CURRENT ISSUE DECEMBER 16, 2002

ECONOMY: MID-TERM REVIEW

Is this a Requiem for Reforms, Mr Singh?

Good in concept but bad in content, the first-ever mid-year review of the economy doesn't go beyond the old pleas for tough reforms by Rohit Saran

Long, long ago there were finance ministers who talked small and acted little. Those were the pre-1990 years. Then came finance ministers of the 1990s-who often talked big, but seldom acted big. And then came the finance ministers of the new millennium who talk big, sound brave, but are forced to act little. The Finance Ministry's mid-year review of the economy confirms that Jaswant Singh is one such finance minister-just like his predecessor Yashwant Sinha. The idea of presenting an appraisal of the economy in the middle of the financial year is bold and desirable. The country must hear from the horse's mouth how good or bad the economy is and how secure or scary the future is. That's what the review did. And nothing more. Jaswant hopes to turn the tide by: SSI dereservation, new labour laws and change in agriculture support price system. Improvement in physical and social infrastructure. Controlling runaway subsidies and downsizing the government. Hiking user charges on utilities, improving tax system and minimising tax exemptions. He may not succeed because: Some ministers are dead opposed to the bold Reforms the mid-year review has pleaded for. Infrastructure improvements take time, investments are scarce. Populist pressures will resist cuts in subsidies and downsizing of the government. Tax collections have improved, but will not suffice. If the review had to go beyond a dreary, though honest, essay on the problems and prospects of the economy-which are anyway available a dime a dozen-it had to be clear on the following counts: what specific measures has the Government taken to boost the economy during the year? Have those measures worked? And what will the Government do in the remaining months to step up the economy's output and sentiments? The mid-year review makes a feeble attempt at answering the first question and completely bypasses the other two. It doesn't even clarify some apparent contradictions in the economy. In fact, it confounds them. For instance, the industry has been borrowing much more money from banks this year than it did in 2001. That's a sign of recovery since the money borrowed will be invested in businesses. The production and import of capital goods (mainly machine tools) has also been higher so far than it was in 2001. The review rightly interprets the two developments as indications of a possible revival in investment. But money lent by non-bank financial institutions to industry is much less this year compared to 2001. Funds raised from the capital market too are lower this year (see table). These two developments suggest a fall in investments. And the review says that too. So the review both accepts and negates the possibility of an investment revival. The review also lists a series of indicators that suggest an economic upturn. But it fails to explain why most industrialists and economists still won't vouch for a recovery. The uncharitable conclusion: the Government is clueless on which way the economy is headed. A confused diagnosis means a vague prescription. The review makes veiled references at making labour laws flexible, changing the support price system for foodgrains, eliminating small-scale sector (ssi) reservation, making quick improvements in infrastructure, fixing government finances and privatising more public-sector companies. Each prescription is wrapped in vague talk. Sample some: On ssi reservation: "Measures need to be put in place to encourage the ssi sector to graduate to the large sector ..." (Agreed, but what are those measures?) On government finances: "There is a need for purposeful movement towards fiscal consolidation with a modern and efficient fiscal order that is of global standards." (Brave objective, but who will do the needful?) On labour reforms: "Accessing the global market with consumer goods of quality and competitive prices produced ... under flexible labour markets should be the goal." (No disputes, but who will make the labour markets flexible?) The irony is that the Atal Bihari Vajpayee Government has talked of all these reforms several times before and with much more clarity than the review does. The resolve to amend labour laws was first made in the Union Budget of 2001-2. The same budget had talked of revamping the foodgrain storage and distribution system. Past budgets have also stated categorically the government decision to privatise all non-core public-sector companies. Jaswant's appraisal is no more than old wine in an older bottle. It's not even sure for whose consumption the wine is. Why is Jaswant telling people what his Government could do for the good of the economy? Maybe that is a reflection of how strong his writ runs in his own Government. If that is the case, then the mid-year review is less of an appraisal and more a requiem for reforms.

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