Monday, July 04, 2011

Rao-Singh reforms remain a holy cow after 20 years for mindless market advocates

This has appeared in the DNA edition of July 4, 2011

For 20 years now hosannahs have been sung for the economic reforms that prime minister P.V.Narasimha Rao and his finance minister Manmohan Singh had introduced. There is no critical assessment of the liberalisation process, and there is the lurking fear in the minds of market advocates that if they were to say anything bad about it the socialist, the licence-permit raj nightmare would return with a vengeance. This is intellectual timidity of the worse kind.

Yes. The critics have been unfair in more ways than one, and not all that they had said turned out to be true. India did not become a vassal of the 'East India Company' – once again as was predicted. But the pressures of global market powers – that is the government of rich countries -- and global market forces more than once impacted Indian choices, and not always for the good.

The Enron experience was dismal and disastrous. The American multi-national energy major which went bankrupt at home did everything wrong that it could in India. It lobbied with politicians on all sides to get what it wanted, imposed conditions which openly violated, like the power pruchase guarantee agreement, terms of fair competition. It showed how crony capitalism worked. And even after Enron sank most ignominously in the US and in Europe, India was left paying the commitments made then to Enron's creditors in India. The whole issue was sorted out furtively behind closed doors during the first term of UPA.

The series of scams running into thousands and lakhs of rupees are another negative fallout of the reforms. This neeed not necessarily mean that the reforms have been an unimitgated disaster, but it certainly means that there is much that is wrong with reforms as we know them now. Market-friendly economists are being intellectually dishonest and even cowardly – it becomes necessary to inlude prime minister Singh in this group – if they do not accept that rfeorms brought with them their own tale of woes along with the good tidings. Singh should not be allowed to forget his remark that he did not lose sleep over markets at the time of the Harshad Mehta stock market scam soon after the reforms began.

The political cliche that the rich became infinitely richer – the expanding billionaires' club was a sign of this – turned out to be true but there were also a large number of new entrants -- the million millionaires who have made it big. These rich folk -- the old and the new -- became productive because they began to spend than they had in the previous era. Instead of spending money stealthily or outside the country, they became conspicious spenders at home. The middle class benefited and it increased in numbers as well because some of the lower middle class moved up the economic and social scale.

Reforms did not ruin the poor people because they were already living in socialist ruins. The number of the poor as a percentage of the population may have declined or increased depending on the economist talking about the issue after the reforms got underway. But the poor still constitute an uncomfortably large number of the population in the country and national economic prosperity will remain fragile as long as that number does not go below the level of critical mass. The poor are fighting their survival battle with a smile on their faces but that is not because the reformers have been enlightened.

The poor are not among the critics of the reforms. They are coping with the situation as best as they can, and improving their lot against the odds. The poor are bravehearts at all times. It was in the England of the industrial revolution of the late 18th and early 19th centuries. It was the displaced villagers who became the factory-hands of the dark, dsimal Dickensian world of the 19th century. The poor during India's first 20 years of reforms have been working hard, earning more and trying to imitate the lifestyle of their middle class superiors. But they remain on the bottom rung and on the dungheap as it were.

It is the ideologues from the left and the bleeding hearts of the so-called civil society who have been railing and wailing against economic reforms. And these pro-poor activists have been able to arm-twist the government to usher in welfare measures because the government now has the money – one of the unintended outcomes of reforms – to spend on the poor. But these welfare measures do not really help the poor. They still have to help themselves.

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