Atal Bihari Vajpayee and Reforms
04.27.2011 · Posted in Economy, Public Policy
By Rajeev Mantri
There are some interesting snippets on the BJP-led NDA coalition’s commitment to reforms under Prime Minister A.B. Vajpayee, and the political economy of reforms in general, from Columbia University economist Arvind Panagariya’s book, India : The Emerging Giant, published in 2008:
The immediate resistance to a specific policy reform can come from three sources: those within the ruling party, those within the opposition and those adversely affected by the reform. These three entities may interact. For example, those expecting to be adversely affected by the reform may take their grievance to their contacts within the ruling party or make a common cause with opposition parties. Likewise, the opposition parties may see political advantage in joining hands with the losers under reforms and appearing with them in public protests against the proposed reforms.
A determined leader can often overcome the resistance from all three of these sources. Typically, those on the ruling side of the fence don’t want to vote themselves out of power. Within the Indian parliamentary system, a negative vote on a proposed piece of legislation leads to the fall of the government. Therefore, even when some members of the ruling coalition are opposed to a policy change, they are unlikely to defeat it in the Parliament. For example, when the current UPA government proposed to raise the sectoral caps on foreign investment from 49 to 74 percent, and in civil aviation from 40 to 49 percent, the Left Front parties opposed it. But the government remained firm and carried the motion. The Left Front parties were not ready to vote themselves out of power by bringing the government down. Prime Minister Vajpayee also faced similar opposition from within his party, but he remained firm on pushing the reform agenda forward, even offering to resign if not permitted to pursue his policy agenda. He knew that the ruling coalition would not risk his departure, for fear that there was no other consensus candidate.
Commenting on Labour Law reforms, Panagariya says that “the key barrier to the emergence of large scale, unskilled-labour-intensive firms is the complex set of labour laws they face in India.” He writes:
Most of the political parties have their affiliated labour unions. Because these unions serve as virtually guaranteed vote banks, no government has been able to place labour reform on its agenda. The Vajpayee government came closest to it when Finance Minister Yashwant Sinha announced his intention to reform two key labour laws in his 2001-2002 budget. But in the end, it could not build consensus within the party to bring the matter to the Parliament floor. The current UPA government has ruled out this labour reform.
On Privatization, Panagariya writes:
The Vajpayee government was keen on privatization as a policy, especially after it won a clearer mandate in the October 1999 elections. In January 2000, it carried out the first “strategic sale” by selling Modern Food Industries Limited to Hindustan Lever. Beyond some worker protests, the sale went smoothly. This emboldened the government, and Finance Minister Yashwant Sinha formally announced the adoption of a new privatization policy in the 2000-01 budget speech to the Parliament on February 29 2000.
He then says:
The government also gave charge of the Department of Disinvestment to State Minister Arun Shourie, who was firmly committed to the cause of privatization (as opposed to the sale of minority shares for raising revenue). On September 1 2001, the government upgraded the Department of Disinvestment to the Ministry of Disinvestment to strengthen Shourie’s hand vis-a-vis ministers in charge of enterprises, who invariably opposed the sales.
It’s also well documented that Disinvestment Minister Arun Shourie nearly succeeded in selling off, lock stock and barrel BPCL and HPCL, two of the major oil public sector units. Unfortunately, the sale was blocked by the Supreme Court and NDA lost power shortly after. Here’s an old Indian Express article on the topic. It notes that:
The Government had on January 26 decided to sell its 34.01 per cent stake in HPCL to a strategic partner and offload its 35.02 per cent stake in BPCL through public offering in domestic and overseas capital markets.
After the proposed disinvestment and offer of five per cent stake at concessional rates to employees, government’s shareholding in HPCL was to come down to 12 per cent and that in BPCL to 26 per cent.
Disinvestment Minister Arun Shourie has maintained that the privatisation of the two oil PSUs, which were nationalised through an Act of Parliament in 1970s, did not need Parliament approval.
Shourie’s argument was, however, countered by the Opposition parties and trade unions which said privatisation of HPCL and BPCL, which together have 40 per cent share in the 15 billion dollars oil retail market, should be ratified by Parliament.
Panagariya notes in his book that 13 government enterprises and 22 hotels were privatized. On the blocking of the HPCL and BPCL sale by the judiciary, he writes:
In September 2003, the Supreme Court ruled that the language in the ESSO (Acquisition of Undertaking in India) Act of 1974 and Burma Shell (Acquisition of Undertaking in India) Act of 1976, which created HPCL and BPCL, respectively, did not permit the government to privatize those firms without government approval.
On telecommunications, Arvind Panagariya writes specifically in his book that though Rajiv Gandhi is credited with the revolution “in the minds of many older Indians”, the reality is different:
The crucial step in bringing about the current telecommunications revolution was the New Telecom Policy (NTP) of 1999, which the government systematically implemented in early 2000s. The DoT did its best to sabotage the reform every step of the way. But luckily, the prime minister’s office took it upon itself to implement various components of the NTP. Among other things, the government separated the service provision and policymaking arms of DoT, with the former turned into a corporate entity known as Bharat Sanchar Nigam Limited (BSNL) in October 2000.
The record of history is crystal clear on the subject of reforms – as I’ve written before, the BJP-led NDA government under Prime Minister Vajpayee can claim to be the most economically-liberal administration in the history of independent India.
On the NDA government’s second term under Vajpayee commencing on October 13 1999, Panagariya writes:
The Vajpayee government proceeded to carry forward the reform agenda in a number of different directions, including international trade, foreign investment, insurance, telecommunications, electricity, roads, privatization and education. In terms of the reach of the reforms, this period matches the first three years of the Rao government. The shift in the growth rate from 6 percent to more than 8 percent during 2003-2007 must be attributed largely to these reforms.
The key point is the NDA government didn’t have carry out reforms in any of those areas – that’s not the platform on which they were elected to office, and nobody really expected the BJP to drive reforms on such a scale. The BJP-led NDA government carried out reforms willfully, not under duress and often defied its own constituency in the greater national interest.
Arvind Panagariya’s book also illuminates how difficult implementing reforms is, and why only a strong, committed prime minister can carry through a reform-based agenda.
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