Posted by: John Elliott | August 15, 2012

Has India abandoned economic debate?

Has India moved beyond economic debate? Has the domination of economic policy by Sonia and Rahul Gandhi, together with regional members of the governing coalition (notably Mamata Banerjee of West Bengal), become so established that there is now no room for reformers to be heard? Is the government so much under the spell of these forces that India’s leadership has gone back to the 1970s when the private sector profit was frowned on (except when it lines the pockets of politicians)?

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Prime minister Manmohan Singh did not sound like the 1970s in his Independence Day speech this morning (left), when he said that that a “lack of political consensus on many issues” had prevented the creation of an environment for rapid economic growth”.

The time had therefore come “to view issues which affect our development processes as matters of national security,” adding that providers of foreign capital needed to be confident that “there are no barriers to investment in India”.

But sadly the prime minister’s noble exhortations for a better India now carry no weight – he has been making statements like these for years with virtually no impact.

So my questions about India abandoning economic debate in favour of political ambition persist. They reflect conversations I have had with foreign business people here and (a few weeks ago) in the UK, where the growing belief is that the post-1991 “India story” has ended and that there is now no interest among some ministers in private-sector-led economic growth. Some see this in western terms as a debate between left and right wing political groups on the role of the private sector, but I think it has nothing to do with such ideology and is instead firmly based on vote winning and staying in power.

When I was first in India in the mid-1980s, there were vigorous debates about prime minister Rajiv Gandhi’s small reform steps. When I returned in 1995, Manmohan Singh and Montek Singh Ahluwalia, then running the Ministry of Finance as Minister and Secretary, were campaigning vigorously for the economic liberalisation launched four years earlier (even though Manmohan Singh’s patron, prime minister Narasimha Rao, was rapidly losing interest). There was a real debate about what should be done and how investors and industry should respond.

Now Manmohan Singh is rarely heard, apart from this morning’s sort of well-meaning epistle, and Montek Ahluwalia seems no longer to debate the positives of economic reform, but instead deplores the inability to get things done and curb wasteful expenditure on the sort of pro-poor policies pushed by Sonia and Rahul Gandhi.  No-one else is debating reforms – the Commerce Ministry is currently only boasting about how many states might want foreign direct investment in supermarkets, while the finance ministry has failed to argue forcefully for taxation and financial sector reforms, and the defence ministry stays even more silent on the urgent need to involve the private sector in defence production.

Is this because they know that they will get no support from Sonia Gandhi, who seems to have quietly abandoned the reforms agenda pushed in the 1980s by her late husband Rajiv who used to seem to be her policy guru? The Economic Times has revealed this week how she interferes with policy, virtually instructing ministers on policy issues, and how one minister abruptly lost his job after daring to reject her suggestions on tribal affairs legislation. (Aug 21: This Mail Today column looks at what Rajiv Gandhi did and might have done today )

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There are few ministers in this government who are proactively trying to be effective. One of them is Jairam Ramesh, the Minister of Rural Development who, among other things, is trying to bring economic and political development to areas that have been controlled by Naxalite (Maoist) rebel’s.

Earlier this week I heard him talk about a pace-making pilot project he is personally encouraging at Saranda in Jharkhand. Yet when Ramesh was Minister for Environment and Forests (2009-2011) and tried to bring some order to a devastatingly corrupt area of government, he was pilloried by the private sector for blocking their projects, many of which they had of course “bought” illegal environmental clearances.

Palaniappan Chidambaram, the new Finance Minister, has appointed as his chief economic adviser, Raghuram Rajan (right), a former International Monetary Fund chief economist who has been Manmohan Singh’s honorary economic adviser. Rajan has criticised the Gandhis’ favourite and expensive National Rural Employment Guarantee Scheme (NREGS) as “a short-term insurance fix” for dealing with problems of the poor, but added: “If it comes in the way of creating long-term capabilities, and if we think NREGS is the answer to the problem of rural stagnation, we have a problem”.

That seems to run counter to Sonia and Rahul Gandhis’ view so it will be worth watching what Rajan says now he is employed by the government. His job gives him the stature to lead a debate about how the economy should move forward, balancing the needs of the poor with reforms that will lead to economic growth that benefits the poor.

Let’s see if he can prove this article wrong and show that India’s political leadership has not silenced genuine economic debate.

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Responses

  1. […] whether it is conscious or instinctive, as I wrote on this blog last year, 2Rahul Gandhi has been heard saying that the way to keep Congress in power is to channel subsidies […]

  2. […] whether it is conscious or instinctive, as I wrote on this blog last year, Rahul Gandhi has been heard saying that the way to keep Congress in power is to channel subsidies […]

  3. Your piece and the comments below seem to me to be spot on. What will it take to bring a new untainted generation without dynastic ties (and not only the Gandhi ramifications) into politics? perhaps India needs another severe debt crisis to focus minds again on what really needs to be done – the sad thing being the wasted time and the cost to those who have least benefited from the last 10 years of corrupt cronyism. And yet again why is Manmohan Singh still in Racecourse Road when even he must now see that he is totally ineffective? A strong resignation speech would do more for his legacy than emollient wish list statements….

  4. This is all well and good, but the problem isn’t the lack of economic debate. The problems are well understood and the solutions are well understood as well, all over the world. More economic debate isn’t necessary. What is needed is political leadership and execution. If the leaders with the most political capital are unable to provide that leadership and execution, this is what you get. What Raghuram Rajan is going to say, isn’t going to be very profound. The question remains, who will do the implementation. Jairam Ramesh will do his bit, but bits and pieces aren’t sufficient?

  5. John, well said but not bold enough. In my view it is the “Family” that is at the root of the economic problem. The high fiscal deficit is on account of extravagant but well-meaning social programmes which lose over half the expenditure to theft and bad targeting. Cutting these expenditures is more vital than the superficial economies (don’t invite foreign experts, cut foreign travel, etc) being proposed. Administrative reform to bring about accountability is urgent. Making penalties for corruption more stringent (in China they are shot, in the USA they go quickly to jail for long periods, in India they keep getting tried in Court) ia b=needed but the bureaucrats and politicians at the heart of the corruption will not let it happen. Inflation especially in food products is caused by flawed economic policies in agriculture (minimum support prices that go up on grains for which demand is dipping as people shift food habits), export policies, not spending on storage, corrupt practices in Food Corporation of India, persisting with physical handling of products for public distribution instead of a straight cash transfer, are among the many policies designed to aid corruption and theft. The Family does not understand, or care. For the family the rural vote is the objective. They do not understand how they have created persistent inflation with a persistent fiscal deficit.

  6. Sonia Gandhi is only interested in getting her unworthy son on the Prime Minister’s chair through Loan Waivers,MNREGA and Food Security bill that is taking us to a welfare State without having the finances to support.


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