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LATEST NEWS UPDATES | Singh’s Homespun Plea for Liberalizing India -Chandrahas Choudhury

Singh’s Homespun Plea for Liberalizing India -Chandrahas Choudhury

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published Published on Sep 26, 2012   modified Modified on Sep 26, 2012
-Bloomberg

It wasn't the Gettsyburg Address -- unless it's poker faces we're comparing.

Future historians aren't going to be parsing Prime Minister Manmohan Singh's speech for hidden meanings, and rhetoricians won't be delighting in the majesty of its style and the compression of its effects. It inflamed no passions, as did Mitt Romney's words about the "47 percent," and asserted no big idea or thesis, unless there was one contained in the homespun phrase "money does not grow on trees."

But even so, it was very unusual when India's introverted, technocratic prime minister appeared on the national channel, Doordarshan, last week to defend his government's recent decisions to raise diesel prices and open up the retail sector to foreign investment. Barring state occasions such as Independence Day, this was one of the few times in Singh's two terms in office that he had directly addressed the nation. Hundreds of thousands of Indians tuned in to hear his message, delivered, for maximum audience reach, first in a Punjabi-accented Hindi and then all over again in a flatter, colorless English.

Singh explained that his government stood for the ''aam aadmi," or the common man, and for "inclusive growth" (a mantra of the current government). But hard decisions were necessary "to defend the national interest, and protect the long term future of our people." He made the decision to increase diesel prices to reduce the burden of huge fuel subsidies on the burgeoning fiscal deficit. The opening of organized retail to foreign investment wouldn't be a death blow to small shopkeepers, as is widely feared, but would instead generate "millions of good quality new jobs" while also reducing crop wastage, improving infrastructure in the creaking food chain and lowering prices for consumers.

He reminded Indians of "what happened in 1991," when the Indian economy teetered on the edge of collapse, and said he had wished to act before things came to a similar pass again, now that "the United States and Europe are struggling to deal with an economic slowdown and financial crisis" and "even China is slowing down." Some of Singh's critics had accused him of choosing "good politics" over "good economics." He seemed to be refuting those critics when he concluded:

    We have much to do to protect the interests of our nation, and we must do it now. At times, we need to say "No" to the easy option and say "Yes" to the more difficult one. This happens to be one such occasion. The time has come for hard decisions. For this I need your trust, your understanding, and your cooperation.

Even if its appeal as oratory was minimal and its economics fairly elementary, Singh's address to the nation still made sense. It returned to Indians a sense of the contract between themselves and the government, demonstrated that their leaders wouldn't back down on decisions (last year, the government rescinded a plan to allow foreign investment in retail after coalition partners objected), and laid down a set of arguments that could be extended further by journalists and economists and answered by critics. Perhaps the two best long responses to Singh's speech, one in favor and the other against, came from the political scientist Ashutosh Varshney in the Indian Express and from Siddharth Varadarajan, the editor of the left-leaning Hindu.

Varshney argued that the furor over big multinationals capturing the Indian retail market was misguided, and that the real significance of the decision was in its consequences for rural income and consumption, both of which have fallen well behind urban growth in the two decades since the Indian economy was partially liberalized in 1991. In a piece called "Rural welfare, not Walmart," he wrote:

    Since 1995, Indian agriculture has grown at roughly 2.5 per cent a year, whereas the overall economic growth rate in this period has been close to 7 per cent per annum. ... The urban sector has grown at roughly 8-9 per cent per year. Thus, compared to the countryside, the growth in urban incomes is likely to have been three to four times higher. One could say that India’s cities have boomed at Chinese-style growth rates, whereas rural India is still stuck at the historical annual growth rate of 2.5 per cent.

    This difference mattered less when India’s economy itself was growing at 3.5 per cent per annum, which was true for the period 1950-80. Essentially, urban incomes were not growing much faster than rural incomes in the first three decades of Indian independence. But the urban-rural gap is now huge. For their own good, India’s villages need to be better linked to the rising economic fortunes of the city. ...

    Conceptually, too, it is a simple and undisputed principle of development theory that rural incomes simply cannot go up much if villages are not meaningfully connected to the city. No society has even been economically transformed without that link. Not connecting villages and cities in a mutually beneficial manner is a sure way to hurt the village. Trade and transport are two of the best ways known for creating urban-rural links.

    In short, FDI in retail is not primarily about Walmart and Tesco. It is about bringing greater incomes to the countryside. Whatever its implications for the traditional trader, it can only benefit the farmer. A farmer left to the village trader and mandis [Indian wholesale markets for agricultural produce] is a poor, or make-do, farmer. A farmer connected to booming urban economies and modern trade is a richer farmer.

In the Hindu, Varadarajan called the government's action "a risky strategy born of panic" and made clear he dissented from the applause Singh "has garnered from editorialists, TV anchors and corporate leaders for being 'tough' and 'decisive.'" To Varadarajan's mind, the prime minister had succumbed to the pressure of foreign institutional investors and credit-rating companies to open up markets and boost investor sentiment. He wrote:

    The slowdown of the Indian economy today is essentially due to manufacturing. This, in turn, is largely the product of poor governance and mismanagement by the Central and State governments and their systematic neglect of basic infrastructure like roads and power over a long period of time. It is also the product of corruption and rent-seeking. The sub-optimal utilisation of the railways and coastal shipping — under the influence of one private lobby or another — raises the cost of long-haul cargo and increases the inflationary impact of any diesel price hike. Thanks to poor monitoring of contractor works, road projects remain unfinished for years on end, even after the land acquisition process is over. Industry is plagued by chronic electricity shortages even as would-be power producers find it more profitable to squat on their allocated coal or gas blocks. ...

    India is perhaps the only country in the world to have established universal adult franchise and a mature parliamentary system well before it turned to building capitalism in earnest. ... If we are to build ‘capitalism with Indian characteristics,’ this requires a reimagining of the economic decision-making process. This means decisions cannot be taken in a peremptory, top-down manner, ignoring the views and concerns of voters and communities whose land, resources and labour industry needs to utilise.

    At the event to relaunch Frontline magazine on Thursday, the noted economist, Prabhat Patnaik, spoke of the social contract of fraternity which lay at the base of the freedom struggle and of the Indian state which emerged. Springing from this are five universal rights which he said were non-negotiable: the right to food, employment at a living wage, education in good quality neighbourhood schools, healthcare and pension security for the elderly and disabled. None of these rights can be realised by granting concessions and subsidies to the corporate sector.

    It is the failure of the system to deliver these basic rights that lies at the root of the current crisis in Indian political economy. And the current political crisis is also a reflection of the same deficit.

And a big-picture perspective on the stakes of the government's recent decisions and the history of Indian economic reforms as spasms rather than continuous steps was offered by the economist Vivek Dehejia on the New York Times's India Ink blog. Asking "Has Manmohan Singh Gambled Enough?" Dehejia wrote:

    What is clear is that the stakes could not be higher. If Mr. Singh is forced to reverse course again on the economic measures, or should his government fall before the end of its mandate in 2014, many could conclude that sound economic policy remains politically impossible in a large, populous and still relatively poor democracy like India.

    An explanation for this situation may lie in the “median voter theorem,” which suggests that governments, regardless of ideology, tend to cater to the preferred policies of voters with the country’s median income. In a nation in which one-third of the population lives below the poverty line, another third not far above it, and only the top third is considered middle class or prosperous, the median voter is likely to have relatively low income and to favor redistribution over long-term growth.

    That is why market-oriented economic policies in India, going back to the original liberalization of the economy in 1991, have been implemented by stealth or in crisis mode rather than by articulating to the electorate why they are required. It is a situation I have dubbed the “original sin” of 1991, and its effects linger to this day.

Meanwhile, many Indians would like to say to their reticent prime minister and his office: Why wait for a crisis to talk to us directly? Perhaps Singh, an economist by training, could next devise a short introductory course in economic concepts for national television. That would allow him to crack a smile, widen his appeal among the electorate in time for the next elections in 2014 and give his legacy an intellectual coherence and continuity that one currently has to infer from conjecture, hearsay or small speeches like the one he made on Sept. 21.

(Chandrahas Choudhury, a novelist, is the New Delhi correspondent for World View. Follow him on Twitter. The opinions expressed are his own.)

To contact the author of this blog post: Chandrahas Choudhury at Chandrahas.choudhury@gmail.com

The Economic Times, 25 September, 2012, http://www.bloomberg.com/news/2012-09-25/singh-s-homespun-plea-for-liberalizing-india.html


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