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The great Indian reforms story.
Wednesday, 9 December, 2009
The Indian economic reforms started in 1992 under the aegis of the then Finance Minister Mr. Manmohan Singh. The idea was to release the Indian industry from the clutches of the licence-permit raj and allow it to scale to its fullest potential. This was expected to bring prosperity to over a billion Indian people. The process since then has been painstakingly slow. But it sure is moving in the right direction. Under the intense political pressures from the colorful Indian democratic system, the process has successfully finished, what Thomas Friedman calls as, Wholesale Reforms. Wholesale reforms are those which are implemented at a national level in a top down approach. This includes getting the trade policy right, fixing the financial markets, getting the infrastructure up to quality standards, divesting from the non-core business ventures etc. India has already covered significant ground on these fronts since the opening of economy for foreign trade in 1992, except for the quality infrastructure. These wholesale reforms have enabled the country to participate in the globalized business. For example, the Indian IT companies are competing with the likes of IBM and Accenture, the Indian textile companies are exporting to the best of the brands in the fashion industry etc. But the true benefits of globalization can be passed on to the lowest strata of the society only after the retail reforms are implemented. And that’s where the real challenge lies. Retail reforms are done at a micro level. These reforms directly touch the people and society. And thats why they may not be implemented in a manner of years or even decades. These reforms will happen over generations. The retail reforms include, reducing the time to setting up a new business, reducing the time for issuance of licenses, the ease of hiring and firing of the workers, the rights of property ownership, the availability of credit etc. Although, India has started these reforms, the pace is very slow. The change should happen must faster pace than the current one. The social sector spending programs opened by the Indian government has helped in small ways to pass of the prosperity to the lowest income groups. Although, the financial logic and efficiency of such programs is debatable, there is no doubt that the programs like NREGA and farm loan waivers has made a significant impact on the Indian rural economy. The key for India is not to loose the focus over the reforms since the wholesale reforms are completed. But the dynamic political and cultural set up of India makes it very hard to bring in any change. Fortunately, the new generation is well aware of the necessity for these changes. I am hopeful that we will see these reforms happening in India at a brisk pace over the next decade.
