NEWS ANALYSIS India Takes the Slow but Steady Route
 
Philip Bowring International Herald Tribune
Monday, December 31, 2001
NEW DELHI The Argentine and Enron debacles make an appropriate time to assess the depth and durability of India's attempts at economic reform.
.
Those began in 1991, the year that Argentina embarked on its fixed exchange rate - and no event has characterized the fitful progress of India's liberalization more than its relationship with Enron Corp., source of its largest single foreign investment, the Dabhol power plant. India is still overprotected, overgoverned, oversubsidized and short of infrastructure. Few of its industries are globally competitive.
.
Meanwhile, military tensions with Pakistan have been on the rise since the attack on the Indian Parliament on Dec. 13, which New Delhi says was the work of Pakistan-based militants.
.
The statistical record of the decade is mixed. Even if one knocks a couple of percentage points off China's claims for its gross domestic product growth, its per-capita gains over the past decade are well ahead of India's. New Delhi also largely failed to take advantage of a decade of rapid growth in world trade or to capture any significant portion of world capital flows. Still, its per-capita annual growth of 4.6 percent is a significant improvement on the previous decade.
.
It is easy to become skeptical of India's commitment to economic reform. A World Economic Forum meeting here was recently told by a former finance minister, Manmohan Singh, that large-scale privatization was impossible because the Indian private sector lacked the resources and foreign ownership was politically unacceptable. He also said change in the labor market would have to wait until a social security system was in place, which would not happen in the foreseeable future - and this from a man viewed as the architect of liberalization.
.
But there is another way of looking at this. Mr. Singh is no longer a top civil servant but a top politician - leader of the opposition Congress Party in the upper house of Parliament. In India, change is made painfully slow by the opposition's need to oppose, regardless of what its parties do in states that they control. Any such efforts also meet opposition from entrenched bureaucrats and public-sector vested interests and at times runs afoul of a judiciary that has expanded its powers of interpretation to thwart administrative decisions.
.
But the fact that Mr. Singh became a political figure is testimony to the change in basic assumptions here. Measures advanced in the name of reform are opposed for reasons of tactics or self-interest - not because it is considered wrong to privatize, to reduce subsidies, to close unprofitable state enterprises, to change a system that overprotects organized labor but does nothing for the unorganized majority. The ideological battle has been won by the liberalizers. Even the courts have begun to be less obstructive of change.
.
Dabhol's lessons, too, have been mixed. The cowboy instincts of a would-be multinational ran up against the venal and volatile forces of Indian state politics. It stained India's reputation and cost local lenders, as well as Enron, dearly. But Dabhol was possible only because of the decentralization that has been both a cornerstone of reform and the cause of the frustration of those who must deal with India's messy democratic politics. Its failure is also partly attributable to the state of Maharashtra's success in going from power shortage to overcapacity.
.
The past decade has been marked by huge differences in state performance, whether GDP, electrification, birthrates or education. That is a consequence of weakened central control. But India also has total freedom of movement of labor, so while income inequality has risen, it is less extreme than in China.
.
India's public finances are some senses as dire as Argentina's. The central government deficit is 5 percent of GDP, and the total public deficit 10 percent. The mostly state-owned banks hold huge nonperforming loans and need recapitalization. But, as in China, state banks do not go bust. Monetary policy is also cautious. This is a country that tolerates moderate inflation but has never known high levels of it.
.
India's avoidance of foreign loans also has served it well, as has its unstated contempt for the siren songs of freedom of capital movement and free rein for the Western bankers who wrought havoc in East Asia and profited by intermediating Argentina's debt. Advocates of change here, such as Mr. Singh, are pragmatic, not ideological, arguing that market forces are generally more efficient but no panacea. Inertia, skepticism and nationalism have proven useful antidotes to theoretically simple solutions like those of Domingo Cavallo, the former Argentine finance minister. India's attempts at reform have been slow but secure.

For Related Topics See:
Asia/Pacific
Business

< < Back to Start of Article
  Print Article Text Larger Text Small Single Column Mutli Column