Opinion Usher in the reform raj

Permit me to turn to the question of economic reforms,what they have accomplished,and where we are and should be headed. On what we have accomplished so far,there are two conflicting “narratives” that we find currently,one adoringly celebratory because of the accelerated growth that the post-1991 “liberal” reforms produced,and the other hyper-critical and condemning because of alleged bypassing,even immiseration,of the poor and the underprivileged. I will argue that the latter narrative is mistaken. The fact is that several analyses,some of which I cite,show that the enhanced growth rate has been good for reducing poverty while it has not increased inequality measured meaningfully,and that large majorities of virtually all underprivileged groups polled say that their financial situation has not worsened and significant numbers say that it has improved.In addition,the growth has led to greater revenues so that we are finally able to finance significantly more spending on health and education for the poor and the underprivileged,much as we had always wanted since planning began in 1951 but could not manage when the abysmally low pre-reforms meant low growth of revenues.I call the conventional growth-enhancing reforms Stage 1 reforms; the spending on the health and education of the poor defines what I call Stage 2 reforms. Both are “inclusive”: Stage 1 reforms have benefited,not immiserised,the poor and the underprivileged; Stage 2 reforms,made possible by Stage 1 reforms,reinforce the beneficial pro-poor effects of Stage 1 reforms.The most interesting political implication of the success in finally denting poverty significantly,though nowhere enough,is that poverty is now seen by India’s poor and underprivileged to be removable. India is witness finally to what I have called the Revolution of Perceived Possibilities. Aroused economic aspirations for betterment have led to political demands for the politicians to deliver yet more. This suggests that voters will look to vote for the politicians who can deliver growth,so that we would expect growth before the vote to be correlated with vote now. This implies that the smart members of the Lok Sabha should be looking to augment reforms,not reverse them as misguided anti-reform critics urge.So,politicians would do well to strengthen the conventional Stage 1 reforms,by extending them to the unfinished reform agenda of the early 1990s. In particular,further trade liberalisation of trade in all sectors,substantial freeing up of the retail sector,and virtually all labour market reforms are still pending. Such intensification and broadening of Stage 1 reforms can only add to the good that these reforms do for the poor and the underprivileged. How to get the most bang for the buck from programmes under Stage 2 reforms is where we have to be turning our attention as well.Both sets of reforms require good governance and indeed necessitate a role for the government in some areas (in the appropriate provision of health,for instance) even as they require withdrawal of the government from others (as with inappropriate labour laws). Can we manage this?It is easy to exaggerate the corruption we have today. In India,public figures are considered to be corrupt unless they prove to you otherwise. A blind man will tell you how he saw “with his own eyes” a bribe being given and accepted! A most distinguished Indian bureaucrat once told me that his mother said to him: “I believe you are not corrupt only because you are my son.”Equally,it is wrong to think that we cannot think of institutional reforms that can reduce the corruption we do have. The abolition of the permit raj,of course,eliminated that important source of corruption. But that also means that we have removed from our system the way in which politicians could raise money for their campaigns which,while not as expensive as in America,are still large enough to matter. This means that other forms of corrupt ways of raising political funds have proliferated. We need therefore legal ways to raise campaign finance. Americans have done this; we need to do so as well.Then again,we can use science to get at corruption in several areas. Thus,Nandan Nilekani is engaged in arguably the most important innovative reform in recent years by creating a national database of identity details of Indian citizens. This should take the political corruption out of the public distribution system and in the employment guarantee scheme,for instance,and will also reduce bureaucratic corruption by bypassing the low-level bureaucrats who refuse to give you what you need unless you grease their palms.In fact,what Nilekani is doing additionally is demonstrating anew how science is integral to our assault on poverty and other ills in our society. The enormous potential of science in aiding the reforms ahead of us cannot be exaggerated: examples include the invention of cheap laptops that make it possible to put them into every lap,and the enormous potential of Bt brinjal and other GM (genetically modified) crops in raising productivity massively in our agriculture. We need to recall what Prime Minister Nehru said eloquently: “It is science alone that can solve the problems of hunger and poverty,of insanitation and illiteracy,of superstition and deadening of custom and tradition,of vast resources running to waste,of a rich country inhabited by starving poor… Who indeed can afford to ignore science today? At every turn,we have to seek its aid… The future belongs to science and those who make friends with science.”Reflection on what I have said today should provide the agenda that the impressive young members of the Lok Sabha,who clearly seek new perspectives and aim to accept fresh challenges,can embrace,to take India to what Jawaharlal Nehru called our “tryst with destiny”. After sixty years of Independence,surely it is high time for his vision to turn into reality.

Excerpted from ‘Indian Reforms: Yesterday and Today’,the third Prof. Hiren Mukerjee Memorial Annual Parliamentary Lecture on December 2. Dr Bhagwati is a professor of economics and law at Columbia University,New York