Thursday, 5 March 1998

Run, Don't Crawl - Need for Action, Not Rhetoric

(Originally appeared in the 1990s in the Times of India, as published in M. D. Nalapat's book "Indutva", Har-Anand Publications, 1999)

First impressions may not always be the best ones, but they last. 
While in many other democracies, incoming administrations
seek to push through major changes in emphasis during the first 
100 days, in India this has not been done except by P. V.
Narasimha Rao, who 44 years after independence began turning 
India away from the 1,000-year clasp of the Mughal-British-
Nehru patriarchal state.

Inder Kumar Gujral's entry to his present post was due to the
coincidence of his excellent relations with both V. P. Singh and
Sitaram Kesri. However, once in, his touch faltered. The first
hiccup was his acceptance of almost the entire Deve Gowda
team, thus confirming the impression that the change-over had
been because of a personality clash between Deve Gowda and
Sitaram Kesri. As a result, the incoming Prime Minister's authority 
over his team got diluted.

Headhunters will testify that the time for tough negotiations
is before an employment contract is signed. Once duty is joined,
efforts to substantially improve conditions are usually futile.
Neither Mulayam Singh Yadav nor C. K. Moopanar boasted the
acceptability to the Singh-Kesri duo that Gujral had. The other
alternative, Chandrababu Naidu, declined to follow Deve
Gowda’s example of exchanging a safe regional perch for an
unstable national one. Thus Gujral could have driven a much
harder bargain before accepting the offer to head the government.

Family Nostalgia 
Nostalgia about the days of the Nehru family—when India
crawled along at a growth rate of three per cent and the
corruption-breeding controls system dug in—was not going to 
lift Gujral’s rating. Rather than lapse into sentimental
remembrances, what is needed is the hard-headed formulation
and implementation of policies designed to push up growth
from the seven per cent bequeathed by Rao to the 10 per cent that
China has shown to be possible. Step one is the rapid dismantling
of the web of procedures and permissions that chain Indian
companies. Step two is to remove the restrictions on the setting
up of service industries.

Sadly, instead of diminishing in critical areas regulations
have grown. While Murasoli Maran acted as a reformer during
the Gowda period, in the Gujral era he appears to be using
restrictive regulations for reasons not transparent. Beni Prasad
Verma is doing likewise with communications, while both R. V.
Paswan and C. M. Ibrahim are working hard to ensure that local
transport infrastructure remains inadequate.

While a certain amount of personal diplomacy may be
necessary for the continuance of the UF ministry in office, it
needs to be remembered that survival is by itself not the
objective. The goal has to be increased growth. If it is expected 
that US Secretary of State Madeleine Albright will appreciate
that the world has changed somewhat since Papa Korbel's time
and not harp on the same Kashmir mantras as were used then
by the US and the UK to kill any incipient move by India to forge
strategic links with the rest of the democratic, English-speaking
world, one expects the Gujral team to go beyond old policies in
formulating solutions to domestic economic problems.

Appeasing Game
Today's Nehru family loyalists are not just those who flock to 10
lanpath, they are also those political parties that seek to push the
economy back into the regulatory cage of the pre-1991 period.
Unless the Gujral government passes legislation freeing industry
and services from such cords, it will not be fulfilling its promise.
At present, it appears to be more a Surjeet than a Gujral
government, at least in regard to economic policy.

For the sake of a few thousand state employees, the UF
partners appear prepared to sacrifice the long-term interests of
the rest of the country, just as the right-wing swadeshi lobby
wants to coddle controls-friendly sections of domestic industry
at the cost of the consumer. Elements of both saffron and scarlet
are united in promoting Mughal-British-Nehru style restraints
on honest and efficient enterprises, thus encouraging units that
profit through sleaze and connections. Unfortunately, the UF
government has thus far gone along with such views rather than
implement reforms that will lower bank interest rates and attract
greater investment in infrastructure and other key sectors.

The Communists (and Mahathir Mohammed) have a point:
that pure speculation needs to be curbed. However, this is
possible through the market, as Singapore has demonstrated in
the housing sector. There, punitive capital gains taxation is
levied on houses sold within three years of purchase. India can
also have a system whereby steep capital gains taxes get levied
on shares or houses sold within 180 days of purchase. On a
sliding scale, those sold after 18 months should escape this tax.
This would attract the genuine investor while keeping most
speculators out. However, such measures are different from
those that choke off investment altogether, which is what the
China and Pakistan lobbies in India want the government to do.

Lack of Leadership
On August 15, robust speeches were made about "cleansing the
country of corruption". To show that little has changed, all that
needs to be done is to examine the Foreign Investment Promotion
Board (FIPB). In the Narasimha Rao period, the PMO would
block or clear projects on opaque and arbitrary grounds. Today
the same process continues. Files move swiftly, then crawl, then
stop, then mysteriously speed up again. Unless the FIPB is made
transparent and guided by objective procedures, investment
flows will continue to be a trickle relative to the potential.
However, just as in the case of the (frozen) PSU reform or the
(lack of) moves to simplify laws and procedures, here too
rhetoric seems all that is on offer. Another ministry more
concerned with blocking than with promoting growth is the
ministry of environment. It has been killing or freezing projects
with a vengeance. The eco-fundamentalists who seek to push
India back to the agrarian age appear to be ruling the environment
ministry, with negative consequences for growth.

One reason why there appears to be a glut of politics on the
front pages may be the lack of initiatives to prod the country
onto the 10 per cent growth track. Should Gujral put his job on
the line and shame his team into bringing forward the policies
and legislation needed tu achieve this, he may find the doubts
about his survival dissipating. Such a course is the only one
consistent with the pledge he took on August 15, 1997 - to
fashion a system free of graft that will give a better life to the
prior. Both aims are linked, and need a focus by the UF
government on development rather than politicking.