A Rudderless India

Discussion in 'Politics & Society' started by Dark_Prince, Jul 14, 2011.

  1. Dark_Prince

    Dark_Prince Regular Member

    Jan 31, 2010
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    India's political opposition and media are haranguing Prime Minister Manmohan Singh for his lack of action in the face of multiple graft scandals. He has even been called a "PM in hiding." So it was encouraging to see Mr. Singh finally emerge with a plan of action Tuesday, announcing changes in his cabinet.

    The optimism soon gave way to disappointment, however, as the realization sank in that the changes were cosmetic. More pressingly, they do nothing to steer India's ship of state in the direction of economic reforms.

    This direction is surely important to help Indians continue to overcome poverty and gain prosperity. But it's also important in the current political context: New Delhi is mired in corruption because it continues to foster big government. Since he came back to power in 2009, Mr. Singh has not advanced any substantial reforms. Instead he has presided over increases in welfare spending.

    The government's most significant pro-market move this year was a hike last month in domestic fuel prices it administers, so as to bring them closer to international levels. However, it failed to deregulate those prices.

    That failure exacerbates corruption. New Delhi subsidizes most petroleum products, but grossly underprices kerosene, the poor man's cooking fuel. This allowed organized crime to make a profit by adulterating more expensive gasoline with kerosene. In one of the more shocking cases of graft, an upright civil servant who refused to play along with the mafia was burned alive in January.

    Similarly, the most corrupt business sectors are those where the government's rules are most expansive or least transparent: real estate and telecom, according to a March KPMG survey. The former is hobbled by labyrinthine rules and weak property rights, while the latter saw former Telecom Minister Andimuthu Raja sell mobile spectrum without open bidding. Mr. Raja resigned last November after the national auditor revealed a $40 billion loss to state coffers. Liberalizing such markets would deal a big blow to graft.

    Cutting the dole is antigraft too. The nationwide rural jobs scheme, which guarantees the rural unemployed 100 days of work, has generated scores of cases of bureaucrats siphoning money off. This week, a government panel approved a draft of a food security bill that will push up India's annual food subsidies to 1 trillion rupees ($22.4 billion). But the delivery mechanism for food subsidies attracts legendary corruption. Ration cards that identify subsidy recipients are easily forged, while ration shopkeepers can sell subsidized grain at market prices and pocket the difference.

    Had Mr. Singh done either of these, he would have signaled concrete political direction to Indians, who are growing increasingly conscious of and impatient with poor governance. Because he hasn't, his government now looks weaker than the rag-tag coalitions in power in New Delhi in the mid-1990s.

    To appease his critics, Mr. Singh tried a similar minor reshuffle in the cabinet in February. But the taint of corruption only grew. A social activist went on a hunger strike in April, followed by a yoga guru last month, both lobbying for stronger antigraft measures. When police forcibly removed the guru and his supporters from the site of the strike, they further galvanized sentiment against the government.

    Tuesday's announcement is another attempt at containing criticism. The composition of the cabinet at the top levels remains the same, which is a pity. Mr. Singh could have jumpstarted reforms by replacing Finance Minister Pranab Mukherjee with a better candidate. Mr. Mukherjee, a Gandhi family loyalist, hasn't fully followed through on promised legislation, such as an overhaul of the country's income taxes.

    The one significant change this week is Jairam Ramesh departing the Environment Ministry. Over the past year his green zeal held up multibillion-dollar industrial projects, an anticorporate track record Mr. Singh admitted he did not support. Mr. Ramesh's successor will probably award clearances more easily.

    But this doesn't mean the government has gotten reformist religion. On the contrary, Congress continues to push the idea of "inclusive growth," as this week's development on the food bill shows. Mr. Ramesh is taking the helm of the Rural Development Ministry, which with an annual budget of 740 billion rupees oversees the rural jobs scheme and was involved in drafting the food bill.

    Meanwhile, the slowing reform process is taking a toll on India's economic health too. Businesses find fewer opportunities to expand and as a result GDP growth for the January-March quarter slipped below 8% year on year. With capital fleeing since 2010, and manufacturing and fixed investment looking weak, a deeper slowdown is possible.

    In this environment, a renewed reform thrust from Mr. Singh would revive both growth and his government's political fortunes. If he stays in hiding though, India's ship of state will continue to drift.

    Review & Outlook: A Rudderless India - WSJ.com

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