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Mainstream, Vol XLVII, No 26, June 13, 2009

New Government, Economic Strategy and National Consensus

Saturday 13 June 2009, by Nikhil Chakravartty

By the time these lines appear, the general election results are expected to be out and the contours of a new government should be available. No matter who forms the new government some very urgent tasks would be facing it. Bereft of all the tub-thumping of electioneering, the leaders of all political parties would be confronted with some problems of immediate concern and these cannot be wished away. One of these is the direction of the economic reforms in the coming period.

In the last five years, the common burden of the government was that the economy had been left in a mess by the previous government and that it was the Narasimha Rao Government which not only saved the country from imminent bankruptcy but boldly went for major reforms that unshackled the economy from the permit-control raj of the Nehru-Mahalanobis strategy and imposed the free-market economy which has brought India into the globalised market. This line of argument continued throughout the five years of Manmohan Singh’s stewardship of the Finance Ministry for which he earned a lot of kudos, mostly from abroad.

In terms of election politics it is evident that in last winter’s campaign for elections to a number of State Assemblies—a sort of mini-general election—the Congress President’s propaganda that his party alone could attract the foreign investor made little impact. If at all, it contributed very largely to the poor show of the Congress at the polls. Since then, obviously, the Congress leadership has been rather circumspect this time. The Congress’ emphasis during this general election has been on the anti-poverty measures which in effect amount to state intervention for the benefit of the underprivileged sections. This means that the prescription of unfettered market economy has been found to be having a rather negative impact in the vote bazaar and hence the stress on various yojanas, the short-term goodies which have been announced rather recklessly in the last one year.

Meanwhile other important developments have taken place, which no government can easily brush aside. The most significant has been the note by the CII asking for a review of the approach towards the multinational corporations. As the CII has made it clear, it is not opposed to the entry of the multinationals, but wants some sort of monitoring of their functioning in the country. This CII stand is in keeping with the line suggested last year by a group of industrialists demanding an “even playing field” for the Indian corporate sector. There has been a big howl against these gentle warnings from the seasoned captains of industry which can hardly be brushed aside. What these amount to is an insistence on steering the economic strategy on course and not just on total laissez faire. Instead the ardent pundits of the Manmohan version of the economic reforms have tried to pooh-pooh these gentle warnings.

In the meantime the government was confronted with a new phenomenon: the assertion in defence of swadeshi which in plain words has meant the question of safeguarding indigenous enterprises. Whatever might be the government’s well-doctored statistical presentations, it is generally acknowledged that with the installation of the ideal of free-market economy, the small-scale industry has suffered a serious blow. The government’s claims highlighted during the election campaign about reducing the number of persons below the poverty line and increase in the percentage of employment. On both these and quite a few other items, the official appraisal, as prepared by the Planning Commission, tells a very different story, and the government on its part has neither repudiated nor acknowledged the Planning Commission’s assessment.

As for the swadeshi campaign, the Finance Minister seems to have dismissed it as a political gimmick of the BJP without meeting the argument that the liberalisation programme, particularly the open-door approach towards the multinationals, poses a threat to indigenous enterprises. Whether the government likes it or not, the swadeshi slogan in some form or other would beset the new government, no matter whichever party forms it.

In the past five years, there has been considerable official propaganda about the economic reforms. While at the initial stage the abolition of the permit-control raj was popular, the problem arose when the government took to the dictates of the free-market economy, set about demolishing the public sector through the ingenuous process of disinvestment, and also went on to invite foreign investment even in consumer industries. The Finance Minister’s original claim that free flow of foreign investment would bring transfer of technology, has largely proved to be unreal. The climax was reached with the Enron deal which, when renegotiated by the BJP-Shiv Sena Government in Maharashtra, could bring down the costs to the advantage of the country—a clear slap in the face of the previous Congress Government, giving rise to genuine misgivings about kickbacks having passed hands.

As for the public sector disinvestment, what has come as a surprise in the government’s stand is its eagerness to disinvest even the profit-making public sector units like the BHEL and SAIL. For a government taking to killing the goose that lays the golden egg has come as a surprise to the public. The impression has generally gained ground that the present government’s economic reforms, as brought about by faithfully following the World Bank’s Structural Adjustment Programme, has turned out to be unsuited for our conditions. While liberalisation is welcome as a means to modernisation, the experience of other countries taking to the road of unhindered free-market economy, as has happened in the case of Mexico and Argentina, apart from Poland and Russia, has come as a warning before the Indian public despite the government’s refusal to draw the necessary lessons from these cases. The ideological underpinning of the Bank-prescribed economic reforms emphasises the shrinking of the role of the state in economic affairs. It is a pity that even after five decades of working a “mixed economic” experience, our government should ignore the role that the state can gainfully play particularly in a developing economy.

What is important to note is that the Fund-Bank approach is itself under attack abroad. Recently the UN Secretary-General has appointed a high-powered committee of world renowned economists to prepare a report on “Development Strategy and the Management of the Market Economy”. Apart from others like Amartya Sen from Harvard University and the French mathematical economist, Malinvaud, this Committee includes Joseph Stiglitz, who is the Chairman of the Council of Economic Advisers to President Clinton. From India, Arjun Sengupta, Member of our Planning Commission, has been working on the secretariat of this group of world economists. While the report of this group of eminent economists is yet to be released, it is known that it has underlined the role that the government must play in the business of development particularly in the developing world. Free market left to itself might hamper not only the content of equity and social justice, but hold back efficiency and substantial growth of output and employment.

Obviously all these issues have to be taken up by the new government, no matter whether it is presided over by Narasimha Rao or somebody else. As things have turned out, there is a considerable body of opinion in the country which would demand of the government that it must work for a national consensus on the economic strategy. No matter whether it is going to be a one-party government or a coalition, such a consensus on the economic reforms would be extremely imperative. The job of laying down the rules for running the economy of the country can no longer be the monopoly of the Finance Minister and his cohorts in his Ministry. A wider national consensus can no longer be held back.

(Mainstream, May 11, 1996)

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