Make reforms work

Govt has to find a way to remove the stumbling blocks

After the announcement of a Rs 20-trillion economic package by Prime Minister Narendra Modi, Union Finance Minister Nirmala Sitharaman last week outlined a series of measures to support the economy. Apart from providing liquidity support to various sectors of the economy with a minimal fiscal outgo, the focus was on reforms. However, many of the policy measures were either a reiteration of earlier announcements or follow-ups to those that did not work as desired. For instance, the Rs 90,000-crore liquidity support for power distribution companies (discoms) is a direct result of the failure of the Ujwal DISCOM Assurance Yojana. The discoms owe power generation companies over Rs 90,000 crore. While the liquidity support would help the discoms clear dues, it will add to their overall debt burden. Till the issue of pricing and technical and commercial loss is not addressed, discoms would repeatedly find themselves in trouble.

The package for defence production is a follow-up to many previous policy announcements about involving the private sector, none of which has yielded the desired result. In some cases, it is the defence services themselves which have insisted on foreign supplies owing in part to the failure of domestic suppliers to deliver on time, within cost, after meeting the specifications (which the services have had a habit of changing midway in order to put stumbling blocks in the way of local suppliers). These issues will not go away, and have to be dealt with. Also, the new effort to get manufacturing going through stress on self-reliance is a result of the failure of the “Make in India” programme to attain its stated goals. The mining initiative was also announced some months ago. The announcement related to public-sector undertakings has attracted considerable interest. The policy of creating more space for the private sector and privatisation of state-run firms has been followed in some form or the other since the beginning of the reforms process. However, the government always finds privatisation difficult and stake sale over the years has essentially been used to contain the fiscal deficit. At a broader level, the extra money for the Mahatma Gandhi National Rural Employment Guarantee Scheme is also a consequence of the failure to create the jobs promised in the 2014 election campaign. Better-quality jobs and earnings over the years would have put a large part of the Indian workforce in a relatively good position to deal with income shocks. 

This is not to suggest that all earlier pronouncements were ill-conceived, but it is important to make sure that they don’t meet the same fate again. It is possible that the government is clearer in its intent now than before, but that may not be enough if it does not find a way to cut through the obstacles and remove the stumbling blocks, including lobby groups that do not want change. These include, for instance, the existing defence public-sector units which do not want competition from the private sector. These would even include ministries and ministers who want to protect their public-sector turf. Overall, the government has done well to show the intent to carry forward the reforms process, but as the track record shows, intent alone will not be enough. While the immediate focus should be on providing relief to the vulnerable sections of the population, continued attention to the implementation of these reforms will help support economic recovery as soon as the spread of the virus subsides.