Popular aspiration vs political response

Discussing market reforms would likely make politicians on both sides of the Parliamentary divide uncomfortable but it's a conversation that India desperately needs to have, and not just in Parliament

It is a sign of India’s progress that the political debate on the economy is now centred on jobs, not poverty. That the advance is not rapid enough is evidenced by the continued predominance of welfarism over growth. And therein lies a paradox of India’s current political economy — the popular aspiration is for better jobs, the political response is redistribution. What better paying jobs require is a double digit growth which can only materialise if a series of difficult reforms are implemented. On the other hand, some redistribution is perfectly feasible at 7-8 per cent levels of growth as both the United Progressive Alliance and the National Democratic Alliance governments have shown. If this was a satisfactory equilibrium, incumbent governments would not feel much pressure. Clearly, it is not. 

Last week, there was a spirited discussion in Parliament on the Rafale acquisition matter where both the government and the Opposition dissected and debated the issue threadbare. If only Parliament debated the issue of jobs in similar spirit and detail. Unfortunately, the discourse on jobs is only about numbers: How many were created by which government? While not irrelevant, that is not the moot question. The creation of jobs, or better paying jobs, is not something any government can do with one stroke of the administrative pen or even with one or two legislative changes. There is a gamut of reforms required — in land, in labour, in taxation, in banking, in the public sector, in environment, the list is long — but discussing market reforms frankly would likely make politicians on both sides of the Parliamentary divide uncomfortable.

India is a mineral-rich country (its geological potential is similar to Western Australia) but mines only 2 per cent of its potential

It is a conversation that India desperately needs to have, and not just in Parliament. It is generally agreed that India has carried out market reform by stealth or via strategic silence rather than on the back of public opinion. That may have worked for a first generation of reforms but it is not working for the next. Consensus is loaded with negative connotations in India’s political economy but the country needs a new social compact to meet its aspirations. Politics/government, industry and civil society need to engage in a dialogue to chart a feasible course that will deliver double-digit growth which is inclusive and sustainable.

Of course, even if there is broad agreement on the end goal, there will be serious disagreements on the pathways. Consider the scenario in just one sector, natural resources. No country has achieved prosperity without consuming vast amounts of energy (oil and gas, coal, renewables recently) and metals (iron, steel, aluminium, copper, rare earths more recently). This is true of the first, second and third industrial revolutions and it will be true of the forthcoming fourth industrial revolution as well — it is a necessary condition for growth. Of course, the use of energy and resources has serious spillover consequences, not just for the environment but also for communities. India’s current reality is that it is consuming ever more quantities of energy and resources as it grows at a rate of 7-8 per cent per annum but its policies for the sector are caught in a tangle between the divergent views of industry, government and civil society. 

India is a mineral-rich country (its geological potential is similar to Western Australia) but mines only 2 per cent of its potential. Civil society activism and government concern for communities has meant that India imports a significant amount of its resource requirements, straining its current account and its inflation levels every time global commodity prices go up. Elsewhere, in emerging economies like South Africa and Brazil, governments, industry and civil society have come together to unleash the potential of the sector while protecting, and often enhancing, the interests of the environment and communities. With technology and transparency, both of which are available in India, it is possible to achieve superior outcomes even in a contentious sector like resources. 

Alternatively, perhaps there may be a view that India should not exploit natural resources at all and should import all its requirements. In which case, there will need to be a simultaneous consensus on which sectors can generate enough exports, or attract massive foreign investment, to pay for the huge import bill. Then, policies for those sectors will need to be liberalised.

Development does not happen without disruption. Better jobs will not materialise automatically. They need a vibrant market ecosystem. There are bound to be some losers in any process of structural reform but that isn’t reason enough not to reform. Instead, create systems for their rehabilitation. Politicians must urgently initiate a national dialogue on double digit growth and good jobs because it is they, not industry and civil society, who will, in the end, face the judgement of an impatient India.

The author is chief economist, Vedanta Ltd