Re-affirming the agenda

The finance ministry's Mid-Year Economic Review, presented by P Chidambaram in Parliament on Friday, underlines the strong macro-economic situation in the country. Since the advance estimates for GDP during the second quarter (July-September) of the current year, released last month, have indicated a growth rate of over 8 per cent during the first half of the year, there is little doubt that the year as a whole will clock around 7.5 per cent. In this sense, the review comes a little late in the day to shape expectations. However, since, like the Economic Survey published every February, it is a statement by and of the finance ministry, it provides some useful guidance on what the ministry itself considers the key positive and negative drivers of the economy.

The Mid-Year Review provides some unambiguous reassurance to the growing body of reform sceptics that the ministry has no intention of abdicating its position as the standard-bearer of reforms. While it emphasises the current healthy state of the economy in terms of growth, inflation, public finances and on the external front, it also argues that these conditions will not persist indefinitely without continuing infusions of reform measures. The usual suspects""poor infrastructure and rigid labour markets""are high on the list, but the review also points to the deterrent effect on investment of things like endlessly prolonged environmental clearance procedures. It articulates the ministry's belief that the current investment-GDP ratio, around 26 per cent, is far below desirable levels and cannot but be hindering growth. All this adds up to a general dissatisfaction with the investment climate in the country, improving which is a clear imperative to sustaining growth.

As if to underline the government's intellectual adherence to basic reforms, the Prime Minister spoke out at the labour conference held on Friday and called for a comprehensive review of the country's labour laws. It is far from clear that a government that depends on Left support for passing legislation will be able to enact amendments to the laws on industrial disputes and contract labour (to name just two that are required for creating a more flexible labour market), so the speech may not be significant as a harbinger of policy and fresh legislation. But at least Manmohan Singh has laid out the case for what needs to get done. One of the features of this government has been not just the pussy-footing on reform measures but also the failure by the known votaries of reform to perform the basic task of shaping the debate on key issues, while the Left fills the airwaves with its positions on the same issues. For instance, the Left has been busy on TV damning the decision to drop interest rates on provident fund balances, but no one from the Congress has cared to counter this and explain the rationale.

The danger with a document like the Mid-Year Review, therefore, is that its policy articulations will get reduced (like those in the Economic Survey) to pious advice that the finance ministry itself does not adhere to or take seriously. Government reports are not meant to be exhortations to act, they are meant to prepare the ground for action. The Review re-affirms the finance ministry's commitment to the reform agenda, notwithstanding the occasional, politically induced, diversions. But more is required, and the ministry must do something to counter the growing unease about the government's ability and willingness to push ahead with reforms.