Indian economic reform on hold until after poll

PUBLISHED : Sunday, 20 July, 2003, 12:00am
UPDATED : Sunday, 20 July, 2003, 12:00am

A junior minister recently found himself at the same function as Indian Prime Minister Atala Behari Vajpayee. Seizing the chance for the leader's undivided attention, the minister inquired after a proposal he had put forward to liberalise the power sector. 'Don't ask about anything until after November,' Mr Vajpayee replied.

The engine of economic reforms has spluttered to a halt as the ruling Bharatiya Janata Party (BJP) defers every decision that might prove unpopular in the four states going to the polls in November.

So the power sector remains half-reformed. In humid July Indians suffer power cuts lasting half a day and the water supply - untouched by reforms - turns to a trickle in most homes. Both are state-owned services.

Consumers pay only 60 per cent of the cost of supplying power, which has, unsurprisingly, bankrupted the electricity boards.

The water services have it worse: customers only pay 30 per cent of the costs of pumping water into their homes. More than 20 per cent of the supply is lost to leaking pipes and a quarter of the connections are not even metered.

New Delhi is a microcosm of all that is wrong in India and all that was meant to get better through economic reforms and privatisation. Privatisation was meant to repair the damage done by state ownership but it has been rolled back by a government reluctant to antagonise voters.

Never an Asian 'tiger', India was the Asian 'elephant', lumbering along after opening up the economy in 1991. Now the 'Hindu rate of reform' has ground to a halt, because the BJP is desperate to win the November elections. The results will be seen as a bellwether of next year's general election.

The last thing the BJP wants is workers in state-owned enterprises protesting at privatisation or consumers going on the warpath for losing their subsidies.

The Hindu nationalist BJP draws much of its support from a clutch of fundamentalist groups, whose advocates opposed privatisation as unpatriotic. Only 50 billion rupees (HK$8.4 billion) has been raised from the sale of state assets to date, less than half the target of 120 billion rupees.

'The reforms thrust is over,' said economist Arvind Virmani.

The list of measures that have been rolled back is long. The BJP realises that India needs to attract much higher levels of foreign direct investment - an additional US$10 billion annually.

But no minister responsible for any sector is lifting a finger. Even where reforms happen, they are only on paper. A fairly radical Electricity Bill has been passed that would usher in private participation and give consumers choice, but no one seems ready to implement it. Meanwhile, the boards are totting up losses of more than US$6 billion a year.

Nearly all India's public sector enterprises are at the hospice stage. Every oil minister has opposed privatisation of the two mammoth state oil companies. The proposal has been pending for years.

Instead of curtailing the state's role in the economy, Railway Minister Nitish Kumar has been celebrating the launch of the railways' own mineral water. 'In an era of privatisation and outsourcing, his ministry - instead of focusing on safety and cutting losses - has set up a mineral water plant to take on Coke and Pepsi, Kinley and Bisleri.

It is generally accepted that the two national airlines, Indian Airlines and Air India, ought be privatised. Passengers avoid them. Privatisation was approved years ago. Now they have been taken off the privatisation list altogether.

If one man symbolises the moribund state of India's reforms it is the Disinvestment Minister, Arun Shourie, an ardent proponent of privatisation. But with November looming, even he has gone quiet.

The sluggishness is obvious to everyone. World Bank chief economist Nicholas Stern, speaking in India recently, said: 'In all societies there are vested interests that resist initiatives that would benefit the majority. Strong leadership will be needed if the reforms necessary to accelerate development are to be taken forward.'

The government was supposed to reduce its stake in nationalised banks, permit higher levels of foreign investment, restructure the electricity boards, re-balance telecom tariffs and reform labour laws to give employers flexibility.

None of these have happened.