for alleged corruption. Both are probably also looking for a game-changer with economic reforms and a much-touted new development model.

“India’s reforms have come in compartmentalized forms. In the absence of reforms in the administration, police and judiciary, the new rules were enforced by an old system, and the mismatch has led to weak enforcement,” writes Nirendra Dev in his recent book Modi to Moditva: An Uncensored Truth.

Gurudas Dasgupta of the Communist Party of India agrees.

“Post-1991 reforms, people hoped a lack of state control would also minimize corruption. This has not happened. Instead there is a rise in corporate corruption,” he said.

BJP leader M.M. Joshi has expressed similar sentiments. “With the recent coal block allocation, it was found that public assets are lost and what goes into private parties’ pockets … is too deep.”

What has put the ruling establishment into a quandary is that the “Coalgate” scandal is perhaps the fifth such corruption case to arise.

In the wake of Mamata Banerjee’s departure from the ruling coalition, the government has so far managed to survive with the support of parties not known for strong leftist and anti-reform stances.

“The objective of the new reform policy is to attract investment, and create local manufacturing and employment [opportunities],” Commerce Minister Anand Sharma has said.

The government is also sending the message that the same prophets of doom – those at play in 1991 – are again lambasting the government.

Montek Singh Ahluwalia, deputy chairman of the planning commission, has argued eloquently that reforms have changed many things in India.

Automotive and telecom sectors have seen major changes. Information technology has changed the way all Indians think today.

The telecom subscriber base has crossed the one billion mark. Automobile production has shot up by more than 30 percent per year.

Singh’s detractors have called him the weakest prime minister India has ever had. The wags describe him as an overestimated economist and an underestimated politician. But none can deny his immense survival instincts.

Whether he can make a difference with his latest round of economic reforms…well, as another well-worn maxim holds, only time will tell.

Swati Deb is the pseudonym of a journalist and commentator based in New Delhi

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