Friends and foes pile in on Government failures
Two events in the past few days underline a sharp decline both in the popularity of the Congress Party, which leads India’s coalition government, and in the success of prime minister Manmohan Singh as an economic reformer.
People ranging from the voters of New Delhi to loyal economists and other policy allies have in effect warned that, unless something changes quickly, the government will be swept from power in 2014 and will go down in history as an administration that failed India just as it was on the brink of becoming an internationally significant economic success story.
The two events are elections for Delhi’s municipal corporations where the Bharatiya Janata Party swept the polls, and the launch of a book on economic reforms. At the book launch, the prime minister sat silently while economists and others did not laud him as he might have expected, but told him, in the words of one of those there, “your legacy is at risk” (texts and video here).
In Delhi, the BJP became the first party for 50 years to win a second consecutive term in office. Congress is trying to dismiss this as a nationally insignificant local election, but it follows a trend set by the party’s humiliating defeat in Uttar Pradesh state elections early last month plus losses in two others states and in Mumbai’s municipal elections.
More surprising, and much sadder, was the book launch where Manmohan Singh was surrounded by economists and policy makers who have worked with him for years since before the 1991 economic reforms that he launched as finance minister. The book is India’s Economic Reforms and Development – Essays for Manmohan Singh, an updated collection of essays (edited by Isher Judge Ahluwalia, I.M.D.Little – OUP – Rs395, $35, £16). It was first written in 1998 as a “festschrift” or celebration of the 1991 reforms. The new book tracks what has and has not happened since 1998.
A friend’s ‘destructive habit’
Unfortunately, I could not be at the launch, but The Economist’s South Asia correspondent has neatly caught the mood, echoing what I have heard from others. “The evening had the mood of an intervention: when friends and relations get together and, without warning, confront a loved one who has some sort of destructive habit that he won’t admit to. In normal life, it might be an addiction to drugs or booze. In India’s political life, and the case of Mr Singh, it is a desperate failure to push on with reform”.
The approach was set by Isher Ahluwalia, head of ICRIER, a leading economic policy institute, who warned that India had been taking strong economic growth rate for granted. She implied that the government has been sitting back and failing to take the steps needed to sustain that growth which was now “under threat from a deteriorating macro-economic environment and a downturn in the investment climate”.
Turning this into a potent social issue, she pointed out that Indians born in 1991 are now 21, and that half the population today is below 25. “This half of our population started life in India with 5.5 per cent growth which accelerated slowly and steadily to 8 per cent as they grew up. They are restive for more, not less”.
Sharpening the criticisms, she pointed to the “unsustainability” of fiscal policies, incomplete financial sector reforms and infrastructure construction and regulatory frameworks, plus “macro-economic management in an uncertain international economic environment” and “challenges of overall governance”.
By this point, the prime minister must have wondered why he had, reluctantly I am told, agreed to attend the event. Ahluwalia is not only a leading economist but is also a family friend along with her husband, Montek Singh Ahluwalia, who runs the Planning Commission.
Raghuram G. Rajan, a leading Chicago academic and the prime minister’s honorary economic adviser, went further. After praising how the 1991 had changed India for the better, he warned of a “paralysis in growth enhancing reforms” that had been papered over by the high growth. This had made India “dependent on short term foreign inflows to a dangerously high extent, at a time that the international investor is increasingly sceptical about the India story”.
‘Coalition of the bad’
By the early 2000’s, he said, India had needed a second generation of reforms in areas that included higher education, public sector industries, and allocation of resources such as land and telecoms spectrum. “But powerful elements of the political class, which had never been fully convinced about giving up rents from the License Raj in the first place, had by then formed an unholy coalition with aggressive business people, whom I will refer to simply as the connected”. That led to “coalition dharma – a coalition of the bad”, which replaced the pre-1991 License Raj with a Resource Raj and led to “massive fortunes generated by the connected and by politicians”.
Duvvuri Subbarao, governor of the Reserve Bank of India and a former economic adviser to the prime minister, gently warned (left) that 1991’s “twin deficits” were back again. The fiscal deficit was 7% in 1991 and was now rising at 5.9% while the current account deficit at 3.6% is higher than 1991 figure and short-term debt at 23.3% of gdp is now far above 1991’s 10.2%.
Congress’s communist-style supremacy
Then T.N.Ninan, veteran editor of the Business Standard, mocked (without naming them) the way that Manmohan Singh has allowed Sonia Gandhi, president of the Congress Party, to dominate policy, saying, “we have copied the Communists, for whom the party is supreme and the government secondary” (a jibe that BJP leader L.K.Advani has also made). The prime minister was also hampered by “presidential style chief ministers in the states” and coalition cabinet ministers who ran their own policies.
Through all this and much more, the prime minister sat silent for over an hour, speaking at the end only to say that he had agreed to come provided he did not have to speak. Many of those there found this stance not only inexplicable but worrying – had Manmohan Singh, at 79, really lost the wish to debate as well as the will to govern?
The book’s editors and contributors, the prime minister said, had” thrown a new light on old problems” and mentioned many challenges. “There are difficulties. Life will not be worth living if there are no difficulties. I am confident, with great determination, we will overcome.”
But where, one asks, is the “great determination”?
April 20 : No major reforms till after 2014 says chief economic adviser Don’t expect much to happen on reforms before the 2014 general election, Kaushik Basu, the government’s chief economic advisor, is reported to have told anxious US businessmen in Washington yesterday. “Relatively less important bills might go through Parliament but major economic reforms would hit the road block…. they are unlikely to happen before the next Parliamentary elections.” They would gather pace in 2015.