Complacency about achieving high growth without tackling problems arising out of rising energy prices, optimal allocation of natural resources and crony capitalism could jeopardise India’s long-term growth potential.
This was the view of a panel of Union Home Minister P Chidambaram, the Prime Minister’s Economic Advisory Council Chairman C Rangarajan, Planning Commission Deputy Chairman Montek Singh Ahluwalia and the government’s former chief economic advisor, Shankar Acharya. They were discussing 20 years of economic reforms at the Business Standard Awards function. It came round to the view that while the economic reforms unveiled in 1991 were triggered by a crisis, it was now time to focus not just on reforms, but on the many constraints that could choke the economy’s growth potential in the coming decade.
Tracing the history of reforms, Chidambaram said if there were no economic crisis, Manmohan Singh would not have become the finance minister and there would have been no reforms. The Congress manifesto prepared for the general elections in 1991 did talk about an agenda of reforms, but with the assassination of Rajiv Gandhi, there was no certainty that these would have remained on the agenda. With P V Narasimha Rao as the prime minister and Singh as the finance minister, such hopes were revived, he added.
Ahluwalia said the crisis was so severe that it was a no-brainer to argue on the remedial steps the economy needed. Rangarajan said the second phase of the depreciation of the Indian currency’s value vis-à-vis the dollar was effected in spite of the political establishment’s discomfort. Acharya said the doubtfulness on reforms was as evident in 1991 as it was now. When asked if reforms had more backers now, Chidambaram said there were more reformers within the Cabinet, in the government, among Members of Parliament and even among opposition political parties. “Financial sector reform bills drafted five years ago were now being tabled in Parliament and seeing support in various quarters.”
Ahluwalia argued there was no reason why India could not grow as fast as the East Asian and Chinese economies, but becoming complacent about reaching these growth targets without tackling the constraints with more reforms was dangerous. Chidambaram said there was a case of crony capitalism in the manner in which business was getting land and mineral resources from the government. Rangarajan drew attention to the disparities in growth in different regions and said there was need to pay attention to raising growth rates in all sectors of the economy.
Compared to 1991, Ahluwalia said business on Friday was more open to reforms, but the need was to focus on issues such as water management and urbanisation. “Maharashtra, for instance, used 60 per cent of its water for three per cent of its land to grow sugarcane, and water still could not be priced.”
All the panelists, however, were upbeat on India’s growth prospects in the coming decade. The need was to ensure India continued to maintain its current growth tempo for another two to three decades, like China had done for the past 30 years, they said.