Keeping the faith

Last week, the economic reforms agenda of the UPA government received a body blow from one of the alliance partners, the DMK. All this, while the Left parties were seen as the spoilers as far as reforms are concerned. The face-off over the government disinvestment of some shares in the Neyveli Lignite Corporation was the first major occasion in the last two years in which a party that is part of the government has openly threatened to walk out if a proposal that had been cleared by the Cabinet was not shelved. This has been widely perceived as a blow to the Prime Minister's authority and the government's credibility on economic policy.

Even as this drama was being played out, the Investment Commission, chaired by Ratan Tata and comprising two other corporate luminaries (Deepak Parekh and Ashok Ganguly), submitted its report to the finance minister. The report estimates that attaining the 8 per cent plus growth objective will require an aggregate public and private investment of $1.5 trillion (Rs 6,75,000 crore) over the next five years. Since there is no alternative to a large inflow of foreign direct investment (FDI) to achieve this objective, the Commission recommends sweeping reforms to induce larger investment flows. In fact, it sets the ambitious target of $15 billion worth of foreign direct investment for next year itself, about thrice the current levels. How does it propose to achieve both the short-term and long-term objectives? By implementing precisely the kinds of reforms that the government has had such difficulty persuading its coalition partners about.

With respect to FDI policies, the Commission advocates removing or relaxing most of the limits that are currently in place: 100 per cent foreign ownership of private banks, 49 per cent in public sector banks, and 49 per cent in insurance companies are the highlights of its recommendations for the financial sector. It also asks for 49 per cent foreign ownership in retail, going up to 100 per cent in wholesale trade. Coal mining and the media are other sectors in which it believes that expanded limits will induce a larger inflow. Beyond this, it recommends access to contract labour across the board, amounting to exempting employers from job security regulations.

Coming hard on the heels of the disinvestment embarrassment, it is tempting to dismiss these recommendations as just some more whistling in the wind. With the government's credibility on reforms about as low as it can get, what hope can anyone harbour about these recommendations having any impact at all? But, that would be a needlessly negative reaction. Mr Tata and his colleagues have brought home the point that there can be no growth without investment, and there will not be enough investment without reforms. Those who find the reforms being recommended unpalatable, either because of ideology or political compulsion, owe it to their constituencies to provide practical, feasible alternatives to the blueprint that has guided economic policy for the last decade and a half. That they have not been able to do so thus far reflects the fact that there really aren't any. The reform critics' role in the process would be far more constructive if they focused, instead, on ensuring that the benefits of growth spread out as widely as possible. Unfortunately, maturity and foresight appear to be in short supply amongst the ruling class.