Has India reached the limits to economic reforms?

The government of India’s decision to roll back legislation that would allow FDI in multi-brand retail is ill-advised. However, in the grand scheme of things it is but a hiatus that at worst merely derails the momentum of reforms.
Wajahat Qazi
12 December 2011

The saga of opening up India’s economy can essentially be dated back to Rajiv Gandhi’s sectoral reforms in the mid eighties and the momentous and catalytic balance of payments crisis in 1991. India’s opening has since developed a momentum of its own. Subject to the twists and turns of the country’s democracy and fragmented polity, the reforms resulted in a transformation that can only be sanguine for India. The question that is pertinent is whether the current hiatus can derail the reform process and whether India will remain stuck in policy inertia.

The answer to these questions lies in the domain of politics and politicking in India. If the Indian political class takes recourse to crass populism and petty politicking and prefers electoral gains to the real national interest, as it has done lately, then there is a possibility of reforms getting derailed. However, if the national interest and a balanced assessment of the gains accruing from reforms are taken into account, the reform process can again get catapulted onto centre stage in India. But it is pertinent and germane to lay out the gains accrued from the economic reforms of 1991.

The economic reforms have enabled India to clock a growth rate averaging around 8%. (It has gone down to 6.9% of late). This has yielded both political and economic dividends. In the realm of international politics, it has implied a shift away from the non-aligned stance of India, closer relations with the west and the growing recognition in the west that India can be an ally and partner of capitalist democracies. Economically, the entrepreneurial potential of the economy has been unlocked leading among other things to brand recognition of India INC with Indian firms on their way to international relevance. The trickle down effect of all this has not only helped expand the middle class but also benefitted other economic and social strata of society. Cumulatively, economic reforms have been beneficial for India and it stretches reason to believe that the country will shy away from carrying the reform process forward. The reform process may have lost momentum, but this is not irreversible.

Having said this, all is not hunky dory in India. The real India, or Bharat - that of rural villages, castes, jatis and indigenous peoples - remains excluded and outside of the ambit of the benefits of reforms. And hence it remains mired in intergenerational poverty traps and attitudes that can hardly be called salubrious. This disparity between Bharat and the India that publicists and opinion makers have thrown their gaze on is the cause of problems like contemporary Naxalism and even perhaps the Kashmir issue. Bridging this yawning gap remains the foremost challenge that modern India faces. The confidence of this assertion is premised on the prognoses of modernization theory which posits that economic modernization has in many instances been a prelude to other forms of modernization.

The pertinent question does not concern reforms and the reform process per se but rather the trajectory, depth and direction of reforms. That is to say that the policy making elite of India should seek to overcome the paralysis and focus its energies on deepening the reforms. The thrust of the focus should be on those segments of society who have hitherto been excluded from economic gains. If the fruits of reforms reach the underprivileged, some form of social balance and equilibrium will be arrived at. This balance will redound positively to the political system as well. If tangible improvements will be felt by the excluded Indians, then they will view the reform process in a more sanguine light and the resistance to the reforms will be dulled. This will leave no space for political entrepreneurs to take recourse to populist politics. And, in the final analysis, this may even lead to a more comprehensive modernization of India. Till the reforms and the reform process are made inclusive, the bleeding heart aam aadmi (common man) slogan trotted out by politicians across the political divide will remain just that: a crude slogan of cynicism and opportunism.

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