Features, Opinion

Better but not good enough

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India still seems cut adrift from the policies which could set it on a securer course towards lasting prosperity, says Pranjal Sharma

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The mood is better, but life isn’t for business in India. The last view weeks saw changes that were important but still have not been enough to increase the pace of growth.

The government finally decided to allow foreign investors to enter the retail market. This will allow Metro, Carrefour, Tesco and Walmart to set up retail units. Some are already in the wholesale business and just have to extend their presence to the consumer.

But this distilled into a sign that the central government in India was back at decision making. Add to this the changes in the Cabinet, and it looks like India is ready to do business again.

Domestic and foreign investors are still very cautious. There is optimism, but nobody is ready to put money into India unless they see more signs of activity from the government. The government keeps struggling to push through that one big reform. It tries to create a political consensus. It manipulates and strategises to pass the law in Parliament. All the while the change being planned is diluted to please or neutralize opponents. And finally when it does manage to implement the change, it collapses into exhilarated exhaustion.

The industry is not impressed with the results of such a process. Industry leaders are now asking for better governance processes. A thousand small reforms are better than a single policy reform, they say.

The recent ranking of ease of doing business show once again that big reforms are less important than lots of small changes that will make the life of an entrepreneur and citizen easier.

Still way low down

India has been ranked 132 out of 185 countries. So the grand emerging economy is at the bottom of the heap in ease of doing business. Its ranking is the worst among BRICS countries as well. Large democracies like Brazil and South Africa are ranked better.

There are early signs that India is trying to get its act together again. But key challenges remain. Critically, the steps to control inflation are still missing. And therefore the central bank is unlikely to reduce interest rates until the last quarter of this year. Domestic industrial activity is still languishing at under three per cent growth rate.

Changing Civil Society

A key change in the approach of both the industry and the government is the attempt to engage the civil society. Recently the Cabinet advised all government departments to prepare a social media policy to interact with civil society.

The detailed guidelines will ensure that citizens have direct interaction with officials. Even the industry is now keen to discuss social issues. The recent World Economic Forum on India saw more debates on social issues than business issues. Industry realizes that unless there is investment in social infrastructure like health and education, the storied consumer market of India may not materialise.

A prominent civil society movement against corruption metamorphosed into a new political party. Arvind Kejriwal, the former lieutenant of crusader Anna Hazare has decided to launch a political party to contest the next general elections. Kejriwal may not be able to win too many votes but he holds the power to affect voting decisions. Already he has taken on ruling Congress Party and the opposition Bhartiya Janata Party by exposing some questionable deals by their leaders.

A scenario building exercise done by the Planning Commission this year sets the stage for India’s growth direction. The three scenarios are Muddling Along, Falling Apart and The Flotilla Advances.

The first scenario called Muddling Along is described thus. “…where the system is crying for reform and some reforms are initiated. However, these are piecemeal, do not address core governance issues, and therefore are not effective…Small enterprises are sought to be encouraged, but the agenda of big business dominates.”

The scenario has likened India to a flotilla of several boats that represent cast, class and regional interests. A flotilla would move together only if these boats keep together.
The second scenario is called Falling Apart. Here India is stuck in centralised governance…wealth is distributed through subsidies.

The impatience and political logjam that result put India under severe stress, with several factions threatening to disassociate from the political union.” In the flotilla, the ships keep colliding. And nobody moves ahead.

The third scenario is most positive and is labeled The Flotilla Advances. In this scenario federal and local governance systems work together to help everyone reach their aspiration. Government processes and regulatory systems become more efficient to achieve economic reforms.

It will take a few months to assess the scenario that India is headed for.

Pranjal Sharma is a New Delhi-based  business writer and a PublicAffairsAsia columnist

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