Time-Travel And Time-Warps

In politics, where you stand is determined by where you sit, in Parliament. If it wasn't, the history of the decade of reforms would probably have been vastly different. And the list of success stories longer. Tracking the elusive "political consensus" for the better part of the decade—read, the solution that serves the maximum number of vested interests—Indian politicians lost sight of the urgent reforms. And the litany of failures grew, and grew.

As we look back, such neglect seems execrable. In 1991, the slack in the economy was so great that it responded to the liberalisation package like a long-lost lover. Success was so unexpected and intense in the next two years that complacency set in, the change so momentous and far-reaching that politicians, used to a tortoise-like shuffling of the economy, felt enough was enough.

Yet liberalisation continued to have its ripples. Exports grew at a record two-digit figure for three years, growth structurally shifted to 7 per cent, inflation halved from 16 per cent in two years, forex reserves rose from less than $1 billion in June 1991 to $42 billion now. From 140 per cent of forex reserves in 1991, short-term debt is 14 per cent. Proving that the biggest success of reforms was forex and debt management.

India's financial policy has always been close to the view held by Jagdish Bhagwati and the like, that risks from liberalising capital movements outweigh any benefits and trade liberalisation is more crucial. It was pursued staunchly by finance secretary Montek Ahluwalia and when India successfully averted the 1997 Asian flu, he was justifiably proud.

Which brings us to the second success: trade. In '91, as reserves dipped to less than three months' imports, India's share of world trade was just 0.5 per cent, versus 2 per cent in 1950. Then Chidambaram cut peak import tariffs from over 300 per cent to 110 by 1993. In the mid-'90s, Chidambaram pared them down to an average of 25 per cent, where the downtrend ended. The end of the decade saw protectionist forces rising again and the peak rate is now at 35 per cent.

Still, the distance covered in import duties is comparable to time-travel—we did in a decade almost all that we couldn't in the previous 40 years. The result is for all to see: the transformation of the consumer markets and the transformation of a nation of beggars in terms of freedom of choice to one of consumers with the power to reject a product because it doesn't meet their needs. Because consumer goods imports were banned, there was a boom in investment in this industry. fdi flowed in and with the tariff regime not fully dismantled, the foreign firms found a nice corner to nestle in. This dealt a heavy blow to inefficient local producers and small industry still hamstrung by reservation—the consumer had already left them for cheaper and better options—and the slowdown began.

For India, an even better result of competition was access to technology. In a nation where relaxed patent protection allowed the fruits of research to travel without bias to all sections, yet denied the researcher his incentives, apers and imitators bloomed in the first 40 years. Post-reforms, technology, which had advanced rapidly in the post-industrial West in the last three decades of the century, swept Indian shores and imbibed industrialists and technicians with the power to dream. This led to the communications—and later, the software—revolution.

Almost all that happened in infotech industries in India was blessed by new and developing technologies. Thankfully, India began with a relatively new communication industry whose monopoly status let it implement change faster. The spirit of entrepreneurship had already been freed with the abolition of licensing. Says Shankar Acharya, former chief economic advisor: "Talk to all the managers and technocrats and they'll tell you the IT revolution wouldn't have been possible sans industrial or trade policy reforms."

Together, says K.N. Memani, partner, Ernst & Young, "it led to a spurt in the number of first-generation entrepreneurs in the new economy sectors and the generation of Indian brandnames like Infosys." But this gave a further fillip to the endangered species—suddenly, reforms were seen to be leading to more Mcjobs than employment, more Page 3 wealth than prosperity that could be spread with a butter-knife, more consumption of imported cheese and fruit juice than steel and fertiliser, more three-car poolside farmhouses than lush-fielded villages. The main cause of this was the neglect of a lot of tough jobs—mainly, the modernisation of an ancient, slothful, reckless government.

The battle for the government was lost by Singh right in 1993. That year, without informing his FM, then prime minister Narasimha Rao announced a Rs 1,500-crore populist package aimed purely at restoring the "socialist" image of the Congress. As a result, Singh left the administration with 5.9 per cent fiscal deficit, and the questions of efficiency and expenditure unanswered.

As if the lessons learnt from the Fourth Pay Commission awards weren't enough, the UF government caved in to the Fifth, without implementing its tougher recommendations of a job-and-wage freeze. That put paid to hopes of containing the fiscal deficit forever.

It also wiped out the states' tills. The investment cuts of the early reform years had throttled infrastructure. Bankrupt states had little ability or incentive to pursue power reform. State electricity dues are Rs 30,000 crore; without power, industrial expansion is a dead dream.

The Centre's inability to tackle spending also had a fallout on the social sectors, chiefly education and health. In a decade that saw the PC, TV and cellphone population rising exponentially, full literacy remained elusive. The elite prospered with private education, while the state as good as abandoned most of the 70 per cent of the populace in rural areas relying on the public education system.

There is a little-known view that if the rain gods hadn't been kind in the first few years of reforms, the adjustment process couldn't have been quite as painless. An even more popular view is despite the Green Revolution and free power to farmers, gdp growth is still dependent on a good agriculture year. Yet, the neglect of this sector continues. If there's one sector untouched by reforms—read, modern, global economy-oriented policies to make farmers competitive and farming a lucrative profession—it's agriculture.

The farm sector's traditional neglect stems from the huge foodgrain aid (PL 480 from the US) till the Third Plan. Then came "self-sufficiency" which, along with the Green Revolution, created pockets of prosperity. The neglect of agriculture through the '90s is mainly responsible for the dip in demand, higher migration to urban areas and the rise in unemployment. If India's story of reforms has been one of exciting change, it's also been one of a cross that's getting heavier and heavier to bear. For the unrewarded of course.