Reforms raga turns into a marching song

NEW DELHI: The last 15 years have been an eventful period for the world. It saw the collapse of the Soviet Union, globalisation, a telecom-IT revolution and a renewed interest in the world’s most powerful nations in the political and economic renewal in the developing world, driven by concerns of their own security and prosperity.

The world changed, and India changed even more: From an aid-dependent country, notable chiefly for its past glory and current poverty, to an economic powerhouse widely expected to grow into not just one of the largest, but also the most dynamic economies of the world.

The process of India’s change began with a payment crisis, nurtured by profligate government expenditure in the eighties and triggered by Gulf War I at the turn of the decade. A minority government headed by PV Narasimha Rao, who appointed experienced economic administrator, able economist and political novice Manmohan Singh as his finance minister, kicked off India’s reform saga in July 1991. The government went beyond the typical conditionality package that the International Monetary Fund tied to its bail-out loans, and began the process of dismantling India’s control Raj and integrating the economy with the rest of the world.

A key indicator of reform, one on which no government has faltered, is the steady decrease in the peak customs duty (on non-agricultural imports) from 300% in 1990 to 15% in ’05. Growth rates have accelerated from 5.6% in the eighties to what could well be a new trend growth rate of 7% now. The quality of this growth has improved remarkably: Whether measured in terms of the units of capital required to produce a unit of output, foreign borrowings needed or the quality of the output — an indication of which is how much of it can be sold abroad.

A change that is yet to be captured by numbers is the confidence level of Indian industry. When, in the beginning of ’04, the then finance minister Jaswant Singh slashed import duties at a time when the rupee was hardening against the dollar, there was no whimper of protest from industry. Now also, protest against the peak customs duty cut to 15% announced by finance minister Chidambaram in this year’s Budget comes not from industry, but from self-appointed champions of domestic capital.

A new segment of Indian industry has come into being, that sees its fortune in the global marketplace and sees itself as being capable of being the world’s best. Many think that this is confined to information technology and BPO. But the surge in India’s exports even without the help of a weak currency tells a different story.

Growing integration of India’s financial sector with that of the rest of the world, along with growing integration of the economy as a whole, has brought down interest rates and input prices. Venture funds, private equity and a booming stock market have enabled enterprise to flourish, overcoming earlier limitations of having to accumulate initial capital, either through inheritance or loot.

There have been four different regimes at India’s helm during this period of change, with three regime changes in 1996, 1998 and ’04, but the reform process has continued. All major political parties have taken part in these governments and the changes they brought at the Centre, and most of them have implemented complementary policies in the states, including the Left parties.

Indian politics has recovered from the convulsions of identity politics, and all parties now realise that they need to deliver something more to the people, to capture power or retain it. This of·ers the hope that they will identify broad-based growth as the only sustainable political strategy.

The rural initiatives of the NDA government — roads, rural electrification and diversification of agriculture — and their fuller articulation in the Common Minimum Programme of the present government both indicate gradual dawning of this realisation.

Yes, Bihar is depressing, but to offset that, there is not just Bangalore or Chennai, but also Mulayam Singh Yadav’s new thrust on development in Uttar Pradesh or Buddhadeb Dasgupta’s initiatives in West Bengal. Politics is the largest constraint on India’s development, bigger than paucity of infrastructure. Deficient infrastructure, after all, is an investment opportunity, to be seized if only politics would allow that. The latest signs