Indian prime minister defends economic reforms
By Simon Denyer and Rama Lakshmi,
NEW DELHI — Indian Prime Minister Manmohan Singh mounted a spirited defense of recent economic reforms in a nationally televised address Friday, arguing that they were necessary to revive investor confidence in a slowing economy and prevent a fiscal crisis.
Political analysts said it was a welcome, if belated, attempt to make the case for reforms, from a man who has frequently been castigated for being a poor communicator and presiding over a paralyzed administration.
But they said Singh continued to sidestep some of the fundamental issues that have plagued his government, including the corruption and lack of transparency in decision-making that business leaders say is holding back investment and growth.
“I promise you that I will do everything necessary to put our country back on the path of high and inclusive growth, but I need your support,” Singh said, hours after one of his coalition partners formally withdrew from the government to protest last week’s decision to allow in foreign supermarket chains such as Wal-Mart and Tesco and reduce subsidies on diesel.
“We have much to do to protect the interests of our nation, and we must do it now,” Singh said. “The time has come for tough decisions.”
On Thursday, many of the nation’s small shopkeepers closed their stores and thousands took to the streets, arguing that the arrival of foreign retailers would put them out of business.
But Singh said those fears were “completely baseless.” Other sectors of the economy, from information technology to steel and the auto industry, have thrived when exposed to foreign competition and investment, and he said retail trade would, too.
With growth slowing, government borrowing rising and investor confidence slipping away, officials say India’s government was compelled to act last week to ward off the possibility of a downgrade in its debt rating to junk bond status, with potentially disastrous implications for the rupee and borrowing costs.
Business leaders said last week’s policy announcements, which included allowing limited foreign investment in the airline industry, were welcomed as a step in the right direction — a mood-changer but not yet a game-changer — in a country where red tape, corruption, woeful power supplies and problems in acquiring land act as powerful deterrents to investment.
“He didn’t talk about any of the things that have been consuming the country in the past few months,” said Manisha Priyam, associate professor of politics at Delhi University and a research scholar at the London School of Economics. “He didn’t address issues of transparency, allocation of national resources or any of the domestic reforms that everybody is demanding. Does he not have anything to say on that?”
Nevertheless, the decision to open up the retail market, something the U.S. government has long lobbied for, was a significant political risk for Singh. The government had already backed down from that decision after similar opposition last year.
‘Where is the big picture?’
This time around, Singh’s Congress party says it has enough support from other smaller, regional- and caste-based parties to shore up its coalition and comfortably win any confidence vote in Parliament.
But party insiders say they are aware that these smaller parties, widely seen as corrupt and opportunistic, cannot be depended on indefinitely, and they say they are preparing for the strong possibility of elections next year, rather than in 2014.
That may limit the government’s room to maneuver in terms of further reforms, analysts said.
“I don’t know how much more we can expect — they don’t have the political capital or the numbers to have greater reforms after this,” said columnist Ashok Malik, arguing that the speech lacked a broader sense of direction.
“He explained we have to tighten our belts, but where is the vision, where is the big picture, where is the dream?”
In his taped address, Singh defended his decision to cut subsidies for diesel by saying that “money does not grow on trees,” and warning that India could not afford a collapse in investor confidence suffered by some European countries.
He also pointedly reminded India of the reforms he unleashed as finance minister in 1991, when the country faced a much deeper foreign exchange crisis and he put into place far-reaching measures to liberalize the economy, setting it up for two decades of unprecedented growth.
But Singh’s reputation has fallen sharply in the past two years as the economy has slowed and his government has been mired in a series of corruption scandals, with the prime minister apparently watching impotently from the sidelines.
Difficulty in ‘resolute steps’
To some extent, the recent burst of reforms, coupled with Friday’s speech, seemed like an attempt from Singh to reclaim his legacy, just five days before his 80th birthday.
“The last time we faced this problem was in 1991,” he said, an Indian flag and a bust of independence leader Mohandas Gandhi behind him. “We came out of that crisis by taking strong, resolute steps. You can see the positive results of those steps. We are not in that situation today, but we must act before people lose confidence in our economy.”
The fact that Singh had to make a national address to defend a relatively modest package of reforms underlines how little political support exists for economic liberalization, even today. That he harked back to the 1991 crisis underlines how deep the malaise has become in the past year.
The problem, columnist and author Shankkar Aiyar said, is that successive Indian governments make bold decisions only in the midst of a crisis. That makes for haphazard policymaking, and limited follow-through.
In essence, India’s path toward becoming a more open, prosperous global power is unlikely to ever be smooth.
“In India, things must get worse before they get better — and sometimes even that doesn’t happen,” said Aiyar, whose forthcoming book, “Accidental India,” explores this dynamic. “But when the crisis fades, you say goodbye to reforms.”
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