Heart of the deal

The Cabinet Committee for Economic Affairs has finally met and approved the Cairn-Vedanta deal,with a few conditions attached. The deal,a fairly standard corporate merger,did not seem to have had mechanics or consequences requiring it to be held up for the months and months that it was. It sent a poor signal,reinforcing the perception that the Central government is frozen in some kind of policy paralysis. It also gave new legs to the concern that UPA 2 has worryingly regressed towards a statist,controlling,1970s mentality,in which even normal market activity needs to be “cleared” and is part of a “concession” of some sort. The effects of this have been startling. Remember,essential foreign direct investment in India declined by $12 billion between 2008 and 2010. Expected growth numbers,too,have weakened,even as inflation has stayed persistently high.

It is necessary for this state of affairs to change,and hopefully the cabinet’s decision on Thursday marks that change. Naturally,there is much pending legislation that needs pushing through: most notably,insurance,pension and banking reform,which have been in place to be passed for some time. The UPA has allowed a situation to develop in which it has become difficult to reach across the aisle and get these reforms,which the BJP also supports,passed. The prime minister has once again said these are on the agenda,and that the BJP should lend its support. Congress floor managers should work on making that happen.

But more than that,we should be provided with a clear sense of what else this government intends to achieve in the near and medium term. Even if big-bang reforms are more long-term — in,say,non-corporate sectors such as agriculture and labour — there are many ways in which the UPA can tweak governance such that administrative efficiency increases. Public-sector productivity continues to be held back by excessive Central control. That is something overdue for correction,and would help revive India’s growth story. And,above all,administrative decisions,such as the recent clearance of coal mining in some “no-go” areas,should not be unduly delayed. That,even more than the failure to pass major legislation,has been the cause of the perceptions of drift and statism that have begun to plague the UPA government.