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Indias chief economic adviser, Kaushik Basu, told a gathering at a Washington think tank that reforms in India are unlikely to happen until after the next parliamentary elections in 2014.
That observation set off a firestorm among New Delhis political class Friday, but its hard to understand why. Mr. Basu only made a sober assessment of reality. Survey the Indian political landscape, with its legislative gridlock, coalition instability and feuds between the central and state governments, and it doesnt seem far-fetched at all to imagine India being unable to push through a major reform for another two years.
Look at the evidence. India desperately needs to attract foreign capital and investment, but the government did a U-turn last year on its plan to liberalize foreign investment in the multi-brand retail sector.
Long-promised liberalization of foreign investment in defense and insurance: stalled. Land acquisition reforms: going nowhere. Overhaul of fuel and fertilizer subsidies that are costing the exchequer dearly: politically unimaginable.
One of the Congress partys key partners in its ruling coalition, Trinamool Congress chief Mamata Banerjee, has blocked attempts at reforms on multiple occasions.
Indeed, the big policy debates of the moment arent about whether to push through bold new reforms, but whether to enact retrograde policy initiatives that would impose unprecedented tax liability on foreign investors, such as the measures Finance Minister Pranab Mukherjee had to explain in his meeting Wednesday with U.S. Treasury Secretary Timothy Geithner.
Still, even if the policy paralysis is obvious, Mr. Basus comments carry greater weight than any ordinary observers, as hes one of the most important and influential economic policymakers in the government.
Another man in that group, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said India remains committed to pushing through reforms as it develops its plans for the next five years. You never finish all the reforms that need to be done, he said in an interview with the news channel Times Now. That doesnt mean you cant get the economy back on a high growth path.
But it certainly makes it much harder. Many economists and analysts say India needs big-ticket policy changes if it wants to reach its goal of 9% steady gross domestic product growth. Growth was 6.9% in the year that ended on March 31.
Mr. Basu was in Washington to attend the annual spring meetings of the International Monetary Fund and World Bank. According to a report in the Indian Express newspaper, on Thursday he addressed the Carnegie Endowment for International Peace, a Washington think tank, and said reforms had slowed because of corruption scandals that have spooked the bureaucracy into not taking risks, rocky coalition politics and other issues.
We are going through a difficult year, Mr. Basu said. He also noted there could be a rush of reforms after the 2014 elections.
His point about bureaucrats slowing down decisions is important and often overlooked: the side-effect of the wave of corruption scandals in recent months is that many Indian bureaucrats even well-meaning ones who have their hands clean are reluctant to sign a document approving anything significant, lest they be targeted years down the road for a scam that someone above them was carrying out. Its just safer to pass the file to someone else.
The main opposition to the Congress party of Prime Minister Manmohan Singh jumped to highlight Mr. Basus claim as though it were a shocking revelation. This is the state of the economy, this is the state of the economic mess, Bharatiya Janata Party spokesman Rajiv Pratap Rudy told reporters.
Responding to the BJP, Congress spokesman Manish Tiwari said India has made great progress in the eight years of the Congress-led governments rule. Our problem is within. It is with the forces of negativism, he told reporters.
Shocker: Indian Reforms are Stalled! - India Real Time - WSJ
That observation set off a firestorm among New Delhis political class Friday, but its hard to understand why. Mr. Basu only made a sober assessment of reality. Survey the Indian political landscape, with its legislative gridlock, coalition instability and feuds between the central and state governments, and it doesnt seem far-fetched at all to imagine India being unable to push through a major reform for another two years.
Look at the evidence. India desperately needs to attract foreign capital and investment, but the government did a U-turn last year on its plan to liberalize foreign investment in the multi-brand retail sector.
Long-promised liberalization of foreign investment in defense and insurance: stalled. Land acquisition reforms: going nowhere. Overhaul of fuel and fertilizer subsidies that are costing the exchequer dearly: politically unimaginable.
One of the Congress partys key partners in its ruling coalition, Trinamool Congress chief Mamata Banerjee, has blocked attempts at reforms on multiple occasions.
Indeed, the big policy debates of the moment arent about whether to push through bold new reforms, but whether to enact retrograde policy initiatives that would impose unprecedented tax liability on foreign investors, such as the measures Finance Minister Pranab Mukherjee had to explain in his meeting Wednesday with U.S. Treasury Secretary Timothy Geithner.
Still, even if the policy paralysis is obvious, Mr. Basus comments carry greater weight than any ordinary observers, as hes one of the most important and influential economic policymakers in the government.
Another man in that group, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said India remains committed to pushing through reforms as it develops its plans for the next five years. You never finish all the reforms that need to be done, he said in an interview with the news channel Times Now. That doesnt mean you cant get the economy back on a high growth path.
But it certainly makes it much harder. Many economists and analysts say India needs big-ticket policy changes if it wants to reach its goal of 9% steady gross domestic product growth. Growth was 6.9% in the year that ended on March 31.
Mr. Basu was in Washington to attend the annual spring meetings of the International Monetary Fund and World Bank. According to a report in the Indian Express newspaper, on Thursday he addressed the Carnegie Endowment for International Peace, a Washington think tank, and said reforms had slowed because of corruption scandals that have spooked the bureaucracy into not taking risks, rocky coalition politics and other issues.
We are going through a difficult year, Mr. Basu said. He also noted there could be a rush of reforms after the 2014 elections.
His point about bureaucrats slowing down decisions is important and often overlooked: the side-effect of the wave of corruption scandals in recent months is that many Indian bureaucrats even well-meaning ones who have their hands clean are reluctant to sign a document approving anything significant, lest they be targeted years down the road for a scam that someone above them was carrying out. Its just safer to pass the file to someone else.
The main opposition to the Congress party of Prime Minister Manmohan Singh jumped to highlight Mr. Basus claim as though it were a shocking revelation. This is the state of the economy, this is the state of the economic mess, Bharatiya Janata Party spokesman Rajiv Pratap Rudy told reporters.
Responding to the BJP, Congress spokesman Manish Tiwari said India has made great progress in the eight years of the Congress-led governments rule. Our problem is within. It is with the forces of negativism, he told reporters.
Shocker: Indian Reforms are Stalled! - India Real Time - WSJ
