Reform push in right direction

Raman Bhalla
The opposition parties in the centre are at it again. No sooner did the Union Government unveil the much needed reforms like FDI in multi-brand retail and civil aviation, the entire opposition, cutting across the ideological hues, closed ranks and raised a banner of opposition, citing that the Government has indulged in a sell-out.. While the opposition from parties with the leftist/socialist leanings, who have traditionally been averse to the idea of allowing the free enterprise a stake in the public space, is understandable, it is the BJP’s reaction that has been a revelation.
While the BJP holds the Government responsible for the slow down in economy, it does not let the Government do the very reforms that would help the economy rev up, for they are ‘anti-people’. It criticizes the Prime Minister for he has been talked down by the foreign media on the state of economy. But it would not let the Government alter the course of economy, because ‘it will not benefit the mass of poor’. Now, contrast this with the widely held belief that reforms during the UPA-I created enough wealth for the nation to divert towards such people-friendly schemes as NREGA etc, and also helped shave off a few percentage points from our infamous poverty numbers.
Let’s look at the reforms itself. The Union Government has thrown open the multi-brand retail to the FDI to the extent of 51 %, with 50 % of the FDI to be invested at the back end infrastructure within three years of its induction. This has been a reform in waiting (much like GST and DTC) for a very long time and the one the economists have held our economy can’t wait any longer for. And the argument behind it is not too convoluted to decipher. Our retail segment is very primitive (mom and pop stores type) and lacks the choices and options for the customers unlike in Europe and America. In the past, we could not get it to grow big because investible funds for the same were not available in the public sector. Being welfarist in nature, the state was (has been) wedded more to the cause of developing social and physical infrastructure. With retail lacking the focus, the upstream and downstream infrastructure remained underdeveloped resulting in the phenomenal losses at the farm-gate as well as during transportation and storage.  The idea underlying this reform, therefore, is to get the free enterprise to not only invest in retail but at the back end as well, so that the connected pre and post-harvest issues could be appropriately addressed. In fact, the international experience shows that the big houses entering this space inevitably draw up buy back arrangements or stitch up captive upstream facilities so as not to have any hitches down stream. We expect the script to unfold the same way in our country. And if this were to happen, benefits would flow both ways- investors will have their bottomlines spruced up while farmers would have access to more options and higher incomes. It is not always that reforms, to use the expression from the world of insurance, come underwritten so well.
As regards, the other argument about the smaller karyana stores or mom and pop stores, being gobbled up by the big retail houses, well, how much of the cannibalization of our small time local snack shops has happened with the already present KFC and McDonalds. For that matter, how much business of the gullywalla karyana  shops has been taken away by the Vishal Megamart and its ilk in our own Jammu city?  Not much or, perhaps, none at all. India is a much too big country to be cornered/appropriated by a handful of big ticket houses. A country as diverse as India and with such conspicuous rural and urban divide will always have space for all kinds of players. In any case, this reform comes with two sensible caveats- one, it is to be implemented in cities having a population of one million and second, the call on whether or not to let the free enterprise have a slice in this space is left to the respective state governments. With two such wonderful safeguards, it is difficult to reconcile to the criticism being made that the  Government has indulged in a sell-out. In this context, while the Chief Minster Omar Abdullah’s tweet that states having higher number of MPs can’t decide whether or not states like J&K would introduce this reform reflects positive realism, the statement of Narender Modi, Gujrat Chief Minister, regarding making public the number of Italian businessmen benefiting from this initiative manifests that the BJP’s objection borders on self-demeaning rhetoric.
Similarly, the reform in the civil aviation was long overdue. The national carrier, Air India, has been in doldrums for as much as I can remember. Apart from the overleveraging that has made its balance sheet the banker’s nightmare, there has also been infighting amongst the AI and IA pilots over the aircrafts and routes to fly, giving it a bad name in the process. All this ensured that the airline could not be run on professional and profitable lines. This in turn caused the Government to keep bailing it out on the tax payer’s money for far too long on the misplaced notion of national interest. With a mountain of debt staring the Government in the face, any further financial handholding would have meant throwing good money after the bad one. In this context, the invite to the private players to come and pick equity (capped at 49 % ) in the domestic airlines is indeed a bold decision and the one that may end up reversing the slide and making flying in the national carrier a happy experience unlike at present.
In parallel, the union government has also hiked the diesel price and imposed an annual cap on the usage of the LPG cylinders. This rationalisation of energy pricing has also come in for a stick. While it is going to stoke inflation, which now appears to be entrenched, it is also true that the government’s hand has been forced in the issue in view of the level of under-recoveries ( differential between the purchase and sale price of energy borne by the companies) of the oil companies becoming fiscally unsustainable. The under recoveries of the oil companies pose a clear and present danger to the government. Though they have been off-budget numbers in the past, that is, factored out of the fiscal deficit, the Government has borne the load from time to time to keep the companies from going bust. In other words, the regime of administered price in the energy arena has not been ensured without costs.
And these costs have now started to pinch the state more than ever before, particularly because of the insalubrious global economic health. In that spirit, the decision to rationalize energy pricing can’t be faulted and should be accepted, if not for anything, on plain economics. However, I am inclined to imagine whether it was indeed possible to build in some kind of differentiation in this reform so that the burden of hike could be passed on only to the section of population using diesel for SUVs/MUVs/high-end sedans and not to the farmers using diesel for tractors at farms. If that was somehow possible, it would have been even better.
(The writer is a Minister for Revenue, Relief and Rehabilitation in the State Government).

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