Reforms take one-way, may slow at turn-off

NEW DELHI: Economic policy under the new government is likely to see more continuity than change. Change there definitely will be, particularly in areas such as divestment and openness to foreign investment, but Bharat’s emphatic rejection of ‘India Shining’ reforms is likely to leave its imprint by supplementing, rather than supplanting, the reforms already underway.
The Congress initiated economic reforms, has people like Manmohan Singh, who understands the interlinks between diverse policy elements, and P Chidambaram, enthusiastic reformer who slashed tax rates and heralded much of the stock market reforms — such as dematerialisation of shares and FII investment in debt — that are currently taken for granted.
The Left has its policy preferences that are at odds with accelerating reforms. However, it is the balance of power between the Congress and other members of its coalition that will determine policy.
The Left’s determination to keep the BJP out of power is far stronger than its opposition to diverse elements of reform. This dynamic will determine the degrees of policymaking freedom that a Congress-led government will have.
Reforms that have already been implemented have their own momentum that can’t be stopped.
No party talks about repudiating the free trade agreements that India has already entered into or proposes to forge. Free trade with competitive economies calls for increasing the competitiveness of the domestic economy across the board. No responsible government can ignore this life-and-death concern of Indian industry.

Providing a stable macroeconomic environment, low interest rates, easier access to credit, an adequate and efficient infrastructure, competitive markets that provide quality inputs at the lowest possible price have to figure in the priorities of any government.
For instance, West Bengal needs industry to flourish and Left leaders at the Centre will be under pressure from their state-level comrades to not let ideology override the practical requirements of industry.
Thus, the lessons that politicians learn from the fall of silicon icons Naidu and Krishna would be to not abandon reforms but to expand the scope of reform to specifically benefit rural constituencies.
Bijli, Paani, Sadak: Elementary infrastructure has to be provided and that will create jobs as well. Public-private partnership will be tried in urban areas but state funding will come to the fore in rural areas.
The schemes launched by the NDA to build rural roads, accelerate rural electrification and launch a second green revolution will be continued, albeit under changed names.
No party or government can any longer ignore the factors that drive farmers to mass suicide. Extending the reach of the formal credit system to the rural folk will become a priority, as also crop insurance. These are likely to call for fiscal incentives/ support.

The Congress has promised free power to farmers in Andhra Pradesh. Its central manifesto commits to providing for such a subsidy from the budget. Manmohan Singh has suggested budgetary provisioning to protect pensioners and small savers from the income-eroding effect of low interest rates.
A similar budgetary solution is likely to finance measures to insulate the Congress’s ‘aam aadmi’ (the common man) from commercially rational decisions like higher prices of petro fuels.
The fisc is likely to come under tremendous pressure. This additional demand on liquidity is also likely to strengthen the new government’s resolve to keep foreign investors and lenders interested in India.
Labour reform will have to wait a bit more. Fresh hikes in FDI will become difficult. However, more than an opposition to reform in substance, the influence of the Left is likely to be manifest in fractious policymaking.
This will more likely affect blood pressures of ministers and bureaucrats than hamper the economy.