Manmohan Singh's next big
move By Siddharth Srivastava
NEW DELHI - It is being seen as Prime
Minister Manmohan Singh's rendezvous with destiny
- an attempt to emulate China's reformer, Deng
Xiaoping, and fully release the pent-up private
enterprise in India without upsetting the
democratic framework and traditions in the
country.
Manmohan, a trained economist who
has worked for the International Monetary Fund
(IMF), is credited with launching India's
economic reforms in the early 1990s, when he
served as
finance minister under prime
minister Narasimha Rao. Now he wants take change
to a different level altogether. Crucially, he has
the backing to Finance Minister P Chindambaram and
Commerce Minister Kamal Nath.
Manmohan has
a relatively small window in which to act, since
12-15 months from now, political considerations
(read populism) for the 2009 general elections
will take over. He wants to leave his mark before
that period sets in.
But even before the
election season begins, Manmohan's ambitious plans
will require some deft management of coalition
politics. The Congress party holds power with the
support of left-wing parties, and handling leftist
coalition partners and disagreements within is
never easy.
"Politics is the art of the
possible, and I have to live with the situation I
inherited," Manmohan said last week. "There have
been difficulties ... but I have not given up
hope. We have not completed half the term." (The
left has opposed foreign involvement in retail,
insurance and disinvestments of public
enterprises.)
Indeed, his economic
thoughts are the same as the original architect of
capitalist China today: involve private enterprise
in every walk of life, including crucial
infrastructure development, and set up huge
special economic zones (SEZs) for the private
sector to prosper in as the government has
woefully failed to provide basic facilities.
In a strong pro-reform pitch, Manmohan
told a "conference on building infrastructure" on
Saturday that it would be difficult to push
India's economic-growth rate to 9-10% without
investing US$320 billion in upgrading
infrastructure over the next five years, including
reform of the electric-power sector. "We will need
to run hard just to stay where we are. Maintaining
a growth rate of 8% would need continual
improvements in our policy regime," he said.
On Friday, Manmohan spoke about another
economic bugbear: labor reforms. He said the
government is trying to achieve a "broad
consensus" with political parties and trade unions
to create a flexible labor market that would boost
growth and investment. "However, it will be done
without dismissing the concerns of employees. We
will evolve a broad-based consensus," he said in
Mumbai, where he signed pacts worth Rs68 billion
($1.5 billion) to upgrade the city's
infrastructure.
Speaking on reforms in the
financial sector, Manmohan said that "to realize
our full potential, there is much work to be done.
We must not give up the long-term goal of full
convertibility for the rupee. This will require
substantial preparatory work which has already
begun.
"We cannot achieve our social and
economic objectives unless there is reform of the
insurance and banking system. Infrastructure
requires long-term investment, and our banking
system is essentially short-term-oriented," he
said.
But infrastructure is clearly
Manmohan's priority, as was evident at the
infrastructure conference in New Delhi.
Dubbing as a "matter of concern" the
deficit in infrastructure, Manmohan said, "Our
growth potential will be realized only if we can
ensure that our infrastructure does not become a
severe handicap. The quality and capacity of our
infrastructure [are] certainly a matter of concern
to one and all. We must deal with this deficit."
His recipe for improving the quality of
roads, airports, railways and ports involves
greater play for the private sector along with a
strong regulatory setup.
New Delhi is
working on a policy to attract more private
investment in infrastructure development, Manmohan
said: "In the coming weeks and months we will
finalize the remaining elements of the policy,
regulatory and institutional framework for
public-private partnerships in infrastructure."
The new policy would ensure
competitiveness and complete transparency in the
process of inviting bids and the awarding of
contracts, besides putting in place a proper
regulatory framework and dispute settlement
mechanism, he added.
New Delhi has already
made some efforts in improving infrastructure in
cooperation with private investors. For example, a
four-lane-highway network linking India's four big
cities Delhi, Mumbai, Chennai and Kolkata is
almost completed, and the government has moved
further to update it to a six-lane network through
the build-operate-transfer (BOT) mechanism. India
also plans to build 76 new port berths by 2012, of
which 53 will be implemented through
public-private partnership.
The government
plans to award as many as 175 highway-development
contracts on BOT basis, involving an estimated
investment of more than Rs750 billion by March
2008. As part of the infrastructure ramp-up, New
Delhi is looking at investments worth more than
Rs600 billion to build 13 ports. Delhi and Mumbai
airports have already been handed over to private
players for a major revamp.
Despite the
differences within the government over acquisition
of farmland and revenue losses, Manmohan
reiterated that SEZs are here to stay and said the
controversies were being overplayed. SEZs are
being seen as key to private involvement in
infrastructure-building in the country.
"There are certain aspects, such as the
use of prime agricultural land, which must be
addressed, but in some states such as Punjab where
there is no vacant land, that may be the only
way," he said.
This sends a clear message,
as the SEZ saga so far has been a bit messy. New
Delhi announced the new policy in February to
provide an impetus to industry and attract foreign
investment.
Even as a political, economic
and social consensus has yet to emerge on the way
SEZs should be developed in India, the Board of
Approvals (BoA) recently cleared 31 more
proposals, including the Rs530 billion investment
in Orissa by South Korean steel giant Posco. The
total number of SEZs formally approved by the BoA
now is 181.
Among the approvals are
Google, Dell, Accenture, Infosys, Wipro, HCL,
Cognizant and NIIT. India's largest private entity
Reliance Industries Ltd and the Haryana government
have signed an agreement for setting up India's
largest multi-product SEZ, involving an investment
of nearly $9 billion (Rs400 billion).
There has been some controversy about SEZs
emerging as a crucial cog in India's development.
Congress party president Sonia Gandhi, who
exercises considerable power over the government,
recently expressed reservations against diversion
of farmland for industrial and non-agricultural
use without the farmers being compensated
adequately.
The IMF too had cautioned
India to take a second look at the SEZ policy, but
the Commerce Ministry feels the zones would lead
to a Rs440 billion revenue gain for the government
every year.
A senior ministry official
recently said that the 150 SEZs approved since
February have already brought in an investment of
$700 million and created 80,000 jobs. By the end
of next year, these 150 SEZs are projected to have
a total investment in the region of $40 billion to
$50 billion.
Commerce Minister Kamal Nath
has been at the forefront of defending the SEZ
policy. Nath said recently that the Reserve Bank
of India "should be consistent. In its own report,
lauding the policy it had said that the SEZs are
engines of growth and now in the notification, it
raised the risk weightage."
Nath
maintained that Sonia Gandhi was not against
setting up SEZs, but only insisted that prime
agricultural lands should not be compromised for
industry and SEZs in particular. He said the BoA
has already taken up the matter with state
governments.
It is important too that land
sharks who invest and grab land for purely
speculative purposes are kept away, while at the
same time ensuring that farmers who may lose their
land are adequately compensated. All of this is
easier said than done.
Given the woeful
state of the country's infrastructure, having
well-developed areas for private enterprise to
thrive does make economic sense. But there is a
long way to go. Manmohan has his task cut out.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
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