While all eyes were on the Indo-U.S. nuclear deal, businessmen from both countries presented a wish list of reforms to the two governments.
A "WIN-WIN" deal between two unequal partners is sure to have a catch somewhere. The recent nuclear agreement between India and the United States may well be a good example of such a deal. While striking an apparently splendid nuclear bargain, is India expected to make a trade-off in some other realm? Specifically, is India expected to cede substantial ground in economic terms as a price for the bargain?
Just before U.S. President George W. Bush and Prime Minister Manmohan Singh addressed a media conference on March 2 where they announced the nuclear deal, they were presented with a wish list by the crme de la crme of Indian and American businessmen. The presentation of such lists is not uncommon; after all, on the eve of the budget-making exercise it is common for industrialists to present their demands to the Finance Minister.
But the demands made on this occasion were truly extraordinary; they covered virtually every possible activity related to the Indian economy. Every sector - agriculture, industry and services - was covered. A demand was made even for judicial reforms, ostensibly to provide a more secure environment for the protection of intellectual property rights.
Another demand was for the dismantling of legislation that provides a semblance of protection to the industrial workforce. In short, it is a stunning document, a reformer's delight.
The response of the Indian policy-crafting establishment was even more stunning. On March 3, Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, announced that 24 committees would take the proposals of the businessmen forward. He said that a "framework" would be in place within the next few months, indicating that big business' agenda was now on the fast track.
The enthusiastic acceptance of the agenda is in sharp contrast to the United Progressive Alliance (UPA) government's extreme reticence in implementing or living up to the promises contained in the National Common Minimum Programme (NCMP). In fact, implementation of some of the big business proposals would violate the coalition dharma that holds it in power.
The report, U.S.-India Strategic Economic Partnership, was prepared by the U.S.-India CEO Forum, which was set up on the eve of Manmohan Singh's visit to the U.S. in July 2005. The 20-member Forum is co-chaired by William B. Harrison, chairman of JP Morgan Chase, a leading provider of global financial services (assets of $1.2 trillion) and Ratan Tata, chairman of Tata Sons, the holding company of the Tata empire (revenue of about $18 billion in 2004-05). Envisaged as a "brains trust" of business leaders from the two countries, the Forum was expected to recommend ways to "raise the levels of economic interaction between India and the U.S." In December 2005, after a meeting of the Forum in New York, Ratan Tata and Harrison said in a joint statement that the business communities in the two countries had "developed a heightened mutual interest in forging closer ties" and that the private sector in the U.S. and India "increasingly agree on many of the key policy issues".
While private business had joined forces to become a considerably powerful lobbying force, the "institutional framework", for bilateral economic cooperation was laid during the Prime Minister's visit in 2005. By bringing elements of the Indian economic policy establishment in touch with its U.S. counterparts, it provided a plank from which proposals of business interests could actually take off. The most significant result in the economic realm was the formation of the U.S. - India Economic Dialogue, which was co-chaired by Ahluwalia and, on the U.S. side, Allan Hubbard, Assistant to the President for Economic Policy and Director of the National Economic Council.
Businessmen on both sides were aware of the new opportunities that lay in store in the wake of a nuclear deal. On the eve of the Bush visit, Tarun Das, former head of the Confederation of Indian Industry (CII), told the Associated Press: "Once we have a nuclear deal, everything else will fall in place." Referring to the recent order placed by Air India for 68 aircraft from Boeing, Ahluwalia assured American businessmen that "the Air India deal is only one example. There will be many others." "There is no doubt President Bush has given a big push to this engagement," he said.
The Forum's report is a truly remarkable document. In terms of breadth and scope, even Indian industry has not produced anything quite like this in the last decade and a half since the liberalisation process commenced. What is particularly striking is the asymmetry on the two sides. It is evident that American business would stand to gain far more than the Indian side if the proposals are implemented. While most of the openings would allow American businessmen greater play in the Indian economy, the gains to Indian businessmen are likely to be transient and far smaller in comparison.
The document starts by identifying six priority initiatives. Three of these go beyond the specifics and impinge seriously on existing government policy. The first initiative, relating to promotion of trade and industry, calls for "greater freedom to invest in services sectors", "removal or reduction of tariff and non-tariff barriers" and the "elimination of subsidies on agricultural and manufactured goods". It suggests that the two countries can be partners in the Doha Round at the World Trade Organisation (WTO). The suggestion that the two countries "support ambitious outcome and make strong offers in all key areas of negotiations" obviously undercuts the Indian negotiating position at the WTO, which has, at least in nominal terms, depended on an alliance with other developing countries.
Another initiative seeks to create an infrastructure development fund, which could act as a "vehicle for U.S. investment into Indian infrastructure." A corpus of $5 billion (about Rs.2,250 crores) has been proposed, with minority participation by the Indian government. The "expertise" of international multilateral institutions such as the World Bank will be "leveraged" in the "selection and monitoring of investments". While infrastructure development would appear to be non-controversial and laudable in itself, the terms on which foreign capital is offered concessions for bringing in these investments remain to be seen.
The third initiative that could set off ripple effects in policy terms is the demand that the Indian government establish a dispute resolution mechanism that would settle contractual disputes quickly. The Forum calls for the Central and State governments to "resolve legacy issues".
The document highlights six areas for cooperation, not only among businessmen from the two sides but also between the two governments. It notes that "Indian infrastructure needs exceed its funding capacity", which can be met by American assistance and funding. While public-private partnerships must be encouraged, this needs to be backed by making bidding processes more transparent. The Forum sees new possibilities in building Special Economic Zones (SEZ) to cater to overseas as well as domestic markets. "World-class infrastructure" and "flexible, internationally competitive labour laws" would provide incentives for investment.
Unsaid in all this is the obvious implication of cheap labour, and the host of concessions that would be available to businessmen investing in such zones. It would appear that even if a wholesale annulment of existing labour legislation is not politically feasible, the idea is to set up a gradually expanding network of such enclaves. This could then exert enough pressure for the annulment of such legislation. The Forum moots the formation of a task force comprising business interests to work with the Central and State governments to "expedite execution of plans to set up such SEZs".
Indian industry has obviously not learnt its lessons from the Enron disaster at Dabhol. The Forum establishes another task force to resolve "legacy disputes in the power sector". It also recommends that prices in the Indian petroleum sector be solely market-driven and that the government enact legislation that would hand over petroleum pricing and other market-related issues to a regulator instead of resting them on political consensus. The Forum has mooted the establishment of an "independent" entity that would be a "think tank" on regulatory issues.
Unmindful of the growing opposition to the move to allow foreign control of retail trade, the Forum has asked the government to "expedite the decision to allow FDI [foreign direct investment] in retail trade". It suggests that as an "immediate first step" FDI may be permitted in SEZs or through joint ventures. Significantly, several Indian conglomerates are all reportedly planning forays into retailing, either in SEZs or through tie-ups with multinational retailers. Significantly, Wal-Mart has already expressed its willingness to settle for a joint venture as an initial step in entering the Indian market.
Apart from setting up a dispute settlement mechanism, there is also a demand for judicial reforms, primarily to ensure that cases are disposed of faster. The Forum recommends the formation of a task force, which would have representation from the State and Central governments and Forum members. It is shocking that civil society is completely ignored in the Forum's plans for reforms. This is a recurring lacuna in the report. Nowhere is there a hint that India is a democratic society or that there may be aspirations other than those of industrialists.
There are also demands for opening up the financial sector. The Forum demands that the Indian government "accelerate the timetable to raise FDI caps" in the insurance sector, apart from allowing greater FDI in private Indian banks. It wants the Reserve Bank of India to "advance its road map for foreign ownership of Indian private banks from its current timeline of 2009 to sooner." Foreign investors, it notes, should be allowed the freedom to sell insurance and pension products in India. Almost in passing, in the appendix to the main report, the Forum points out that the U.S. government should "provide greater access to Indian banks".
One of the key recommendations relates to the stricter enforcement of intellectual property laws. The Forum wants a centralised enforcement agency that would track policy violations across States. Specialised courts dealing with intellectual property cases are also demanded.
This report is as much about agriculture as it is about services and industry. It seeks the opening up of the food-processing industry, "irrespective of size". It also asks the government to consider fiscal incentives for investors and calls for the phasing-out of subsidies and the removal of all restrictions on the movement of produce across district and State boundaries.
Big business also wants the real estate sector "to be fully open". There is not even a pretence at examining the consequences for urban housing, especially for the poor. Significantly, it also wants FDI caps on all media - broadcasting, cable and satellite, e-commerce and print - to be lifted.
The fact that the document is posted on the Planning Commission's website gives some indication of the status it has accorded to the Forum. The Commission's decision to appoint several task forces to handle the proposals of the powerful industrial lobby is sure to raise a controversy. After all, the Commission is expected to adopt a consensual approach to issues, an obviously democratic approach to planning. On several issues the Forum's proposals are diametrically opposed to the promises enshrined in the NCMP. Moreover, on several issues such as allowing FDI into sectors such as retail, insurance and banking, there is significant opposition from large sections of society. This is reflected in the increasing pressure on political parties to resist these moves. The Planning commission's attempt to adopt a sectarian agenda as its own is sure to turn controversial.
More important, the Planning Commission's pursuit of what is obviously a socially and economically divisive agenda would amount to a direct conflict of interest within the Commission. In its essence, democratic planning means an ordering of priorities based on consensus. By embracing big business' agenda as its own the Commission is in danger of countering this fundamental approach to planning. Moreover, on several major issues, the approach of the Forum contradicts the approach adopted by the Commission's own experts.
Just one example will make this clear. In September 2005, a task force headed by Dr. Pronab Sen, Principal Advisor (Perspective Planning) in the Planning Commission, submitted a report to the government on what the government ought to do in order to make life-saving drugs available to people at reasonable prices. The panel endorsed the widely held view in the medical fraternity that what is an "essential drug" ought to be determined independent of what the market deemed, in terms of prices, for instance. In substantial terms it has been the first official report since the historic Hathi Committee Report (1975) to recognise that high drug prices are fundamentally anti-poor. The Pronab Sen panel recommended that an "essential drugs list" be maintained with the objective of enforcing controls on these drugs.
The panel recommended that patented drugs be subject to price monitoring and under compulsory licence, which would enable them to be made available to the needy. It also recommended that if and when demand for particular medicines reached a certain level, generic alternatives should be produced. Business interests, particularly in the pharmaceuticals industry, would obviously find this difficult to swallow.
The U.S.-India CEO Forum's report has demanded that the Pronab Sen panel's report be "reviewed". Referring to the recommendation relating to the production of generics, it observed: "Although the industry is confident that this particular recommendation will most likely not be adopted, it is troubling as it could portend future anti-industry actions by the government."
It remains to be seen whether the Planning Commission will forsake its own in order to satisfy big business.