Has India silenced economic debate?


John Elliott from Riding the Elephant blog

MMS IndDay Aug 12 Business Line 300x205 Has India silenced economic debate?Has India moved beyond economic debate? Has the domination of economic policy by Sonia and Rahul Gandhi, together with regional members of the governing coalition (notably Mamata Banerjee of West Bengal), become so established that there is now no room for reformers to be heard? Is the government so much under the spell of these forces that India’s leadership has gone back to the 1970s when the private sector profit was frowned on (except when it lines the pockets of politicians)?

Prime minister Manmohan Singh did not sound like the 1970s in his Independence Day speechthis morning, when he said that that a “lack of political consensus on many issues” had prevented the creation of an environment for rapid economic growth”. The time had therefore come “to view issues which affect our development processes as matters of national security,” adding that providers of foreign capital needed to be confident that “there are no barriers to investment in India”.

But sadly the prime minister’s noble exhortations for a better India now carry no weight – he has been making statements like these for years with virtually no impact.

So my questions about India abandoning economic debate in favour of political ambition persist. They reflect conversations I have had with foreign business people here and (a few weeks ago) in the UK, where the growing belief is that the post-1991 “India story” has ended and that there is now no interest among some ministers in private-sector-led economic growth. Some see this in western terms as a debate between left and right wing political groups on the role of the private sector, but I think it has nothing to do with such ideology and is instead firmly based on vote winning and staying in power.

When I was first in India in the mid-1980s, there were vigorous debates about prime minister Rajiv Gandhi’s small reform steps. When I returned in 1995, Manmohan Singh and Montek Singh Ahluwalia, then running the Ministry of Finance as Minister and Secretary, were campaigning vigorously for the economic liberalisation launched four years earlier (even though Manmohan Singh’s patron, prime minister Narasimha Rao, was rapidly losing interest). There was a real debate about what should be done and how investors and industry should respond.

Now Manmohan Singh is rarely heard, apart from this morning’s sort of well-meaning epistle, and Montek Ahluwalia seems no longer to debate the positives of economic reform, but instead deplores the inability to get things done and curb wasteful expenditure on the sort of pro-poor policies pushed by Sonia and Rahul Gandhi.  No-one else is debating reforms – the Commerce Ministry is currently only boasting about how many states might want foreign direct investment in supermarkets, while the finance ministry has failed to argue forcefully for taxation and financial sector reforms, and the defence ministry stays even more silent on the urgent need to involve the private sector in defence production.

Is this because they know that they will get no support from Sonia Gandhi, who seems to have quietly abandoned the reforms agenda pushed in the 1980s by her late husband Rajiv who used to seem to be her policy guru? The Economic Times has revealed this week how she interferes with policy, virtually instructing ministers on policy issues, and how one minister abruptly lost his job after daring to reject her suggestions on tribal affairs legislation.

There are few ministers in this government who are proactively trying to be effective. One of them is Jairam Ramesh, the Minister of Rural Development who, among other things, is trying to bring economic and political development to areas that have been controlled by Naxalite (Maoist) rebel’s.

Earlier this week I heard him talk about a pace-making pilot project he is personally encouraging at Saranda in Jharkhand. Yet when Ramesh was Minister for Environment and Forests (2009-2011) and tried to bring some order to a devastatingly corrupt area of government, he was pilloried by the private sector for blocking their projects, many of which they had of course “bought” illegal environmental clearances.

Palaniappan Chidambaram, the new Finance Minister, has appointed as his chief economic adviser, Raghuram Rajan, a former International Monetary Fund chief economist who has been Manmohan Singh’s honorary economic adviser. Rajan has criticised the Gandhis’ favourite and expensive National Rural Employment Guarantee Scheme (NREGS) as “a short-term insurance fix” for dealing with problems of the poor, but added: “If it comes in the way of creating long-term capabilities, and if we think NREGS is the answer to the problem of rural stagnation, we have a problem”.

That seems to run counter to Sonia and Rahul Gandhis’ view so it will be worth watching what Rajan says now he is employed by the government. His job gives him the stature to lead a debate about how the economy should move forward, balancing the needs of the poor with reforms that will lead to economic growth that benefits the poor.

Let’s see if he can prove this article wrong and show that India’s political leadership has not silenced genuine economic debate.

  • 1 comment

  • sagarsarhadi • 7 days ago

    • Excellent analysis of the situation in New Delhi. However, the national scenario is even worse. A weakened Congress party over the past decade has resulted in regional parties emerging as a political force to be reckoned with. Like Congress at the centre, each of these parties is controlled by a family. Again, like Congress, it is the families that control the party purse making the parties sub-servient to the family rather than the other way round. As much of the recent economic growth has ended up with the political class through massive corruption, these families are vastly rich and can sustain huge organisations. The tide of these corrupt regional parties is fast heading towards New Delhi. It is most likley that the next government in India will be based on an amulgam of some of these parties backed by the Congress party. The families behind these regional parties have one thing in common with Sonia Gandhi – they have the ability to spend their way to win votes. In the past Congress alone had the economic might to do so (which, incidentally, is the reason Congress is unable to garner enough votes anymore – there are other local and more likable regional traders bidding higher for votes). The opposition BJP, consumed by anti-Muslim and anti-Christian poison, is getting buried under the rubble of Babri mosque – they helped demolish in 1992 to ride to power in Delhi. Tearing down mosques or burning churches don’t win many votes nowadays. It is money, stupid. BJP doesn’t have enough of that and, fortunately, can’t be seen to be having enough of; they are a religous pary that must play the hypocritical act of not wanting to play the money game – what a self imposed trap! In summary, India is heading for political rough waters for a while to come. Democracy, indeed, came to India too early. India’s economic policy will reflect the makeup of its politics. 1990s consensus was an aberation. A country that can’t provide drinking water and electricity to half its population and yet announces its plans to send a mission to Mars (yesterday’s announcement by PM Manmohan singh) is indeed run by mad men (not to mention the mad Woman). ‘Incredible India’ is fast becoming ‘Incredulous India’. Foreign investors will do well to stay away from this mess. China, Indonesia, Turkey, Brazil and Mexico are much better bets. Even Africa sounds more attractive.


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