The Pioneer

When the Congress returned to power in the summer of 1991 after the Janata Dal interregnum, the Cabinet of Prime Minister PV Narasimha Rao was presented a note by the Ministry of Finance advocating dramatic reforms that included the deregulation of the economy. The note was greeted with predictable scepticism, if not outright hostility by the Cabinet.

Looking for a way out of the logjam, Rao despatched a young aide to one of Indira Gandhi’s trusted confidants for advice. The hard-nosed veteran read the Finance Ministry note and then offered his suggestion. Wouldn’t it be more advisable, he asked, to preface the document with appropriate passages from Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi? It would, he suggested, definitely enhance the comfort level of the Cabinet to know that the proposed measures were in conformity with the scriptures.

The wily Rao didn’t hesitate to accept the sage advice. A re-worked Cabinet note was circulated and this time the opposition melted away, giving the Prime Minister the mandate to pursue liberalisation as the highest stage of Nehru and Indira’s socialism.  

This delightful story may well be true, partially true or plain apocryphal. What is remarkable, however, is not the revelation that the Congress is made up of dinosaurs but the extent to which orthodoxy takes hold of the political imagination to resist change.

Nominally, India may have travelled a long way from the days when inefficiency and sloth were regarded as economic virtues and when personal rates of taxation for the highest slab touched 97 per cent. What is significant, however, about the massive economic shifts that were first brought in by Manmohan Singh’s 1991 Budget is the remarkable extent to which change has been ushered without fanfare and, more often than not, by stealth.

It required the 1991 balance of payments crisis and the emotional trauma of the physical mortgaging of some of India’s gold reserves to begin the assault on the licence-permit-quota raj. Likewise, it required the Western sanctions against India in the aftermath of the 1998 Pokhran-II blasts to lift many of the curbs on foreign capital and rid Atal Bihari Vajpayee of his party’s accumulated swadeshi baggage.

As 2011 draws to a close, India is at a similar crossroads. The economic downturn in the US and the Eurozone crisis has left no economy untouched. Complemented by what is called the ‘governance deficit’, India’s economic indicators have moved southwards. The GDP projections are down to below seven per cent; the fiscal deficit it expected to breach the budgeted figure and touch more than six per cent of the GDP; inflation has been hovering around 10 per cent for nearly a year despite 13 interest rate hikes since March 2009; the Sensex has lost 22 per cent since January and foreign direct investment inflows have virtually ceased after touching a record $29 billion in 2010; and, the Indian Rupee has lost some 15 per cent of its value in barely three months, thereby making imports prohibitive and adding to the inflationary spiral.

Particularly disturbing is the extent to which a beleaguered political class seems ready to fall back on the ideological shibboleths that many imagined had been steadily discarded since 1991. The approach to the fiscal deficit is a classic example of a Government that seems unconcerned.

There is a stalemate in the US over the failure of the White House and the Republican-controlled Senate to agree on measures to reduce a trillion-dollar deficit, and in both Britain and the Eurozone the deficit is at the root of a political stand-off. Yet in India, fiscal consolidation has been deleted from the political vocabulary. The hugely expensive and inefficient Centre-sponsored welfare schemes are not merely regarded as holy cows but there are moves to expand the net. So whimsical is the sop culture that last week the Commerce Ministry announced a Rs 3,844 crore ‘package’ for weavers in eastern Uttar Pradesh because Rahul Gandhi demanded it. No wonder Mamata Banerjee believes that handouts are her birthright too.

In Europe, it is said that “austerity is the new normal”. In an economically fragile India, fiscal profligacy is the norm — the preferred Rahul alternative to beggary. India is living beyond its means but no one seems to care.

In most of the countries gripped by the downturn, the trend is towards removing as many obstacles to growth as possible. In India on the other hand, the trend is to pretend all is well and add to the woes of entrepreneurs.

India, it would seem, is sleepwalking its way into an economic disaster zone. Yet, there are two remarkable features of this death march. First, there is no widespread realisation that the troubles aren’t confined to inflation and price rise but affect the nerve centres of economic growth. Second, there is the presumption that statist intervention and a more rigid regulatory regime (that deters private sector corruption) is the way out.

Nehru, it must be said, did a remarkably good job in turning progressivism into common sense. Even two decades after liberalisation transformed India and heralded far wider levels of prosperity, India has not yet turned its back on the belief structures of the bad old days. Economic reforms become meaningful only when accompanied by an intellectual revolution.