REFORMS IN INDIA: PHENOMENON OR A SURVIVAL TACTIC

(This was written for some competition last year, whose name I don't remember. Didn't get published there, but thought might post it here.)

“With great power, comes great responsibility”. Unfortunately, this isn’t the case with the government of India. The UPA – II has been marred by gross underdevelopment over the past four years. The economy, which was quite stable during the global meltdown of 2008 has not only deteriorated, but shows very little inclination towards an early upheaval. The nation’s credit rating has been downgraded; the fiscal deficit and current account deficit have become bigger. Not to mention the blackout in July, the constantly increasing prices- diesel, food and whatnot. Much could be attributed to the policy paralysis that the government is facing and the countless acts of corruption by officials. Key policy issues and executive decisions pertaining to industries have been pending for long and some that are being taken are not working as planned. One could blame the obduracy and ego of the various political parties in the coalition as a reason for not taking decisions. But local interests of the parties and any conflicts arising due to them must be met with a firm hand by the policy makers, which sadly isn’t true in the current Indian perspective. The monetary policy of the Government is in shambles. In order to tame the rising price index, the RBI is trying to control money supply in the economy by raising repo rates and reverse repo rates. Already the RBI has hiked the repo rate by 3.25 percentage points in 12 installments since March 2010. This has increased the interest rate in commercial banks. High bank rate discourages investment, thereby reducing aggregate demand. Moreover a shortage in fuel supply and low quality electricity- one which doesn’t come at the correct frequency- are also playing havoc with the manufacturing industry. Many units are forced to close down on certain days of week, thereby reducing production. Naturally, the GDP growth has declined drastically from 8.4% in the years 2009- 10 and 2010-11 to 5.3% in Q4 of 2011-2012 and 5.5% in Q1 of 2012-2013. Private investment in infrastructure and industry has remained subdued. From 14.3% of GDP in years preceding global recession it has gone down to 10% of GDP.


The entire Indian situation has become so dire that it is in urgent need of reforms, reforms that should have been brought about a long while back. But amidst all the tension, corruption and allegations of indecision and weakness, Prime Minister Dr. Manmohan Singh seems to have seized the initiative- “I am in charge”, as Shashi Tharoor calls it- and come up with policy decisions that are of utmost importance given the current state of events. Allowing FDI in multi brand retail (subject to state approval) so that giants like Wal-Mart start their operations in India, increasing the share of foreign investors in airlines (up to 49%) and media (74%), increasing diesel prices and decreasing subsidies on LPG to counter fiscal deficit have been introduced much to the benefit of investors. The power sector, facing high aggregate technical and commercial losses mostly due to under recovery of costs through tariffs and high arrears, has been given a relief in terms of grants and loans. There are also many reforms waiting to happen like the nationwide introduction of cash transfer scheme and Goods and Services Tax (GST).


But the question that spawns out of all this is: Is it good enough? It is not that FDI (in retail or aviation) didn’t exist earlier; investment was always open for domestic companies and for foreign companies with some conditions. Wal-Mart was in a 50:50 partnership with Bharti Enterprises LTD since 2006 and was handling the back- end of the Bharti Groups’ retail chain. The only thing FDI reform achieved was in allowing Wal-Mart to open its own outlets. Even in aviation, companies were allowed to invest; the only thing that these reforms changed is that now foreign airlines can invest in aviation which was not the case earlier. Rescuing power companies by grant and loans and increasing price of diesel to counter fiscal deficit begets the question that is it really reform, or a forced change that had to be implemented in order to survive? Are all these reforms, for reforms’ sake or the Government actually has a plan? One of the most memorable reforms in recent history that comes to mind is the Saemaul Movement in South Korea in 1970. It helped decrease poverty to 10% from the existing 30% and skyrocket the per capita income in the country. We need something of the proportion of the Saemaul Movement to get us out of the rut we are in. The government has schemes like NREGA, which although good intentioned, have not delivered in terms of increased productivity or the general uplifting of the rural society and hence, the nation. The government has waited so long to introduce these reforms that it forces one to speculate: “Is it too late?” Pratap Bhanu Mehta in his article ("not-reform-vs-populism") in The Indian Express, writes, “The fact that these reforms are coming after four years of colossal mismanagement is making the reform narrative problematic. Admittedly, there was a global financial crisis that required a different policy response. But politically it is not easy for the government, after running all fiscal responsibility into the ground for four years, and after stoking structural inflation, to turn back and accuse opponents of being populist. The crisis narrative is a double-edged sword: it makes the case for reform compelling. But it also exposes the complicity and opportunism of government.”


The Government needs to bring substance into the reforms it doles out. Back in 1991 when India was in a severe BOP crisis, the Government of PV Narasimha Rao and his Finance Minister, Dr. Manmohan Singh came out with plenty of reforms. The new policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures. The effect it had on the foreign investment was huge. It rose from a paltry 132 million USD in 91- 92 to a staggering 5.3 billion USD in 95- 96. It took India from state of almost bankruptcy to an emerging new market where business could be done. It is in lieu of what happened in 1991 that these current reforms don’t appear to be substantial. True, we are not as badly placed as we were back then. But it is very much possible that we go down that road again if we are not careful. The License Raj that was abolished in 1991 led to a rise in domestic entrepreneurship- existing firms scaled up and many new enterprises were started. India needs a further modification on this account. Starting or even running a business is still tough in the country. There are far too many clearances required, far too many corrupt officials to feed. The Government needs to relax the stringent regulations and implement them carefully as these medium and small businesses generate employment and keeps capital flowing. Back then Dr. Singh reduced subsidies on fertilizers and food to counter fiscal deficit, much the same that is being done today by increasing diesel prices and reducing subsidies on LPG. In 1991 it helped reduce the deficit to 4.8% of GDP. If it helps out in 2013 it could be good move, but as of now nothing seems sure as the deficit is predicted to be near 5.3% of GDP at the end of this Financial Year.


What India requires today is a series of ‘Big Bang’ reforms and not incremental ones as are being implemented by the Government. It happened in 1991. The face of the country was changed. Investors were attracted; businesses flourished, public sector came alive, the entire nation was rejuvenated. Although those reforms were a necessary part of the IMF program, many of them were ‘Big Bang’. India thankfully does not need an IMF program this time around but for it to keep this fact this way, bigger and better reforms need to be implemented. GST, cash transfer, Right to Education Act are some game changing reforms waiting in the flanks (RTE already being passed). They have the potential to be the next ‘Big’ reform the country needs. The Government only has to keep its will about it. “Where there is a will, there is a way.”

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AN ENDEAVOR TO UNDERSTAND MARXISM

What is Marxism? Is it just another idea, brought forth by a group of people as a reaction to some prevailing “ill” in the society? Is it just another one of those theories with no theoretical background as backup? One look at this dog eats dog or rather a survival of the fittest world, the countless discussions with people around me, and I was sold to the idea that Marx was just another person with just another theory. He was frustrated with this growing craziness that people called Capitalism and wanted to create a world where everybody lived as an equal (kind of poetic, like John Lennon). But wasn't he just another man, in a long list of men who professed equality for all mankind? Aren't men like animals, where there is always a strongest one to dominate over others? And besides who are we to refute Mother Nature, which believes in the sanctity of survival of the fittest. Surely, Marx must be mistaken. His ideas didn't fit into my world view. They seemed alien to me. This was when I enrolled for a course and started studying about Marx’s work in general. And gradually, I realized that it was not Marx, but I, who was mistaken. I had taken this world for granted and not for one moment gave thought to the other side of the coin. Thus, began my endeavor to understand Marxism with all its tiny details. And the more I read, the more confusing it all became.

Wikipedia, in a nutshell, describes Marxism as “an economic and sociopolitical worldview and method of  socioeconomic inquiry based upon a materialist interpretation of historical development, a dialectical view of social change, and an analysis of class- relations within society and their application in the analysis and critique of the development of capitalism.” Quite a digression from how laymen understand this term and I was no different. The first thought was always how “communist” Russia met its downfall, how the “socialist” Nehru led India to almost bankruptcy (and on the other hand there was the capitalist America, towering over the world, ahead of everybody). So this idea of Marxism (or communism) was always associated with a general sense of leading to a downfall of the society that adopted it. But isn't that just one side of the true story? Had I not conveniently ignored the entire picture and had professed my liking for capitalism over Marxism? So it came as quite a shock to me when I first read Marx’s work. Initially, his ideas engrossed me. His claim that philosophy should be used as a tool for changing the world was very novel. His Materialist Theory of History intrigued me. People satisfying their need of food, shelter and clothing first before anything else; yes, conforms to Maslow’s need theory. His critique of Hegel’s philosophy, where he criticized his insistence on the fact that people act because of an idea implanted in their minds (slaves are slaves because it is in their minds) rather than satisfaction of their basic needs, sounded pretty convincing. His re- periodization of history (into Tribal, Ancient, Feudal, Capitalist, and Socialist based on economics and human relations) was a revelation for me since it seemed like an accurate depiction of the world and its history. His claim, that any society would finally reach the Socialist regime felt natural. Each according to his ability to each according to his need made much more sense now. I was slowly beginning to realize that Marx wasn't just another commoner with a common theory. He was an intellectual with a deep understanding of economics and human relations who had propounded a theory based on an extensive study of the world. He was the pioneer of an intellectual movement and this thought made me gravitate towards Marxism. But I wish it was that simple. Earlier I had only known socialism as opposed to capitalism. Now I was reading about a totally different concept where capitalism was just a state of existence which would finally pave way for socialism. Although it felt natural at first, wherein the oppressed multitude (laborers) would rise against their oppressors (capitalists), a social revolution would ensue and usher us into a world where there would be no master slave relationship and everybody would be equal. But on further reflection all this idea did was confuse me.

It felt like an anarchist ideology that seemed to have been professed by Marx. Although it may sound grand and catch the public imagination very quickly, according to me it never leads to a truly utopian society as claimed by Marx. Even in Soviet Russia they had a group of people within whom the power resided. Now, one can argue based on Plato’s thesis of a reluctant philosopher ruler; that this Russian structure might work, but history tells us otherwise. What confused me though was the fact that this system worked pretty well in its first few years. The people were happy and Russia was the one true superpower along with America. And then there was this book, “How an Economy Grows and Why it Crashes” by Peter Schiff and Andrew Schiff. In it the authors concocted a story to talk about a world with equal opportunities and how one can exploit those opportunities for the benefit of oneself and simultaneously, the society. The story began with three fishermen (Able, Baker and Charlie) living in an island with only fishes as their sole item for food. This island disconnected from the world, had abundant fishes to sustain the three. Initially, they were very primitive and could catch fishes only with their bare hands at rate of one fish per day. Then Able got an idea and using palm bark he started making a net to catch fish with the hope that he would be able to catch fishes at a much higher rate. In order to do this he went hungry for two days, but his contraption worked and he was then able to catch 2 fishes per day. Now since his consumption per day was still one fish, he began to save fishes. That was the first hint of economy that crept in that primitive, isolated island. Able was now able to lend his surplus fish (so that they can make their own nets and not go hungry) to the other two at some interest, or start making nets and rent them out at a price (of half a fish). In any case his availing of opportunities presented to him benefited him and those around him. Then the authors proceeded to construct a fully fledged capitalist system, wherein opportunity beckoned everybody and the ones who availed them not only benefited themselves, but also the people around them. There was no hint of any government and the economy was self- driven, or rather driven by the people. For me this illustration of classical economic theory which leads to a true capitalist regime stood at loggerheads to Marx’s conception of capitalism. There would be no exploitation of the masses to begin with and everybody would be free to choose their own path in life. The Government, if ever one existed, would be just like a satellite overlooking this economic structure but never really participating.  

Not only these examples, but there were several others which at first convinced me and then upon further reflection confused me. Marx’s work, Critique of Political Economy began with such great promise. Then came his explanation of how capitalists exploit the common masses and I was again at a crossroad. Not because I completely refuted it; but only because it didn't seem logical to me. So I hereby conclude the following: I am under no circumstance, qualified enough to critique Marx. I need to muster patience as much as I can before being convinced by either his thesis or anti- thesis. At the beginning of this year I was a capitalist at heart, refuting all that professed socialism; but today I am in a battle with myself.