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Reforms: India’s politicians must lead, not follow

 

 

The wholly avoidable fiasco over allowing Foreign Direct Investment (FDI) in big box retailing exposed the lack of coherent leadership at the top. FDI in retail, as the reform was egregiously mislabelled, was not about foreign investment in retailing but allowing the corporate sector, Indian and foreign, into a whole range of activities spanning procurement of agricultural produce, storage and warehousing, processing, wholesale distribution and finally retailing. India wastes 30 to 50 percent of what it produces because of inefficiencies in post-harvest handling of food, vegetables and the like. It was a low hanging fruit of reform ripe for harvest. In the context of persistent food inflation, the need for such reform was obvious to many. Yet the government and the Congress managed to bungle such a vital step. It was supposed to be reform by stealth forgetting that the section most opposed to such reform would be well informed wholesale merchants and traders who enjoy a monopsony in agricultural procurement. If they managed to ground the reform, the government has only itself to blame for its poor strategy. The need for reform is unquestioned. How can the government get its reform strategy back on the rails?

That Congress is currently blessed with two of the most inarticulate leaders in its history has never been more painfully obvious. Though out of the crisis currently besetting the government, both the prime minister and the Congress president have elected to maintain an inexplicable silence. Their conspicuous reticence has leant weight to the impression that they are reluctant to invest in reforms with requisite political capital. Some feeble attempt has been made to explain away their strange behaviour as a matter of leadership style, which is laughable. Leadership is more about a style that the situation demands rather than what a leader prefers. Reforms will not happen unless the government chalks out a cogent strategy and communicates the same in a manner that builds and sustains a constituency for reforms. FDI in retail would have been of tremendous benefit to the farmers and consumers as it cut down on waste and oligopolistic rents to give higher prices to the farmers on the one hand and lower end prices to the consumers on the other. But the top leadership made no such effort to sensitise the constituency of farmers and consumers for support of the measure. A small but vocal and moneyed lobby was easily able to derail the measure.
Implementing reforms is not a matter of leadership style alone. It is more of a sustained effort at creating a proper narrative for reforms and firmly imbedding  the narrative in the national discourse such that the need for each step of the process is self-evident to the people at large. Neither the Congress nor the government have devised a larger framework that lays out the blueprint for various reforms going forward though most of them are obvious and known. The government has not laid out the sequence and timing of the same. The case for reforms has to be a live narrative, something whose pros and cons are discussed every day in every forum and media available. Furthermore, the discourse has to go far beyond the initial reforms and sketch out the steps the existing players need to take to survive or other players need to implement to take advantage of the reform measures. In the context of the FDI in retail, the government’s intention was to increase competitiveness in the wholesale trade rather than force out the existing players or shut down the kirana (retail) trade. But because the government made no effort to sketch out the contours of the reform measures and talk to the farmers, consumers and merchants who would be in the affected loop, the government failed to diffuse the Opposition in a constructive manner while creating no positive constituency for them either. We are no longer a command and control economy. Reforms cannot be implemented by diktat. In a democracy, the burden of leadership is more onerous and the need to sell even desperately needed policies that much greater. An inarticulate leadership apparently unwilling or unable to invest the reforms with political capital is simply not the way to carry reforms forward.

Congress’ inability to reach out to the people occupying the middle ground is intriguing even though most politics is won and lost in the middle. Instead, Congress prefers to appease the extremes in the opposing camp rather than engage with the middle for support. This strategy is evident not only in dealing with economic reforms but also in many other domains. It is almost as if the party believes that if it can win over the extreme opinion in the opposite camp, all opposition to its policies will cease. This strategy is extremely naïve in a democracy. There may have been an era in our polity when you could carry everybody with you. That era is over. Every policy now will be contested and there are sharp limits beyond which a consensus cannot go. Rather than seek to appease its opponents, Congress must focus on the constituency most likely to benefit from reforms to bolster support for them. Congress must distinguish between a consensus behind the scenes with the opposition leaders and forging a consensus among the people at large. The latter is no longer possible but building a constituency for reforms is an absolute imperative and the necessary political capital for it must be created and invested. Or India may well miss the bus again.

India runs an annual current account deficit in goods and services of the order of $ 165 billion. That is roughly 10 percent of its GDP. This deficit is made up by FII inflows of about $ 30 billion, invisibles including labour remittances of about $ 90 billion and FDI of about $ 20 billion. That still leaves a gap of $ 25 billion. In 2011, FII flows have been negative and may remain so for the first half of 2012. FDI flows may be likewise negligible absent reforms. India thus faces $ 55 billion shortfall in inflows on the current account. On the other hand, India has some $ 100 billion of loan servicing obligations in 2012, all to be met out of reserves of some $ 300 billion. That would cut our reserves by more than a half. India’s last real round of reforms was precipitated by a similar balance of payments crisis that was left to fester as politicians lacked the courage and will to either reform or admit the failure and seek IMF assistance. Most of the blame for neglect lay with Rajiv Gandhi then. Are we set to repeat the fiasco?

Year 2012 is not the same as 1990. We have seen reforms take hold, and once they have been implemented, most people have welcomed them. It is the political class rather than the people who are diffident about reforms. The imperative need for them is well recognised. What does it take to convince the top two in the Congress to boldly step forth and do what is right by the country for once. If democracy is about people having faith in politicians then it is even more about politicians having faith in the good sense of their people. Time for the Congress top leadership to either give India the leadership it needs or to gracefully quit to make way for a more courageous set.

The writer is a trader. She can be reached at sonali.ranade@hotmail.com or @SonaliRanade on Twitter

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