There is nothing like a crisis to focus the mind. Policymaking in India lives by this principle, as has been so evident in the various episodes of reform that the country has seen. 1991 is still fresh in many people’s memory; the reason why it has not been displaced by more recent events is that there simply hasn’t been a crisis of comparable proportions that has forced the policymakers’ hand. Over the past few weeks, it has become increasingly clear that the global economy is on the brink of a crisis, if not already into one. Even though the origins of the crisis lie outside India, its impact is significant, given the global linkages that the Indian economy has developed since the 1991 reforms. There is, of course, some comfort to be gained from the resilience that the economy is demonstrating. Many others have been hit much harder. But, there is no denying that we have a crisis on our hands and the question is: Will the government respond in the generally positive way it has in the past?
There are, indeed, encouraging signs that it is. Three recent initiatives demonstrate the government’s ability to use the opportunity to push through sensible measures. The cabinet approved the hiking of the limit on foreign direct investment in the insurance sector from 26 per cent to 49 per cent. Long resisted by the Left parties when they supported the UPA government, this move was seen as a critical requirement to growing and strengthening the sector. Its role in providing a wide array of insurance and pension products as well as in contributing to the development of a hopelessly inadequate bond market should not be underestimated. Then, it did away with the export duty on steel, which had been imposed when global prices were surging and domestic users complaining. Whatever the merits of these kinds of measures, they are at best short-term remedies and a changed international market gave the government the opportunity to withdraw the tax, which, to its credit, it took. Finally, the precarious financial condition of domestic airlines, partly due to the high cost of aviation turbine fuel arising from the a high tax rate, motivated a reduction in the tax, reinforcing the steep decline in the international price of the fuel and giving the beleaguered industry some breathing space.
Admittedly, none of these measures carries any significant political risk, which the ruling coalition would be reluctant to expose itself to so close to elections. Even so, it must be given credit for staying the course on reform by doing things, which its successor, regardless of who it is, will have no reason to reverse.
