India's leaders must forge reform

May 20, 2009

Gifts like this come rarely in politics. In the midst of a global economic crisis that threatens to stifle India's growth, the country's voters have defied all predictions and handed the leaders of the Congress Party a famous victory. The question now is what those leaders do with it.

If they coast along as they did in their last term, dispersing favours to voters and sitting on desperately needed economic reforms, the gift will leach away like water into cracked earth. If, instead, they seize the opportunity to forge ahead with change, then India could come out of the crisis remade, reinvigorated and ready to take on the world.

Which way they go is very much an open question. Congress did not expect such a gift. In fact, virtually no one predicted the scale of its victory.

Going into the election, the first national poll in five years, pundits expected to see regional and caste-based parties gain ground at the expense of Congress, which has been in decline for years and was able to govern during its last term only with the help of smaller parties. No galvanizing national issue emerged during the campaign to boost Congress's hopes and its candidate for prime minister, the 76-year-old professorial, white-bearded incumbent, Manmohan Singh, hardly set the house on fire.

Pundits were musing about a hung Parliament, in which no party would have the numbers to govern and it would take weeks of Byzantine negotiations to put together a workable coalition.

Now, Congress will be able to rule almost alone. It took 205 of the 543 seats by itself. Add in the seats taken by other parties in the Congress-led United Progressive Alliance and it finds itself just a dozen seats short of an outright majority in the lower house of Parliament. Even better, it is free of the ball and chain it dragged around for the past five years: the Communists. Communist parties lost big at the polls and Congress will not need their support to govern, as they did in the last term. So Congress's excuse for delaying reforms – the Commies made us – has vanished.

That should leave Congress free to restart the reform campaign that Mr. Singh kicked off as finance minister in 1991. One obvious step is to privatize some of the many companies that remain in clumsy government hands. Another is to loosen India's archaic labour laws, which make it hard for firms to hire and fire to adjust for changing market conditions. Another is to lower the barriers to foreign investment in the retail, financial and media sectors. Yet another is to cut back the enormous subsidies on fertilizer and fuel that drain government coffers and distort the workings of the market.

The danger is that, instead, Congress will take its big win as an endorsement of its go-slow approach and sit on its hands for a few more years. That would be a ghastly mistake.

Congress leaders are no doubt feeling vindicated. Big government programs, such as a rural employment guarantee and a waiver on farm-loan repayments, may have helped them win votes among the Indian masses.

Reform, by contrast, brings controversy and opposition from vested interests. In their initial comments on the election win, Congress officials are hedging about reform. “We will take the reforms agenda forward, but not at the cost of development and not at the cost of state firms,” Congress leader Prithviraj Chauhan told a TV interviewer.

But by far the best way to improve the lot of the masses is to free the Indian economy from its remaining shackles, a strategy that not only produces job-creating growth but generates the government revenue to fund better health and education for the poor.

The past couple of decades have shown what an unshackled India can do.

After decades of disappointing progress, its annual growth rate jumped to 6 per cent from 1992 to 2002 when Mr. Singh slashed red tape and cuts tariffs and taxes. It jumped again over the past five years, to an average of 8.8 per cent a year, approaching Chinese levels.

It has dipped lower as the global crisis starts to bite. But with its eager young populace, its many modern, well-run companies and its rising self-confidence, India should be able to make it through this dark tunnel and come charging out the other end – if its leaders do the right thing.

Congress's unexpected victory has given its leaders a chance to move India to a new plane of progress. How tragic if they let it slip away