Economy Jul 31, 2012
The FDI in retail proposal is as good as dead.
There's opposition to it across the political spectrum. The government would be scoring a political self-goal by going ahead with it. This is the beginning. All other big ticket reform proposals have strong pockets of resistance - some of it is about the fundamental disagreement over the basic principle and some about the fine print. Every time the government decides to push through these reforms, it would be wary of the rigorous numbers test it would need to pass through in Parliament.
Trust the industry players to go into the ritual whining if Reserve Bank Governor Duvvuri Subbarao plays conservative again and refuses to ease rates. One cannot blame him for going by the book. Theoretically he is correct, though experts would argue that it is difficult to establish a cause and effect relationship between money supply and inflation. He cannot allow the inflationary expectation to build up and let inflation go up further.
By now, everybody in the world and his uncle know the remedies to country's economic problems - remove obstacles in the flow of foreign investment; cut subsidies to a low percentage of the GDP; focus on infrastructure growth; and cut unnecessary social sector spending. Sound suggestions, at least on paper, and they make up the contours of the big idea called reforms. But why do they attract such passionate opposition?
Here are the basic answers: foreign investment threatens the destabilisation of local industries and puts local jobs at risk; removal of subsidies increases the cost of living of the common man to very difficult levels; infrastructure projects are in the long run about dispossession of land, denial of local control over natural resources and damage to the environment; and governments cannot ignore social sector spending because in democracies governments have certain responsibilities they need to fulfill.
The answers tend to get far more complicated once we get into the nuances but the opposition to reforms originates from these basic answers. Simply because they are linked to the life and insecurities of people and the politics of the day cannot stay aloof from the problems of people. Unless the fundamental distrust of people about reforms is addressed expect no dramatic change on the economic front for a long, long time. No ruling government can just impose economic changes on people.
So what are we driving at? Well, the idea of reforms have opened up several conflicts and given hat it is a disruptive force - the connotation here is not necessarily negative - it would keep finding new conflicts as it progresses, the country needs to find a conflict resolution mechanism. It needs to create an institutional framework to facilitate the process of dialogue on different views on reforms and discover broad areas of agreement which could lead to concrete solutions.
The National Advisory Council, for example, could be developed into a legitimate pre-legislative consultative body. Headed by Sonia Gandhi, right now it is constituted of Left thinkers, aggressively pursuing the distributive justice, welfarist agenda. The NAC could be a forum for discussion of several views with representation from businesses and other interests. To take political bias out of the scene, the UPA chairperson could be replaced with a duly elected or nominated non-political person. Obviously, care should be taken to exclude hardliners incapable of thinking beyond ideological certitudes.
The idea is simple. It makes the process of decision-making becomes more broad-based and representative in character. Plus, it makes the task of making laws for the political class easier. Parliament has a rigorous process of making laws and a lot of brain goes into making legislations but with new forces of change around, it does not appear equipped well enough.
The country needs to find areas of agreement in economy and other spheres if it wants a stable society and equitable growth. It has to create institutions to manage and control conflicts as well as resolve them. Expanding the NAC with a fresh mandate is not a bad idea.
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