Reforms as ideology

Print edition : October 23, 1999

India in the Era of Economic Reformsedited by Jeffrey D. Sachs, Ashutosh Varshney and Nirupam Bajpai; Oxford University Press, New Delhi, 1999; pages 312, Rs. 525.

THIS volume is based on the deliberations of a conference on India's economic reforms held at Harvard University in December 1996. While there have been many assessments of the reforms by Indian and foreign scholars during the past few years, practically all of them have concentrated on the economic aspects. This book's attempt to go beyond economics and to relate the reforms to the political processes makes it of special interest.

For this reason, I shall only briefly comment on the economic issues dealt with in the volume although five of the eight chapters (including the Introduction) are on economic aspects. Montek S. Ahluwalia's chapter making an overall appraisal of the refor ms is quite comprehensive. So is the chapter on fiscal policy by Nirupam Bajpai and Jeffrey Sachs. There is some overlapping in these two chapters dealing primarily with macro-economic aspects. Ashok Kotwal and Bharat Ramaswami consider the impact of the reforms on agriculture and the rural economy. The central argument is that liberalisation of trade can lead to diversification of the rural economy and to an increase in the demand for labour and thus to raising of rural incomes. The chapter on labour g ives an account of the structure of the labour market but relies on the experiences of other countries to speculate on what is likely to happen in India.

The chapter on exports deserves special mention because it deals with three of India's leading export industries - diamond cutting, garments and software. In the case of diamond cutting and polishing, the paper shows how the industry is coming under the grip of the international diamond cartel, De Beers, and its common marketing agency, the Central Selling Organisation that control the supply of gems. India's many small diamond-polishing establishments have to deal with these global giants. Garment expo rts come under the Multi-Fibre Agreement which restricts garment imports by quotas in the U.S., Canadian and West European markets. And the software industry has to reckon with the fact that while its performance has been very satisfactory, its export pe rformance depends on the fact that the skilled labour it requires is much cheaper in India than in the countries it is exporting to, but it is likely to be outdone by Russia and China where skilled labour is even cheaper. These cases show some of the par ameters on which actual market performance depends.

While the papers on the economic facets of reform deal with many aspects (most of them quite familiar by now), some issues that they do not touch may be worth noting. Practically all the papers admit that the proximate background to the reforms was the b alance of payments crisis of 1991. It is shown that the opening up of the economy and the flow of foreign capital that followed resolved the crisis fairly soon, but there is no discussion of the manner in which the external crisis is linked to the intern al reform measures insisted upon, such as the reduction in the fiscal deficit. Second, while it is clearly shown that the reduction in the fiscal deficit when it was achieved was done by drastically reducing the government's capital expenditure, t here is virtually no discussion about the impact of this measure on the development of infrastructure on which market performance critically depends. Third, the papers written before 1996 did not anticipate the industrial recession that set in fairly soo n afterwards, and even Ahluwalia's paper written after 1996 and dealing with statistical material up to 1998-99 does not deal with that problem, a rather uncomfortable one to those who are mainly interested in pushing the reforms.

NOW on the two papers dealing with politics. The late Myron Weiner examines the role of State governments in the implementation of the economic reforms. Overlooking the fact that when the reforms were launched in 1991 it was a decision taken entirely by the central government and that many crucial aspects of reforms were thus suddenly thrust upon the State governments, the author provides three reasons for the tardiness of the States in implementing the reforms. One reason is that State political leader s have short time horizons and in the debate on reforms the short-term drawbacks and losses of reforms get greater attention than the long-term advantages. Secondly, many organised interests opposed to one or other aspect of economic reforms have conside rable clout at the State level. And thirdly, politicians and officials in the States are more reluctant than others to give up the patronage and rents that are acquired through the regulatory system.

What I consider the lead paper in the volume, Ashutosh Varshney's examination of "elite politics" and "mass politics" in the context of economic reforms, deals more elaborately with the role of politics and ideology in the implementation of reforms. The macro aspects of reforms - devaluation of the currency, restructuring of public finance and capital markets, liberalisation of the trade regime and so on - are elitist in nature. According to the author, the discussions on these aspects are "confined to the English language newspapers, the country's graduates, the discourses on the Internet, the Bombay stock market and Delhi's India International Centre and its economic ministries". They hardly enter into mass politics where the issues are either emotio nal ones such as religion, caste and ethnicity or down-to-earth matters such as prices, employment and job security. The issue of economic reforms hardly ever penetrates mass politics.

Varshney is of the view that the peripheral role of reforms in mass politics can go to the advantage of reformers. He uses this observation to explain one of the paradoxes in the recent Indian political scene in relation to economic reforms. How did P. V . Narasimha Rao, heading a minority government, succeed in putting through radical economic reform, while Rajiv Gandhi, with a massive majority in Parliament, was forced to go slow with his modest reform programme? And the answer? "Economic liberalisatio n became a victim of its splendid solitude on the political agenda in 1985-86. In 1991, economic reforms were crowded out of mass politics by issues that aroused greater passion and anxiety about the nation. Because they were crowded out, reforms could g o as far as they did."

It would appear that between the time Varshney wrote his paper for the Harvard conference and became a member of the team that wrote the Introduction to the conference volume, there was something of a change in perception. In the paper the position was t hat where mass politics is concerned with emotive issues, elitist bureaucrats can successfully implement economic reforms; a rather different position is taken in the Introduction. "There has been an absence of ideological thrust in India's reform progra mme, which is arguably one of the causes behind the moderate speed of post -1991 reforms ... Political leaders and parties are implementing reforms, but not making clear ideological arguments in favour of reforms ... Economic reforms are yet to be boldly presented on the ideological platform of political parties. They are yet to be made into the centrepiece of electoral campaigns."

WHAT accounts for this change in perception? It may be recalled that (most of) the papers for the Harvard conference were prepared while the economic reforms of the Narasimha Rao government were making progress, and the Introduction was prepared perhaps early in 1999, by which time there was concern that the reforms were beginning to stall. The cheer leaders of reform, therefore, must adapt themselves to the new reality. They are concerned that in the parliamentary elections of 1996 and 1998 economic re forms did not receive adequate attention and the ideological support they deserve. The Congress party, they say, did not turn its economic policy breakthrough into a theme for electoral campaigns in 1996 and 1998. And the BJP, in spite of its traditional support for freer internal business and trade, also failed to canvass for a more market-driven economy. This theme had become the new slogan for the authors that they boldly state: "In the 1998 election manifestos of the BJP and Congress considerable sp ace was given to economic policy but the electoral battle was over whether Sonia Gandhi, the ace campaigner of the Congress party, was an Italian or an Indian ..."

That Sonia Gandhi played a relatively minor role in the parliamentary elections of 1998 (and that the question of her nationality was not a major issue then) would have made no difference to the argument because the approach of the authors to economic re forms is essentially ideological. They are convinced that a greater role for the market in an economy will lead to more competition, more efficiency and more growth and that these will be beneficial to all, at least in the long run. That the restructurin g of the economy in this manner will adversely affect the lives and livelihoods of millions of people, those least likely to be able to face such problems, appears to be of no concern to the authors.

True, they concede that "deeper and quicker reforms in India will require not only assuming, but also demonstrating, that they are positively linked to mass welfare." If they had taken this seriously, though, the themes discussed in the book and the fact s assembled and analysed would have been different. They would have also noticed that the masses are not ignorant of and indifferent to reforms. They would have noticed too that while the masses do not enter into academic discussions about economic refor ms, they do react to how the reforms are being implemented. They would have observed that in the elections to the State Assemblies held in 1994-95 and in the parliamentary elections of 1996 the masses punished the Congress party for the adverse effect th e reforms had on them though the reforms had opened up a richer and more varied life to the elites. And that even the BJP faced the wrath of the masses in the Assembly elections of late 1998 because that party's economic policies had resulted in an excep tionally high price of onions!

The fact is that economic reforms have entered very much into the real politics of India, but perhaps in a manner that elites and ideologues do not approve of because they do not understand the logic and language of the masses.

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