Economic reforms’ eventful journey

Having held a variety of top government positions, including that of Finance Secretary and RBI Governor, Bimal Jalan is in an uniquely privileged position to hold forth on India’s economic journey since the momentous 1991 reforms. He was very much in the thick of things when the Narasimha Rao government set about dismantling the edifice of Nehruvian socialism (or what passed off as socialism in India) and brought about the liberalisation of the economy.

Jalan’s latest book India After Liberalisation: An Overview is a collection of essays written over the last three decades. It covers a gamut of topics including financial sector reforms, governance, corruption, electoral reforms, science policy and delivery of public goods. As the title suggests, this book is very much an overview of the major political economy issues facing the country over the last decade, where Jalan touches on these issues at a broad level without really going into great depth or the nitty-gritty of the issues discussed.

The book’s three sections are divided more chronologically than thematically. The first section has essays written in the first decade of liberalisation and largely deals with financial sector reforms. Government control over the economy, which was adopted soon after Independence, was perhaps the need of the hour then, and also a legacy of the set of controls put in place during World War II, but clearly has no relevance now. Jalan at the same time does not advocate a wholesale withdrawal of government from the economy. The government, according to Jalan, has two main functions — one, to put in place a regulatory framework that would enable the smooth functioning of the market economy, and two, provide social goods such as healthcare, education and clean drinking water and sanitation. Jalan is a realist enough to say, “In real life there is no such thing as perfect markets or perfect governments.”

The essays in the first section also deal with the East Asian currency crisis of the 1990s and the important lessons that held for India’s still nascent financial sector reforms. Some of the important reports that set the agenda for financial sector reforms — the Rangarajan Committee Report (for external sector reforms) and the Narasimham Committee Report (for domestic financial sector liberalisation, especially banking reforms) — are discussed in some detail.

But the irony here is despite the far-reaching financial reforms undertaken by the government in the early years of liberalisation, the financial sector continues to grapple with huge bad loans and governance issues today as evidenced by the IL&FS, YES Bank and PMC Bank crises. So, are financial sector reforms an ongoing process where regulators have to be forever on ‘fire-fighting’ mode to deal with unpredictable crises, both domestic and global?

Political economy issues

In the second section Jalan moves on to more ‘political economy’ issues such as reforming politics, the separation of powers, the painful diminution of Parliament and their collective influence on public policy and our democratic polity. Despite its weaknesses, Jalan is a strong advocate of the present Parliamentary form of government over a Presidential form, which he feels is unsuited for India given the size and diversity.

India, from 1989 till 2014, was under the rule of various coalitions, some fragile and some reasonably stable. The NDA-I regime under AB Vajpayee and the UPA-I and II regimes under Manmonhan Singh can be termed as being reasonably stable. But even under these regimes coalition compulsions often undermined economic and public policy. Here Jalan is critical of the role that smaller parties, which despite their small presence in Parliament, have a disproportionately large role in governance. Jalan fumes over how these smaller parties, often for their short-term political gains, hold long-term reforms and governance at ransom. Some interesting measures are suggested to curb the power of smaller parties to improve governance and stability.

But here Jalan is wearing the technocrat’s hat and tends to underplay what small parties can bring to the table. The present government, which is currently facing its biggest political crisis in its seventh year in power in the form of farmer protests, could have perhaps avoided this if it had taken its erstwhile ally — Shiromani Akali Dal — into confidence before implementing the three farm laws.

On the separation of powers between the executive and the judiciary, Jalan leans towards an activist judiciary keeping a watchful eye on executive excesses. Though courts are by no means always right, they still play a crucial role in sustaining the democratic process.

The way the Finance Bills were passed in the past without any discussion in Parliament, is clearly a sticking point for Jalan and a sad commentary on our Parliamentary record. As a Rajya Sabha MP between 2003 and 2009, Jalan had a ringside view of Parliamentary proceedings and he does not present a pretty picture. The Budget session of 2006 comes in for particular criticism where a number of significant government decisions were passively accepted by both Houses of Parliament without any debate. These unprecedented events took place under the backdrop of the ‘office of profit’ controversy. The disruptive attitude of the Opposition members also comes in for criticism. Jalan is particularly pained by the, “… complete subservience of Parliament to the will of the executive”.

Given how the present government rammed through the Farm Bills in Parliament last year, there seems to be a strange bipartisan consensus between the two national parties on further nullifying the role of Parliament.

In the long essay on ‘The supply and demand of corruption’, Jalan talks about the depressing acceptance of this repugnant phenomenon in Indian polity. There are enough studies that show how corruption reduces growth and increases inequality. Yet, according to Jalan, both the Indian public and the judiciary seem curiously indifferent to this aspect of corruption.

The irony here is though the number of investigative agencies probing corruption cases has increased so have the quantity, scale and impunity of such cases. Jalan goes into the causes and sustenance of corruption in some detail. However, in suggesting measures to curb corruption — State funding of elections and streamlining investigative agencies — he is not breaking any new ground.

In the essay on ‘social sectors’, Jalan dissects India’s abysmal record on human development despite reasonably good growth, and also gives some useful suggestions on streamlining the PDS framework and involving NGOs in delivery of public goods.

In a collection of essays an element of overlap is inevitable and this book is no exception. But this collection is a good overview of how far we have come and how far we need to travel.