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From Tehelka Magazine, Vol 6, Issue 13, Dated Apr 04, 2009
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Economic Reform By Stealth

Manmohan Singh first broke the chains that shackled the Indian economy. As Prime Minister, he then managed to quietly build it up

MEGHNAD DESAI

THE ECONOMY

Illustration : Anand Naorem

INDIANS PREPARING to vote at the General Election can be forgiven for their short memory. We take India’s growth rate for granted and mutter that it was ‘only’ 5.5 percent last quarter. We take for granted that Ratan Tata can unveil Nano but complain that it has been delayed by months. Tata also has problems in the UK, where it owns Jaguar, Corus Steel and Tetley Tea. IPL can readily move its fixtures to South Africa, leaving the UK cursing itself as having missed out on a big opportunity to profit from Indian cricket.

What few of us remember is how it used to be before 1991. The growth rate was at its height if it got to 5.5 percent. India was a byword for sluggishness and inefficiency, albeit full of moral arrogance. Around the world people wondered why India was so backward in Asian terms and yet, so full of itself.

Then in 1991 the economy crashed. India needed its quadruple bypass. The country was so hard up that it had only two weeks of forex reserves left for imports. It had to go with a begging bowl to the IMF and pawn its gold stocks. But then the miracle occurred. From within the Indian economic bureaucracy, we had a leader arise who, without fuss and bluster, initiated the greatest revolution in India’s economic history. Dr Manmohan Singh is India’s Deng Xiao Ping. He is the man who, more than anyone else, put India on the fast track. He gave India the bypass which re-energised the country’s economy.

It is a well-known cliché among economists that there is no such thing as a free lunch. There is also no fast food in economics. Things take time to take root, and the fruit of reforms take years to arrive. The first five years of Congress rule with Singh as Finance Minister made the shift to a growth rate of six percent. But the proof of the soundness of the policy is that growth continued even under a Third Front Government during 1996-98. Of course, P Chidambaram was the Finance Minister at the time, and he had also been part of the 1991 revolution.

The NDA enjoyed the fruits of the reforms and strengthened it. But it has been left to the UPA Government to take the growth rate to nine percent plus for four years. India is the second-fastest growing economy in the world. The per capita income now stands at $1,000, which is a sort of magic milestone. It took 19 years after 1950 to double GDP, and another 19 years to double it again. So, by1998 we had quadrupled GDP, but also trebled our population. Since then, the doubling took only 12 years, and now it would be just nine years. By 2010, India would have quadrupled its income in 21 years instead of the 38 it took an earlier generation.

The key to the miracle growth performance in India has been consensual reform. There are still political parties and leaders who are hostile to reforms. The Left still pines for the glory days of Nehruvian Socialism, when the growth rate was 3.5 percent and the poverty level was above 60 percent. Their contribution during the UPA reign was to carp from the sidelines and slow down what they could. Hence, economic reform is pursued by stealth. No leader praises the good record of growth. Like sex, no one admits to enjoying it or even having done it. When the fruits of the act appear in the form of children, they thank divine will.

MANMOHAN SINGH’S style suits this quiet reform by stealth. He is desperately keen to keep everyone on board and not thrust his name forward.

Singh is India’s Deng Xiao Ping. He is the man who, more than anyone else, put India on the fast track. He gave India the bypass which re-energised the economy

Of course, Team Manmohan — with Chidambaram (now taken away to provide security), Montek Singh Ahluwalia, plus an energetic and efficient Reserve Bank of India — has been working in harmony. But even more than government actions, it is the fact that the reforms have allowed Indian entrepreneurs to show what they are capable of which has made the big difference.

At the time of independence in 1947, India was the seventh- largest Industrial economy in the world, measured by the volume of output. But the perception was that the British had deindustrialised the country. India also had the largest group of dynamic industrial entrepreneurs, but the impression was that only the public sector could deliver industrialisation. For 40 years, India pursued a mistaken economic policy. At growth rates of 3.5 or 4.5 percent, the decision makers and their children did not pay any price. They got the best government jobs. India built shining factories which produced immensely costly things which could have been imported at half the price. India made a nuclear bomb, but failed to provide drinking water to its people, or to build roads. It was only after 1991 that India’s private sector was given room to show what it could do. Today, Indian entrepreneurs and managers are world beaters.

Even now, after nearly two decades of growth, far too many people are still left in the rural areas, where their productivity is low and they don’t get full-time employment. India needs to create large factories making low-tech industrial products for itself and for export. India needs to reform its labour laws, which confine factories to being small and which make hiring and firing difficult. This is the Left’s contribution. Its desire to protect jobs has kept the majority underemployed. The same goes for land sales. If governments were taken out of buying land using an 1894 law, we could have private buying and selling No more Singurs, no more Nandigrams. These laws don’t protect the poor; they perpetuate poverty.

Hopefully, if the UPA comes back, then this time it will not need Left support. Then Manmohan Singh can take India to its next high plateau, with double digit growth rates. He has the track record. He needs now to get rid of his caution, and go for the fastest growth possible. It is not nuclear power which will make India a great power. It will be a great power when the poverty rate is below 10 per cent. It will be when malnourished children are fewer than five percent of the population. That requires rapid growth.

(Desai is a senior faculty member of the LSE)

From Tehelka Magazine, Vol 6, Issue 13, Dated Apr 04, 2009

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