Wednesday, November 17, 2004

Where is India headed?

I am writing this because of a lot of businesspeople seem to be distressed about the departure of India's reforms-friendly NDA (National democratic Alliance) government. The new government of UPA (United Progressive Alliance) is supported by a pack of parties, and a separate communist grouping - and reforms do not seem to be its priority, at first glance.

You can read a detailed article on the Indian government's travails on Newsweek International, or you can take a quick look at my perspective below.

1. India needs economic reforms, globalization, liberalization, disinvestment by the government, removal of read tape etc.

2. The NDA government made major strides in those directions.

3. The effects of all those reforms were visible, and the government was much appreciated by the upper and middle classes of India.

4. That was not enough, and the government was thrown out in an unexpected rout.

5. We have to draw up the right lessons from this. In a country with such large disparities, you have to be extremely careful, and the approval of the industry and middle-classes is not enough to bring the government back to power a second time.

6. The last government's PR machinery was extremely succesful in selling globalization to the vocal classes. It failed to sell it to the poor.

7. It is natural for the new government to learn from the mistakes of the last government. The new government does seems to be very cautious in how much of noise it creates about the reforms process. The new PM Mr. Manmohan Singh and his finance minister P. Chidambaram are the original initiators of economic reforms in India, and its clear what comes naturally to them. However, the lessons of the NDA government's defeat have not been lost on them, and an effort is on to play up the welfare aspect of governance in an attempt to bring the poor on the government's side.

There is nothing wrong with that approach. Because however reform-minded a government is, if the poor are not not its side, it will be dumped. The toning down of the rhetoric about liberalization, and a toning up of the rhetoric on helping the poor is only natural, and is even welcome. Without it, the poor are against reforms, and then the government is booted out. That is smart public relations!

However, over the last four months of the new government, I do not believe the real reforms process has slackened. Occasional backtracking on some proposals serve to comfort the lower classes that their voice is being heard. On the other hand, on the larger questions of less regulation and red tape, free market and a desire for high growth rates, we have not seen any departure from the path taken by the NDA government.

Rhetoric, as well as action to improve the welfare of those who make less than a dollar a day is critical. Without taking them along, keeping them happy, feeding them and offering them jobs, there will never be a sustainable reforms process in India. Pro-poor does not necessarily have to be anti-business.

This is not a country where you can choose between the free market and entrepreneurship, or the welfare state. India can't be the US, or Canada. It has to try and be both at the same time. Nothing like a few famine deaths to throw a reform-oriented government out of power.


Anonymous Anonymous said...

Basically It is not NDA govt. started the reformes, but NDA govt. continued the reforms started by the previous govt. That is Narasimha Rao govt. and Manmohan Singh was the Finance Minister. So Manmohan Singh is the Father of Indian Reforms. Now he is the Prime Minister and you can expect more from him and he will. Forget about the communists, they do not have much ground support in India. Even the previous govt. lead by left parties followed the reformed policies of Narasimha Rao's Govt.

So It is clear that NDA govt. didn't make any break through policy changes for reforms, instead they simply followed and continued the reforms initated by Narasimha Rao & Manmohan Singh

November 28, 2004 at 4:06 AM  
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October 11, 2005 at 9:06 AM  

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