Reforms should address inequity

Democracy abhors inequity

In one of the most sensible analyses of the economic message sent out by the Indian electorate, Bibek Debroy points out that the verdict is not so much a vote against economic reform but rather a correction on its course.

Hence, the underlying message of the results is also that the growth process of the 1990s has been inequitable and that is a message that shouldn’t be ignored. In this entire privatisation discourse, how many people (in the workforce) are we talking about? 6.19 million. But the equity discourse concerns 400 million in the workforce. For understandable reasons, the Sensex reacts disproportionately to the 6.19 million. But any new government has to react at least proportionately to the interests of the 400 million.

Stated differently, the argument that these results are anti-reform is simplistic. Not unless one explains what one means by reforms. If reforms are interpreted as privatisation and revamping Chapter V-B of the Industrial Disputes Act, they are indeed anti-reform. But these are small components in the pending reform agenda. If reforms are interpreted as introducing liberalisation in the rural sector, there is no reason why liberalisation should be postponed. Nor should it be postponed if it is interpreted as increasing public expenditure and making this expenditure more accountable and transparent, thereby improving its efficiency. In contrast to China, why are reforms in India perceived to be pro-rich, anti-poor? Because lives of most of India’s citizens have not yet been touched by reforms. The message is therefore about the contour of reforms, not about their continuation. [Debroy/Indian Express]

Given the composition of the ruling coalition, there is a danger this subtle economic message could well be translated into populist policies. The inequity problem should not be solved by slowing the fastest to run at the pace of the slowest. Economic growth may solve the poverty problem via a ‘trickle-down’ effect – but it is a good solution nevertheless.