We Can and We Should Do

The Economic Times, May 22, 2009

By Pradeep S Mehta

The recommendations for reform in infrastructure governance arising from the splendid work done by the Planning Commission and NGOs have to make the journey from paper to the realm of implementation, says Pradeep S Mehta

DR MANMOHAN Singh deserves our heartiest congratulations on being elected for a second term, a rare performance. It is thus time for him to introspect and travel down the memory lane. On 25 December, 2004 he wrote in this newspaper: “I do hope that in the New Year (2005) we can all work together to build a more equitable, competitive and humane India…This is a doable agenda provided we can set aside our ‘make-do’ attitude and adopt a ‘cando’ spirit”. We hope that Dr Singh’s second term can become a Can-Do and Shall-Do period, and not just for one year.

During the last four years, many hurdles came his way, including the global economic downturn. With a more stable coalition, progress for the country along the path of inclusive growth will need more than stimulus packages and some ‘out of the box’ and determined thinking, like the nuclear deal. Many ideas cannot be postponed or vital issues left hanging on a cliff. This will need clear signalling. This should include harvesting low-hanging fruits within the next 100 days, so that everyone knows that it will not be business as usual. Much of the agenda has already been elucidated in the Planning Commission’s recent policy document: ‘Inclusive growth’.

Over the past few weeks, many pundits and edits have been spinning out various prescriptions of action for the new government. They did not anticipate the same government triumphing over the anti-incumbency factor and returning to power. We the people of India have voted for continuity over change. Thus, we hope that the country can move forward with a stronger coalition, which will overcome the tail-wagging-the-dog syndrome.

The compulsions of coalition politics had inter alia paralysed progress in many of our infrastructure sectors. I focus here on this one area. Due to space constraints, I am not discussing several other important issues, such as finance, debt management, markets, climate change, employment, security, agriculture, poverty eradication, etc.

As Dr Singh and many others have said, we need to boost investment in the infra sector as a counter-cyclical measure. Even a student of economics knows that infra is a key multiplier of jobs and a source of elevation in living standards. The malaise in the infra area in the recent past was aided by poor governance and pork barrel politics in spite of Dr Singh assuming command of the situation. Alas, the process became a stumbling block, rather than a catalyst. This needs to be revisited.

In the government, it is the cross-cutting departments like economic affairs or the cabinet secretariat which have the clout and the authority to push the infra agenda. Indeed much of this depends upon the men or women in charge at the ministerial and secretary levels, so allocation of portfolios and responsibilities also do matter.

To illustrate from the past, when the government had to focus on disinvestment, a new ministry was created and dynamic ministers were appointed. This helped it to push a highly desirable agenda which was otherwise bedevilled by turf issues, as indeed infra is today. This model should not be discarded just because it was adopted by the NDA. Moreover, there are other ways in which infra can get the much needed attention and boost. Perhaps a full fledged department of infrastructure headed by a secretary under the finance ministry or the cabinet secretary will do the trick.

THE government also has to cut down expenditure and curb the expanding deficit. That can be done by winding up the many commissions and committees set up to park eminent citizens and retired bureaucrats and do things, which were never done. There is a need to do a social audit of such efforts and a white paper published. Catharsis must begin with confession. The white paper should also examine and recommend rationalisation of the role of several ministries whose subjects are mainly dealt with by states, and check whether they have contributed at all to the economy.

The recommendations for reform in infrastructure governance arising from the splendid work done by think tanks like the Planning Commission and NGOs have to make the journey from paper to the realm of implementation. For example, the Planning Commission’s draft paper on ‘Approaches to Regulation of Infrastructure’ and the draft Regulatory Reform Bill, a law for designing a uniform architecture for regulatory authorities.

In 2004, the government had also promised that “competition, both domestic and external, will be deepened across industry with professionally-run regulatory institutions in place to ensure that competition is free and fair”. Not many will agree that this goal has been achieved, though some very small steps forward have been taken. One of them is the adoption of a National Competition Policy, as recommended in the Planning Commission’s policy document: ‘Inclusive growth’.

The policy document also highlights the role of private sector investment in bridging our huge infrastructure deficit. There is a fair amount of national consensus on such investment liberalisation across the political spectrum. However, liberalisation needs to be accompanied by effective competition policy reforms.

Nobel laureate Joseph Stiglitz has observed: “Strong competition policy is not just a luxury to be enjoyed by rich countries, but a real necessity for those striving to create democratic market economies”. An effective competition policy requires determination and administrative capacity to tackle at least some vested interests.

At the same time, the onerous business regulatory framework is itself an entry barrier to new entrants. The World Bank has assigned India a rank of 122 among 181 nations in terms of the ‘ease of doing business’ in 2009. When disaggregated, we are right at the bottom in terms of enforcement of contracts. This too is either a disincentive for business activity or a trigger for the use of ‘informal’ channels to resolve disputes which often breeds corruption and social discord. Therefore, the government needs to put legal reforms on the fast track and engage the judiciary actively.In sum, there are many things that Dr Singh can do and should do.

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