Of India, reforms and skewed governance

It was the annual meeting of the Confederation of Indian Industry's nothern region in Delhi. The chief guest was Mani Shankar Aiyar, the Union minister. Aiyar chose the occasion to openly critique the United Progressive Alliance government and with it the reforms process. Perhaps Aiyar forgot for a moment that he was an integral part of the Cabinet as much as in the concept of collective responsibility. Blame it on the ambience, the audience, the heat or anything else -- but not Aiyar.

Despite such seeming impropriety, Aiyar raised profound issues. Expressing his displeasure on the reforms in general and the working of the UPA government in particular, he charged that a small elite had hijacked the economic agenda of the UPA government and his colleagues in the Cabinet were absolutely 'comfortable' with this development.

As a case in point he pointed out that 'Rs 650 crore (Rs 6.5 billion) for village development is considered wasteful but Rs 7,000 crore (Rs 70 billion) for the Commonwealth Games is considered vital.'

Aiyar did not stop there. Pointing out that India was ranked 126th in the Human Development Index, he clearly pointed out to the UPA government's failure in addressing the issues relating to social sector indices. Obviously, successive governments, including the present incumbent, has no clue as to how to go about tackling the same.

Surely unhappy with this 'paradigm of development,' he pointed out as to how reforms make no difference to 700 million Indians who are either not in the market or barely in the market. On the other hand it is obvious, for Aiyar as it is to the rest of us, governance simply does not exist in India. Consequently, reforms as he pointed out do not matter for a large section of our population.

Explaining the disconnect

Coming to the crucial issue of governance, Aiyar states, 'We have the Indira Awas Yojana which will ensure that there will be a 'jhuggi' for every Indian round about the year 2200. We have the Prime Minister's Gram Sadak Yojana which was supposed to complete all the gram sadak in seven years -- we are in the eighth year.' Obviously what was unsaid by Aiyar was the manner in which the government is delivering would take centuries -- yes centuries -- to provide basic amenities to our people.

Pointing out to the protests in Nandigram (where the West Bengal police carried out a target practice session on an innocent population -- who else but Marxists could have done such a perfidy and got away?) and Singur against the acquisition of land, Aiyar stated, 'The Do bigha zameen syndrome still persistent in large parts of the country.'

Implicit in these arguments is that even after 60 years of freedom significant sections of our population, which are impoverished, illiterate and unskilled, are still dependent leveraging their land as the 'only' factor of production.

Accordingly, the 9.2 per cent growth becomes a 'statistical abstraction where 0.2 per cent of our people are growing at 9.92 per cent per annum,' and thereby implying that our reforms have an elitist bias. Pointing out to the fact that the growth rate of a large section of our population is perhaps a miniscule 0.2 per cent, Aiyar is spot on when he states, 'the number of those who are at the lower end of the growth sector is very much larger than those who are at the higher end.'

Naturally Aiyar during the course of his speech turned his ire to the annual budgeting exercise. Stating that it was an 'absolute ritual' Aiyar went on to add 'every finance minister (my colleague Chidambaram is no exception) will devote the first four or five pages of his Budget speech to the bulk of India and there will then be several pages, including whole of part B, which deals perhaps with one or two per cent of our population.'

Since the issues raised by Aiyar are indeed profound and hence deserves deeper contemplation, one cannot and should not be dismissive of his concerns.

Accurate diagnosis, wrong prescription

Blaming the elitist bias in our reforms for the anti-incumbency factor of successive governments Aiyar said, 'Industry has been enormously benefited by the processes of economic reform that we have seen in this country over the last 15 years or so.'

'But the benefits of these reforms have gone so disproportionately to those who are the most passionate advocates of reforms that every five years we are given a slap in the face for having done what the CII regards as self-evidently the right thing for this country' and went on to add, 'That is why this expression anti-incumbency, although the Oxford Dictionary says that it is a word belonging to the English language, is a peculiarly Indian phenomenon.'

What Aiyar failed to mention here was that every anti-incumbency vote is also an anti-systemic vote as much as it is a vote against mis-governance, lack of integrity and arrogance of the ruling elite.

Yet he chose to remain silent on these issues. As a case in point, the UPA government was at its innovative best in having a ministry for Panchayati Raj. Yet, despite having a passionate and committed person in Aiyar, this idea has been a sublime failure of this government, whatever be the reason.

No wonder, as a minister of panchayat, there has been virtually very little to write about his success in this department. The only solace is that like Aiyar, many of his colleagues come second best when pitched against the system.

Readers many note that on the diagnosis of the problems plaguing the Indian economy, Aiyar was near perfect. However when it came to prescriptions he trips heavily. Claiming at that he was always a Leftist, he declared that economic reforms converted him into a Marxist! What is weird is that this defection happened precisely when State intervention as an economic concept failed in India.

Despite our bitter experiences with it, he suggests a return to the good old days of State control, directions and interventions. The crucial question is what makes his diagnosis perfect -- prescriptions unacceptable?

Governance is the issue, not ideology

To understand this issue, we need to appreciate the fact that modern economics alternates between Marxism and market economics. In fact, it may be noted that the modern theoretical concept of macroeconomics is essentially binary -- it is either Marxism or free markets (in fact there is no third alternative).

So when Marxism fails, there is no other alternative in modern economics theory but to turn to market economics (or vice versa).

Yet essentially both these alternatives heavily rely on good governance and efficient bureaucracy for delivery. And should governance fail, both these models fail. As a case in point, Socialism failed in India primarily because of mis-governance, corruption and lack of sensitivity.

Reforms too are going the Socialism way precisely for these reasons. And without realising this fundamental issue, Aiyar and his ilk are blaming reforms and worse till continue to have a romantic fixation with Marxism.

Put bluntly, reforms have not stopped Aiyar and his Cabinet colleagues from improving governance. The UPA government is as inefficient, insensitive and ineffective as its predecessor the National Democratic Alliance and is most likely to meet a similar fate as when a general election is held. And should that happen the culprit would be governance -- and not any ideology and certainly not reforms. Unfortunately, many in this country do not understand this fundamental issue.

With the deformers of yesteryear becoming reformers now, it is but natural for reforms to fail. This is simply because as explained earlier the success of market economics paradoxically depends on the quality of governance. And the very people who failed India during socialism are in charge of governance today. Crucially the system is very much intact. Given this scenario even the Indian cricket team has a better chance of succeeding against Australia than reforms have.

Nevertheless, one concedes that to improve the quality of governance requires an effort exceeding that of the Mahatma during our independence movement -- to replace a dysfunctional, corrupt and insensitive system with a responsive one.

And it requires no seer to say that Aiyar or his colleagues in Parliament are no Mahatmas. Naturally, he resorts to subterfuge like a true politician -- and in the process make us think through our hearts. After all, that is a preferable alternative for him.

How times have changed. Or has it?

As reforms flounder, thanks to these stated reasons, a day would come, not too long from now when we may well be condemned once again to return to Marxism. Thanks to poor governance, India, it seems is caught between the *Scylla of a failed socialism and the Charybdis of a failing reforms process. If governance ensured we were poor during the socialist period, it now ensures that we do not get rich! How much have times changed. Or has it?

It is no doubt that the issues raised by Aiyar are indeed profound. While his diagnosis is spot on, his prescriptions are completely awry. Crucially, it is a grim reminder of the danger ahead -- should our reforms process fail thanks to mis-governance -- Marxist Aiyar could well become our finance minister and with it, Tata Consultancy Services could well be nationalised to become Hindustan Software Limited! And if that happens, experiences have demonstrated repeatedly across the world that would mean nothing to the poor millions.

*According to Greek mythology Scylla a sea nymph transformed into a sea monster lived on one side of a narrow strait; drowned and devoured sailors who tried to escape Charybdis (a whirlpool) on the other side of the strait

M R Venkatesh is a Chennai-based chartered accountant. He can be contacted at mrv1000@rediffmail.com