Hot Air Balloons flying in the air Reforms or a Canard for votes

India Elections - 2012 By : Amit Bhushan

The Damocles sword of elections is back to haunt the government and the political parties- as the richest state of India prepares to elect its leaders. The question is important as the margin of victory in this election may be used to gaze the mind frame of the relatively better off Indian (roughly a third of population) by media and donors. Off course, there shall be some regional differences in vote share in national elections, but a severe loss for the party ruling at the center would signal a substantial loss of credibility (amongst intellectual class of the country) a faade painstakingly cultivated by it by having a political novice but an honest face as PM and the rulers having given up ceremonial positions of power (though retaining control). Previous elections in Indias largest state and some bye-elections in southern states have depicted the drift of the bottom of the pyramid, already. The government and ruling partys neglect of the rural area post MNREGA seemed to have proven too costly for it on this front. The play of realty and miners being left unchecked may also have hurt, however why the local governing parties/leaders not impacted by this, needs to be further examined. This reality has shaken the ruling party out of its slumber and a sleepy government is propelled into an action machine even at the cost of some of the cherished and carefully nurtured allies. This is the beauty of a democratic governance i.e. where election process cannot be sabotaged (& this would require an alert public). To begin with, the new Avatar of the reformist government announced a slew of reform measures the prime ones being- a hike in prices of diesel and LPG, Opening Retail and Aviation sectors for foreign direct Investments etc. It went on a binge of identifying measures that require administrative action and announcing a series of actions. Since these decisions lie in the ambit of Executive control, the Reformers that exist in ruling set up have rightfully exercised the option. However out media as started comparing these measures to the IMF induced reforms of the 90s. This needs to be closely examined to unravel and appreciate the governance/public policy and public decision making processes and their impact in India. Subsequent to the above measures lying distinctly in the territory of finance and commerce, but FDI investments in various industry sectors, the reformers in government have now engaged media with measures that require legislative approvals. The intent is show a huge intent for reforms in the government by allowing an improvement of stakes that foreign investors can hold in Insurance and Pensions sector. This is being blocked by the opposition parties. The rhyme, reason and rationale of the benefits of foreign investment in the sector is not being discussed, neither is the reasons why reformers think big FDI can be attracted by the sector when international environment is so circumspect. The opposition parties on their part, are not able to explain the reasons for opposition to the move. The merits/demerits of FDI in the sector would be discussed subsequently as the focus of the article is to highlight the half-baked intent to reform India at the hands of politicians who have little

understanding of the country and thus sputter adhoc measures which is celebrated in media hungry for news as reforms. I have discussed FDI in retail previously and the results of FDI in aviation are already out in public (that there are no takers, presently); so would not be discussing these in the article. The article would be limited to opine on the other measures viz. raising the prices of diesels and LPG and subsequent noises such as FDI in Insurance/Pensions. To begin with, the measures depict more of a failure of reforms mindset in the ruling party rather than Reformist approach to governance that they are credited with owing the past background with the current PM being the chief navigator of the past reforms driven by IMF and the World bank/IFC etc. The pattern of announcement show a lack of vision and understanding of governance in the country, so too many things are being talked about in order to talk up the market and get the investments flowing in again. The canard has potential to fall flat and risk the credibility of the country and its leaders further. To explain why the above is being said, lets take an example - the government announced the limit on the LPG supply to consumers was an important first step to curb fiscal deficit which affects the governments ability to repay its borrowings. So the central government limited the supply of subsidized cylinders to 6 per person. This reform wasnt consumed by the political me lords within the ruling party which immediately went on to announce a further subsidization of 3 cylinders per person in some of the states governed by it. This would only mean that some of the deficit at the center has now shifted to states. And how the decision would impact consumer behavior? When there was unlimited supply of cylinders, a single adult in a family would register and buy cylinders. Now all adults would register for buying the subsidized cylinders. Previously there were leakages of subsidized cylinders by diverting them for commercial use and some to neighboring friendly countries like Nepal but Aam admi used to get his subsidy. Now, with limitation of the supply of subsidized cylinders, the incentive for smugglers has gone up, tremendously. The chance of aam admi managing to receive his quota of subsided cylinders either 6 or 9 has gone down lower. Effective distribution of subsidy required an impeccable distribution mechanism to curb leakages is a message that the ruling party has not imbibed all these years perhaps because the beneficiaries of such largesse were its own ilk. Thus it should be clear that reformers in the government have been limited to focus on Finance & Commerce and the job of attracting FDI had been delegated to them reluctantly (since probably they clamored for it) as other ministries hardly want to reform themselves. Thus the announcements by the government seem to be an exercise by an old man in a hurry (to use an epithet used for a leader in opposition previously) eager to leave a lasting impression rather than a well thought-out game plan. If the reformist mindset had reached the Ministry in-charge for the sector, then instead of getting states to announce the subsidy, the minister could have spent time of developing a model law and policy for Piped Natural Gas distribution project for cities in the country. This would have potential to reduce the cost to citizens besides having potential to attract billions of dollars on foreign investments. I understand that this is easier said than done as this would require thinking about security aspect of the supplies, making adequate quantities available for a country of our magnitude, decisions about ensuring a price which is fair for the ordinary consumers and so on. However, instead of grappling with such challenges that could have easily attracted 3-5 billion dollars for each of Indias 50-60 large cities, the

government has deployed its full energy on ensuring additional subsidy distribution by some of the states governed by the ruling party at the center. Thus it is the lack of comprehensive thoughts on reforms and half-measures that are hurting government more than anything else.