The US president’s remarks on the bad investment climate in India was aimed at spurring Manmohan Singh to act. Ironically, big-ticket reforms could become the casualty
By Ashok Malik
AFTER PRIME Minister Manmohan Singh took charge of the finance ministry in June — following the resignation of Pranab Mukherjee — there was some talk in New Delhi that a degree of urgency would return to economic policy-making. Admittedly, large elements of this enthusiasm were overstated, deceptive and reached the degree of myth-making. The capital’s usual breed of time-servers began to predict a blockbuster phase of economic reform was upon us — and a great recovery was round the corner.
More cautious and realistic voices warned the prime minister simply didn’t have the political capital for any such ambitious programme. Reformist legislation would find it hard to negotiate a Parliament where the UPAwas still in only a precarious majority. That apart, the state of the economy was so tepid and the mood so downbeat that all that could be hoped for was patchwork remedies rather than a sustainable growth surge.
There was agreement, however, that the one policy proposal the prime minister would probably have another stab at was the contentious one related to opening multi-brand retail to foreign direct investment (FDI). This didn’t require a parliamentary vote — an executive decision was enough. It called for the government to convince a critical mass of its allies, as well as perhaps persuade enough chief ministers to agree to the measure, with leeway for individual state governments to tweak the new policy as they deemed fit.
Admittedly, even FDI in retail wasn’t going to be easy. When it had been proposed in the winter of 2011, it was not just Opposition parties and smaller UPA partners like the Trinamool Congress that had criticised the idea, but influential sections of the Congress itself had sabotaged it. No doubt they would attempt that again. What would be their excuse?
This past week, US President Barack Obama may just have provided it. In telling an interviewer that “in too many sectors, such as retail, India limits or prohibits the foreign investment that is necessary to create jobs in both our countries, and which is necessary for India to continue to grow”, the man in the White House may have in effect killed chances of a quick opening up of retail.
To the naysayers in the Congress — and the party is packed with old-style statists who have never had a kind word for liberalisation and deregulation — this provides a heaven-sent opportunity. Hostility to economic reform and protection of discretionary powers of the political class can now be dressed up as principled protest against American imperialism. In this happy and self-serving universe, MGNREGA is presumably the highest form of non-alignment and the pursuit of a high fiscal deficit the best exemplar of an independent foreign policy.
For the government’s media-friendly but politically weak (if not politically inept) adherents too, Obama’s words are a blessing. Conforming to their line of least resistance — and the consistent promising, in the past eight years, of more than has been delivered — they can now pretend big-ticket reforms were about to happen but the American president inadvertently and clumsily nixed it.
IN NO country and no democracy do politicians instantaneously echo a foreign leader in attacking a domestic government. As such, to expect even reformist Indian politicians — such as they are — to agree with Obama would have been both unrealistic and unfair. Given this, the template statements from the BJP and the CPM that economy policy-making was a sovereign decision to be taken by a country on its own were along expected lines, even if they didn’t say anything profound.
The UPA cannot run away from the consequences of its economy-at-slowspeed regimen
What was more pitiful and even laughable was the government’s attempt to stubbornly deny the kernel of Obama’s argument — that economic governance in India had become painfully slow. For Corporate Affairs Minister M Veerappa Moily to charge that Obama was being misled by “certain international lobbies like Vodafone” and that the Indian economy would be back in track in “two-three months” was profoundly telling. It summed up the predicament of a government living with its head buried in the sand.
Nevertheless, is the accusing party itself above reproach? For Moily to have singled out one company and its campaign to get the Indian government to nullify a retroactive tax law was in bad form. What of Obama singling out one sector — retail — to define India’s economic problems? Was it not guided only by concern for specific companies and investment decisions?
Fair enough, some may suggest, aren’t presidents and prime ministers expected to bat for their nations and for individual companies and industries in which their nations have a comparative advantage? Yes they are, but it has to be recognised that Obama’s pressure tactics are of an entirely different order from traditional American complaints about the closed-shop nature of the Indian economy.
In 1989, then US trade representative Carla Hills famously — or, depending on how you see it, infamously — used the “Super 301” provision (a reference to a domestic law in the US) to “punish” India for unfair trade practices. To cite another example, Bob Blackwill, President George W Bush’s ambassador in New Delhi, once dismissed Indo-US economic relations as being as “flat as a chapati” in an attempt to get the NDA government to get moving on economic policy.
Historically, such pressure has come from a position of more open trade, and an urging of India to become a stakeholder in a free (or relatively free) trading system. President Obama cannot automatically don this mantle. By instinct, he is not a believer in an open trade framework. He is certainly not philosophically wedded to it like many previous presidents, including his immediate predecessor.
In a succession of election campaigns — the battles for the presidency in 2008, for the Houses of Congress in 2010 and for the White House this year — Obama has brought up the outsourcing issue and specifically mentioned India as a region of concern. He has argued against job losses in the US, pilloried his Republican opponent, Mitt Romney, for allegedly pioneering outsourcing, and resorted to protectionist symbolism.
Consider this: Obama says he would rather keep technology and other such “outsourced” jobs at home, never mind the savings for the American consumer from relocating these tasks to a remote, international location. Is that different from an Indian politician saying keep out global retail, protect the jobs and profits of agricultural middlemen and ignore the potential cost savings for the Indian consumer? Neither side is showing conviction here; there is only convenience.
On its part, India does need to redress the disappointing and short-sighted management of the economy by the UPA government. It needs to do this not to please other countries but to safeguard and secure the future of its own people.
Obama may be extremely selective in his advocacy of an open economy. Yet the Manmohan Singh government cannot run away from the strategic consequences of its economy-at-slow-speed regimen. In 2010, the US president came to New Delhi and promised support for India’s Security Council ambitions. Today, nobody is even mentioning United Nations reform. All those promises were contingent upon India growing its economy and incrementally integrating with global currents. South Block simply hasn’t delivered.
What is the upshot of this? Obama is being transactional; the Manmohan Singh government is in a trance. Figure out the bigger loser.
Ashok Malik is Contributing Editor, Tehelka.