“Political will” is a curious phrase. It is most often deployed in India – and elsewhere – by foreign countries (frequently America but sometimes Europe), and by newspaper columnists, to berate a government for not introducing policies that they favor.
So it was no surprise to find Richard Lambert, director general of the Confederation of British Industry (CBI) – and my old boss at the Financial Times where he was editor in the 1990s – using those words a short time ago to call for India’s financial market reforms to be speeded up. “The only question is whether India has the political will to drive through the changes needed to turn Mumbai into one of the world’s great financial centers,” he wrote in an FT column.
Lambert’s words have come back to me over the past few days because Mumbai’s business is booming – the key Bombay Stock Exchange (BSES) Sensex hit an all-time high of over 14,600 on Monday and banks are reporting record business. But the mood over the weekend was dramatically different. “Mumbai Sinks, Again” thundered Sunday’s Times of India on top of a picture of people standing on the roofs of cars stranded deep in water, while others paddled rubber dinghies.
Five people were killed in the city’s floods on Saturday. There have of course been floods across southern India and elsewhere in the region during the past week, with numerous deaths – over 40 people were killed over the weekend in the state of Maharashtra where Mumbai is the capital.
But the repeated inability of Mumbai’s dilapidated infrastructure to cope with heavy monsoons is not just the result of changing weather patterns: it is also the result of state governments that have not had the political will to build a city that works.
Mumbai is in a perfect location geographically to become one of Asia’s leading international financial centers, but to see how far it has to travel, first compare its dismal airport (where a boundary wall was washed away yesterday for the second time in two years), its clogged highways, slow port facilities, unreliable power supplies and badly organized property developments, with the efficiency of Hong Kong – which marked the 10th anniversary of its return to Chinese sovereignty over the weekend.
Mumbai needs to transform its infrastructure so that it begins to look and function like the sort of modern city that will attract people who work in international financial centers. In parallel, the central government should begin reforms that were recommended earlier this year by a grandly-titled “High-Powered Committee on Making Mumbai an International Centre,” headed by Percy Mistry, a former World Bank economist and Hong Kong banker who now runs a consultancy in the UK.
The report’s recommendations included the creation of an overall financial regulator to replace a growing number of independent authorities, plus partial privatization of public sector banks and insurance companies, the formation of active bond and derivative markets and the introduction of full capital account convertibility.
Mistry mysteriously resigned from his High Powered Committee just before the report was published, apparently because he disagreed with public sector bankers on the committee who were insisting that the report’s criticisms of their operations should be watered down. And that brings us to the flip side of “political will” – “political compulsions,” which are cited by politicians to explain why they cannot carry out reforms.
Sadly, political compulsions usually defeat political will, especially in the sort of coalition governments that India will have for years to come because potentially reformist parties are pulled back by the compulsions of their partners. Some of those partners, like the Left in the current coalition, are ideologically opposed to many reforms. Other parties are encouraged to block change by vested interests – in this case the huge public sector financial establishment of banks and insurance companies that watered down Mistry’s report and which, backed by their powerful trade unions, are slowing down its reforms.
So while the political will desired by my old FT boss may be lurking somewhere in the minds of the government’s reformers, it is constantly defeated by political compulsions generated by opponents. Doing something about Mumbai’s floods might even be easier – with luck before the next monsoon.