Bones of contention

BEATING THE STREET

It would be understandable if recent developments led people to believe India's policymakers had turned schizophrenic. At one level, this government seems committed to reform. At another level, it wants to turn the clock back.

The PM goes to the Big Apple and makes a plea for more foreign investment and assures everybody and his pet dog that reforms will not lose momentum. Eighty-five items are pulled off the small-scale industries reservation list. Foreign consultants are asked to sit in on high-level government committees. Administered interest rates are eased down. The PM also gently requests the judiciary to speed up court-processes. All good signs.

However, on the other hand, the hiking of sector investment limits in airlines, telecom, etc, continues to cause bitter dispute within the UPA. Empowering legislation such as the draft Pipeline Bill is held up, the Electricity Act's deadlines for SEB reform are pulled back. No regulators are appointed in the Petroleum and Natural Gas sector. The government also says that it may renege on the commitment to sell out the Maruti stake to Suzuki next year. The Left makes a row about the appointment of "foreigners" (who are actually Indians but never mind!). Almost 600 items remain on the truncated SSI list.

There appear to be two schools of thought within the Left Front itself. While the ideologues offer anti-reform sound bites, the pragmatists who run state governments cheerfully avail the services of the same foreign consultants in West Bengal. Left Front governments seek FDI projects, and generic private sector investment, as well as multilateral funding and technical assistance in Kerala and Bengal.

How much of the public disagreement is actually posturing? Has a tacit understanding been hammered out or simply fallen into place during the last five months? The Left appears to make a noise about some changes while actually going along. The reformers won't push hard on issues where the Left is actually inflexible. If it comes to the crunch, compromises will always be worked out; this government won't collapse on ideological differences.

The thing is that there is plenty of room for agreement and plenty of scope for improving economic momentum within the bounds of this debate. If the CMP is implemented with its emphasis on building rural infrastructure, everybody will benefit. Nobody is opposing this "" by definition, since it's the CMP.

The stakes are actually very high. Do things right and India's trend-rate of GDP growth could rise from the current 5-6 per cent to 7-8 per cent. At 5 per cent, the economy doubles in around 14 years, at 8 per cent, it doubles in just 9 years.

Doing what's required in the way of structural changes to sustain 8 per cent growth needs quicker reforms. And, attracting large-scale investment from abroad through liberal policies is also a must because the domestic savings rate may not be high enough to fund 8 per cent growth.

The dereservation of SSI items is a measure that encourages economies of scale and thus enhances competitiveness. There are many other policy measures that could cause similar effects across sectors. Not all are contentious. It would be desirable if the UPA managed to rapidly implement the ones that are not.