Reforms taking a back seat in India?

It takes several years before a mindset changes. This became most obvious when the general mindset on economic reforms changed in the mid-1990s. The PV Narasimha Rao government, with Manmohan Singh as its finance minister, had begun to dismantle the economic policy regime of the past several decades, by replacing discretionary and administrative controls with a rule-based and transparent regulatory system. The idea behind the move was to phase out government controls on economic activities and unshackle the spirit of entrepreneurship of Indian businessmen.
Even as India's economic resurgence became evident, the general mindset on economic reforms began showing signs of change. By the time the PV Narasimha Rao government demitted office, the transformation was by and large complete.
The World Bank and the International Monetary Fund, considered for long institutions that could take away India's economic freedom, were no longer the hate-objects that they used to be. There was a general agreement among all economic agents that fiscal controls were far superior to physical or quantitative controls.
The United Front governments and the National Democratic Alliance government also embraced a similar economic philosophy and played no small role in ensuring that the mindset change in favour of economic reforms was firmly in place on an irreversible course.
Admittedly, a small minority, including the Left political parties, continued to remain uninfluenced by this change. But it made little impact on the course of the reformist path chosen by successive governments.
The United Progressive Alliance government was formed in 2004, ushering in hopes of more reforms as it had Manmohan Singh as the prime minister and Palaniappan Chidambaram as the finance minister.
Along with Montek Singh Ahluwalia (who joined the UPA government a few months later as deputy chairman of the Planning Commission) they formed the new "dream team" of reformers, who had also played a crucial role in the economic reforms initiated by the Narasimha Rao government in the 1990s.
Yes, the UPA government depended on the support of the Left political parties. But the reformist credentials of these three reformers were so strong that, even the pessimists did not entertain any doubts on the broad course of economic policies under the UPA regime.
Four years later, the scenario looks a little different. The UPA government and its "dream team" still pay obeisance to economic reforms. But there is a visible change in the way their ideas of economic reforms are getting implemented through policies. It will be naive to attribute this change only to the pressure the Left parties put on the UPA government.
The change has been endorsed from within the Congress as well. Yes, the Left parties are taking political advantage by claiming credit for having brought about the change. But the harsh reality is that many of these changes have obtained a tacit endorsement from the Congress leadership.
It will be useful to recall some of these changes. One, privatisation as an idea is dead. Forget about the profit-making public sector undertakings, the UPA government has no plan to privatise even the ailing and unviable PSUs.
If you do not believe this, consider what the Board for Reconstruction of Public Sector Enterprises has recommended so far. The sick PSU companies are now being merged or made subsidiaries of the profit-making PSUs. Proposals for divestment of shares in profitable PSUs are not being favoured even where the government retains its majority ownership after the sale of shares.
Two, the government has fully regained its control on pricing in sectors from where it had begun to phase itself out. The petroleum sector is a prime example of that undeclared rollback in reforms. Rising inflation and its political impact have forced the UPA government to go on the back foot and subject decisions on prices of petrol, diesel and liquefied petroleum gas to a clearance by the Cabinet. Yes, the government should be worried about rising prices and take necessary steps to reduce their impact on the poor. But keeping prices of these products unchanged across the board for more than a year (at a time international crude oil prices have doubled) has meant that even the economically well-off people have been benefitting from the government's largesse at the cost of a few oil PSUs.
Three, the government seems to be less concerned over its rising subsidies bill. In the early days of reforms, there used to be talk of targetting subsidies only for the poor and needy. Now, even such talks have become rare.
Like petroleum product prices, the UPA government refuses to entertain any thoughts of reducing subsidies lest it has a political backlash ruining its chances of doing well in the forthcoming elections. Already, the actual fiscal deficit is much more than what is officially claimed and there are arguments within the government to favour a hike in expenditure even if that means a slightly higher fiscal deficit.