A quarter century of reforms

BRP Bhaskar
Gulf Today

The 25th anniversary of economic reforms passed unnoticed last month. A strong votary of economic liberalisation, Prime Minister Narendra Modi is trying to carry the reform process forward. There was, however, no official celebration of the jubilee.

The reform process was initiated by a Congress government. Some give Prime Minister Rajiv Gandhi credit for taking the first steps in this regard. However, if the process is to be assigned a date of birth it must be July 24, 1991. On that day Dr Manmohan Singh, as Finance Minister in PV Narasimha Rao’s government, presented his first budget in which he outlined proposals to move away from the path charted by Jawaharlal Nehru in the 1950s.

Nehru, who set before the nation the ideal of a socialist pattern of society, envisaged a mixed economy in which the private sector will have an assured place but the public sector will occupy the commanding heights. The attempt to establish a regulated private sector led to the evolution of a corrupt system which critics dubbed licence raj.

Narasimha Rao did not formally repudiate the socialist ideal, but acute economic distress compelled him to change the course. A sharp fall in the foreign exchange level had forced the country to raise money from the Bank of England by mortgaging a part of its gold reserves. Later the International Monetary Fund provided a loan to tide over balance of payments difficulties.

The reforms comprised three elements: liberalisation or freeing the economy from bureaucratic control, privatisation or divesting of state undertakings and globalisation or integration of the domestic economy with the world economy. The Left and some sections within the Congress party opposed them on ideological grounds. Businessmen who had prospered under the licence raj were not keen on changes.

In the circumstances, the Rao government and its successors chose to hasten slowly, much to the chagrin of global promoters of the new international order. As Prime Minister, Manmohan Singh too moved cautiously. Ground realities have impeded Modi’s efforts to accelerate the pace of progress in the past two years.

India began globalisation more than 12 years after China did. Today, in terms of exchange rates, China is the world’s second largest economy with a gross domestic product of $10,983 billion, after the United States with a GDP of $17,947 billion. India stands seventh with $2,091 billion. Purchasing power parity valuation puts China above the US with a GDP of $19,392 billion and India in the third position with $7,965 billion.

Manmohan Singh recalled recently that the economy had recovered faster than he had expected. Inflation came down. The balance of payments position improved.

Just as the economic progress achieved during the Mao regime stood China in good stead as it opened up, the foundations laid by Nehru provided the ballast as India ventured into choppy seas. Information Technology units’ earnings from software exports and Non-Resident Indians’ remittances helped the country stabilise the foreign exchange situation quickly after the rupee was effectively devalued.

The service sector is now the main driver of the economy. It contributed as much as 69 per cent to the GDP last year. The manufacturing sector is almost stagnant, despite Modi’s vigorous pursuit of foreign investments under his Make in India programme. Agriculture which is still the mainstay of a large section of the population recorded a meagre 1.1 per cent growth.

The flip side of the economic success story is the heavy price the poor is called upon to pay. Tribes are being dislocated from their traditional homelands to make room for industries. While the rich get away defaulting on bank loans, small and marginal farmers are driven to suicide. The Centre’s slashing of expenditure on health and education adds to the misery of the poor.

A feature of the recent economic growth is that it is not accompanied by job creation. According to the latest census report, the unemployment rate rose from 6.8 per cent to 9.6 per cent during 2001-2011. The trend continues.

What marks the post-liberalisation era apart from the past is the emergence of a middle class pleased with easy availability of consumer goods. Its seeming prosperity deflects attention from the sharp rise in inequality.

In a lecture two years ago International Monetary Fund managing director Christine Lagarde said the net worth of India’s billionaire community had increased 12-fold in 15 years, “enough to eliminate the absolute poverty in this country twice over.” --Gulf Today, August 2, 2016.

A fraud on the Constitution

BRP Bhaskar
Gulf Today

In a democracy, normally, the Legislature alone legislates. In India the Judiciary and the Executive also legislate.

The Judiciary’s power to legislate flows from a clause in the Constitution which says the Supreme Court’s decisions have the force of law. The court has, through judgments, written new laws and even made changes in the Constitution.

The Executive’s power to legislate is derived from the articles that authorise the President and the Governors of States to promulgate ordinances to deal with urgent matters when the legislative bodies are not in session. The President and the Governors are required to act on the advice of the council of ministers.

The Executive cannot make laws in the United Kingdom which has a parliamentary system, or the United States which follows a presidential system. Law-making by the Executive in India is a colonial legacy. The British-enacted Government of India Act of 1935 had a provision to that effect.

An ordinance issued during a recess of the legislature lapses automatically six weeks from the start of its next session unless replaced by a regular law. DC Wadhwa, former Director of the Gokhale Institute of Politics and Economics, Pune, while working on the issue of sugarcane production, discovered that since 1967 Bihar and some other states were reissuing ordinances repeatedly. An ordinance relating to sugarcane was kept alive in this manner for about 14 years without being placed before the legislature.

Over the years Bihar started relying primarily on the ordinance route. Between 1967 and 1981, the state legislature passed only 180 laws. The ordinance tally for the period stood at 2,014. As many as 50 ordinances were issued on a single day.

Wadhwa brought out his findings in a book titled: “Re-promulgation of Ordinance: A fraud on the Constitution of India”. He also took the issue to the Supreme Court.

Frowning upon Ordinance Raj, the court declared that re-promulgated ordinances could be struck down. However, it took an indulgent view of the government’s conduct. If there was too much legislative business in a session and a law could not be enacted to replace an ordinance, it could be re-promulgated, it said.

Governments continued to use the ordinance route with abandon. According to Shubhankar Dam of the Singapore Management University School of Law, the Centre promulgated 651 ordinances between 1950 and 2009, an average of close to 11 in a year. Of these, 177 were issued within 15 days before or after a Parliament session. Indira Gandhi nationalised 14 major banks through an ordinance a day before a session.

Ironically, abuse of the ordinance provision is as old as the Constitution itself. On January 26, 1950, the very day on which the Constitution came into force, Jawaharlal Nehru’s government issued three ordinances. Eighteen more followed during the year. GV Mavlankar, Speaker of the Lok Sabha, told him the house felt that it was being ignored, and resort to ordinances was not conducive to the development of the best parliamentary traditions. But the situation did not improve.

Nehru, who commanded the support of the majority in the two houses of Parliament, had no need to avoid them. His successors took advantage of the precedent he had set. Some of them headed coalition governments and were wary of facing the houses.

Charan Singh, who was Prime Minister for 170 days without having enjoyed majority support in the Lok Sabha even for a day, issued seven ordinances.

The issue of rule by ordinance came to the surface early this year when Narendra Modi, whose Bharatiya Janata Party commands a majority in the Lok Sabha but is in a minority in the Rajya Sabha, issued eight ordinances in his first 225 days in office.

These included one for acquisition of land for industries, one for auction of coal blocks and one for allowing foreign direct investment in insurance. Failing to push through the land acquisition measure during the winter session due to the stiff opposition of the Congress and other parties in the Rajya Sabha, the government re-promulgated it after the house went into recess.

Government spokesmen justify re-promulgation of the ordinance on the ground that this was necessary to ensure continuity and move forward with the reform agenda. With farmers up in arms against the new law and several parties vowing to block it, the government is not in a position to put the measure on the statute book through the normal process and it is well aware of this. In these circumstances, re-promulgation of the ordinance is an act that falls within the purview of Wadhwa’s expression “a fraud on the Constitution”.-- Gulf Today, Sharjah, June 9, 2015.

Rolling out of reforms

BRP Bhaskar
Gulf Today

Pressure is mounting on the Narendra Modi government from domestic and foreign business interests to roll out economic reforms promised by the Bharatiya Janata Party in its election manifesto.

The Paris-based Organisation for Economic Cooperation and Development (OECD) said last week the Indian economy had shown signs of a turnaround and imbalances had lessened. It forecast that the economy, which registered a growth rate of only 5.3 per cent during the July-September quarter, could go up to 6.6 per cent in 2013-16 and to 6.8 per cent in 2016-17.

These rates are by no means too modest in the context of current global conditions. However, the Indian government is eager to push the rate up to the eight per cent level achieved before the global meltdown of 2008. Finance Minister Arun Jaitley told Parliament a few days ago that the government was committed to go ahead with reform measures “to take India back to the original potential of eight per cent economic growth”.

The Western economies have a stake in accelerated growth of the Indian economy since it will boost their own recovery plans. On its part, the Indian government is looking forward to infusion of fresh foreign capital to expand economic activity and generate jobs. The rub lies in some local laws which both domestic and foreign investors consider a stumbling block.

The World Bank’s Ease of Doing Business report ranked India at 142nd among the 189 countries surveyed. This meant a decline from last year when it was at the 140th place. The Prime Minister has reportedly set for himself a highly ambitious goal of putting the country among the top 50.

An action plan drawn up by the Confederation of Indian Industry, with the help of the consulting firm KPMG, contains a set of proposals to make India the “best place for doing business”. It envisages, among other things, rationalisation of the tax regime, easing of land acquisition process and streamlining of procedures for investment approval and provision of utilities.

Some proposals, like the one regarding e-filing of applications, will certainly help cut red tape, reduce corruption and improve efficiency. Some are couched in euphemistic terms. An example is the proposal for creation of an appropriate labour development ecosystem. It talks of 44 Central laws, many of which are old and outdated and impose a heavy compliance burden, and says there is urgent need to realign them to new economic needs. This is a scarcely disguised plea to scrap laws that protect the workers against exploitation.

The OECD’s prescription for curing the economy’s ills also includes many of the CII-KPMG proposals but it presents them in a wider context giving the impression that it is sensitive to the needs of the workers and other weaker sections of the society. It asks the government to boost manufacturing jobs by simplifying labour laws, improving access to education and improving the business climate. It also proposes increasing female economic participation and improving access to quality healthcare.

The proposals of CII and OECD are not new. The Congress-led United Progressive Alliance government had seriously considered similar proposals but could not go ahead with them because of strong opposition not only from the Left parties but also some of its own partners.

Soon Modi will have before him yet another set of proposals drawn up by a World Bank team, which is now in India. It comprises experts on trade and competitiveness practices and was sent by Bank president Jim Yong Kim at Modi’s request to suggest measures to improve the business environment.

The team was reportedly holding discussions with public and private sector stakeholders in New Delhi and Mumbai on the reform initiatives and discussing various reform options and feasibility of their implementation. Its recommendations are bound to be on the same lines as those of the CII and OECD.

Parliament is now in session, and the government may try to push some reform proposals through it. However, major reforms must wait till the budget session which begins in February.

With a clear majority in the Lok Sabha, the lower house of Parliament, the BJP has more elbow room than the Congress had. However, it is in a minority in the Rajya Sabha, the upper house, and needs the support of other parties to push any changes in law. Some of the reform proposals may require changes in the Constitution, for which a two-thirds majority in both houses is necessary. -- Gulf Today, Sharjah, December 9, 2014.