However, it does give a sense of déjà vu here. India (indeed the entire world) has entered into a phase where politics has once again started to play a very important role in shaping the future. Ever since the financial crisis erupted, economic theories have been turned on its head and existing regulations have proved to be ineffective in thwarting the greed of the increasingly intelligent crooks. And, with history failing to provide adequate guidance with regard to the way forward, coupled with the fact that those not connected to the powers that be are getting increasingly marginalised economically (what to talk of rising unemployment, inequality etc) the world is in desperate need to frame new sets of policies to meet up with future growth (read more inclusive) challenges. Not surprisingly, politics has emerged as the most important variable and hence, a challenge in itself. When politicians have to respond to their constituencies while framing the policies, they have to respond to multiple challenges while trying to figure out a framework that would be relatively widely accepted. The biggest challenge, of course, is trying to find out a way to be re-elected while trying to pull up the economy and its people from the quagmire. Easier said than done really and the biggest ally in this situation is a crisis. Deeper the crisis, better it is. Ask the eurozone leaders.
Remember 1991, when India embarked on its high voltage economic reforms. Cut back to 2012, and the crisis (of a different nature of course) unfolds. Economic growth is slowing alarmingly, jobs are growing at an even slower pace (as employment elasticity of growth has become negligible), global crisis is leading to a marked slowdown in exports while political reality induced policy paralysis hurts the economy even further. With general elections (slated for early 2014) drawing near, politicians are in a populist overdrive. The politically weak UPA government (given its history) also lives and dies by populism. However, the reformist in Singh and Chidambaram seems to have been able to convince their boss and other party leaders that crisis calls for pushing of the much delayed reforms agenda. Sure they have been helped by the opposition, who are united in their desire to oppose but utterly disunited in their ultimate objectives.
Raising of diesel prices, followed by decisions to allow FDI in multi-brand retail were steps in the right direction and were aimed at testing waters. The drama that unfolded thereafter was mid-boggling. But from the perspective of the ruling government, the biggest benefit has been that the fracture within the opposition has been exposed. The confident government now wants to move ahead with reforms. Yesterday the union cabinet has announced its approval on some important reforms policies. These include:
· setting up of a Cabinet Committee on Investments (CCI)
· announcing the urea investment policy (which expects fresh investments of ~ Rs.350 billion in the fertilizer sector) that will facilitate setting up of new plants and expanding capacity by the fertilizer manufacturers and
· unveiling of the Version 2.0 of the much awaited Land Acquisition Bill
As per the available information, the CCI (headed by the Prime Minister himself) will monitor and help expedite existing projects requiring of investments of Rs 10 bn and more. The ministers of various ministries looking after infrastructure will be members of this committee.
The most important of all these measures is the Land Acquisition Bill. Several projects (including many big ticket ones) have been stalled or yet to see the light of the day due to the lack of clarity on land acquisition laws in the country. The Bill passed by the cabinet clearly states the rules under which the land would be transferred for both private projects as well as for public-private partnership projects. It also gives the guidelines for the return of unutilized land, something which was not there in the previous Bill. The biggest question though is, will the bill pass muster in the parliament? Fingers crossed.
Welcome to Version 2.0 of crisis induced economic reforms in India.