(MK Venu is Executive Editor of Amar Ujala publications group)India's key message delivered by Prime Minister Narendra Modi at the G-20 summit in Brisbane was meant as much for the domestic audience as for the international community and investors.
Modi said economic reforms have to be people-centric and must therefore change the lives of the people for the better. In other words, when reforms and growth do not significantly improve the lives of the people, they tend to get discredited. This sentiment was echoed more directly by Suresh Prabhu, India's Sherpa for the G-20 summit, who had earlier said that growth has no meaning if it does not change the lives of the people, that people's lives must be at the centre of the debate, and the focus cannot be on growth for its own sake.
Prabhu said the world is witnessing the phenomenon of jobless growth over the past decade and even western institutions like the IMF are now talking about closely studying the "quality of growth".
Modi further emphasised that reforms cannot be done by stealth or under a veil of secrecy. This means people must participate in a transparent and democratic manner to arrive at decisions on big economic reforms. This message is meant for the domestic constituency as well as for global investors who have built over-expectations that the new government has a magic wand with which it will implement politically-contentious reforms relating to labour laws, land laws, energy and water subsidies for farmers etc.
It is interesting that Modi chose to give an example of a small farmer whose survival economics is linked to the government's subsidy regime. Modi said the farmer is given subsidized electricity to draw water from the ground through an electric pump. This subsidy can be gradually withdrawn only when farmers get access to other sources of irrigation, the PM argued. In fact, one of the key economic programmes stated in the BJP manifesto is to ensure water reaches every farm. This cannot happen overnight. Therefore, electricity subsidies cannot be withdrawn overnight in rural areas.
In India, millions of farmers today extract ground water with the help of diesel-driven pump sets. This has increased over the decades because of 8-10 hour power cuts everyday. So diesel electric pumps are used to draw ground water. In Uttar Pradesh, many small farmers pay anything from Rs.70 to Rs.80 per hour to hire diesel pumps for drawing water. This adds to their cost enormously.
The larger point is that any reform of subsidies given to the farmers must take into account these hard realities of farm economics.
The G-20 countries have accepted the American proposal to allow India an indefinite period to enable farm subsidy reforms. The G-20 therefore will not question the Indian government's food procurement from farmers to strengthen its national food security until a permanent solution is found to the subsidy issue within the WTO guidelines.
India has, thus, earned enough breathing space to do reforms in agriculture within the WTO rules. However, the Modi government will now have to seriously focus on the economics of 500 million farmers and see how their conditions can be improved as per the broad WTO rules. India can provide a lot of indirect cash subsidies and yield-enhancing research support to farmers, which the WTO permits. But this would require a restructuring of the current subsidy regime. The NDA government must soon initiate a public dialogue with the farming community on the broader priorities of Indian agriculture which is crying out for a second green revolution. Unfortunately, in the six months of the current regime, one has not seen enough visible focus on agri reforms.
Modi's message to the international investors that India will not do reforms by stealth is particularly welcome. He must further clarify that economic reforms are not about announcing big decisions with a view to enhance the feel-good factor in the stock markets which are driven by the share prices of a few hundred companies.
Stock markets cannot become a guide to policy-making in a society with so many poor. Hopefully, reforms will be driven by the people at large and not by a small community of finance capital players prone to viewing everything in terms of its impact on company balance sheets.
Finance Minister Arun Jaitley has rightly stated that reforms are a "step by step" process and not based on a few "sensational ideas" which often come from top down. A bottom-up flow of ideas needs to be institutionalised at the government and civil society level.
While Modi's statement that reforms have to be people-centric is apt, the recent flurry of decisions on environment clearances, especially for mining in forest areas, seem to have been taken without adequate dialogue with the affected people in a transparent manner. The impatience of big business can create a more centralized decision-making process. This might create a UPA II kind of trap for the NDA. Modi must be careful in this regard. Land and Labour law changes also need more transparency and a broader dialogue with the people.
Jaitley has hinted that a larger debate will precede changes in land and labour laws. One will have to wait and see how this process unfolds.
Another welcome move at the G-20 summit was to declare India's intent to become part of the automatic information-sharing regime globally on black money lying in tax havens abroad. If formalised, this information -sharing mechanism will surely act as a deterrent against big money launderers, including corporates, who fund elections with laundered money.
The government has an opportunity to bring transparency into the political economy through a people-centred, broad based dialogue. The political economy reforms cannot be left to technical experts in the field of economics and finance.
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