Taking stock of Mr. Singh

When Prime Minister Manmohan Singh started his second term a year ago, there was considerable optimism in the air: Voters had marginalized small parties with petty, parochial agendas; the opposition Bharatiya Janata Party was in disarray; and Mr. Singh’s Congress Party had a strong political mandate. Given Mr. Singh’s profession as an economist and his role in India’s 1991 big-bang economic reforms, hopes were high that he would continue the reform agenda.

A year later, the government has produced only marginal action. The long-awaited third-generation mobile-phone spectrum auctions finally took place; disinvestment in public-sector companies is on track; and the national highways program, which languished under Congress’s first-term government, has been revived. Mr. Singh, to his credit, has laid special emphasis on fixing the country’s terrible infrastructure.

But, regrettably, little has been done in the spirit of real liberalization—that is, to roll back state from economy and increase the influence of the private sector in the economy. For instance, the government is selling minority stakes in state-run companies to dress up fiscal figures, not actually privatizing them, as its predecessor BJP-led government did. Major industries, such as banking and energy, remain largely state-run.

Nothing has been done to eliminate the residual legacies of the pre-1991, socialist past. India’s labor laws are antiquated and need to be made more flexible so that companies can react to changing market conditions. During Mr. Singh’s first term in office, he could never have contemplated reform in this area because of his alliance with the Communist Party. Yet now he’s ditched that alliance and still hasn’t touched this important area of reform.

Nor has Mr. Singh strengthened property-rights protection, either in the physical or intellectual sense. Farmers, especially in tribal areas, still have little right to transfer land they occupy and till. Companies, both domestic and foreign, struggle to protect their intellectual property. In one recent example, the Supreme Court denied Novartis a patent on a major cancer drug on the grounds that it wasn’t a major “innovation.” The company is appealing the decision, but the message to foreign investors has already been sent.

If anything, the Congress Party-led government has worked against the spirit of economic reforms. The most prominent example of this is the National Rural Employment Guarantee Act, created during Congress’s first term in office. The scheme guarantees the rural poor 100 days of work at the taxpayer’s expense. Apart from bleeding the public fisc to the tune of Rs 40,000 crore, the Act is creating conditions for permanent serfdom, with the Indian state as the feudal lord and millions as dependents. Congress has also expanded the state’s remit in education and is considering passing a Right to Food Act, which would further increase deficit.

Politics remains the major impediment to reform. Mr. Singh is unelected to his own parliamentary seat and has no political base of his own. The real power in the Congress is chairwoman Sonia Gandhi, who reigns as what the BJP policy makers like to call a kind of “super-prime minister.” She takes care of the political affairs of the party and the ruling coalition, while Mr. Singh takes care of the day-to-day running of government. Her most recent intervention was in favor of a caste-based census, a backward-looking suggestion that the BJP also supports.

India can’t afford this kind of left-leaning governance. The world’s most populous democracy is still a very poor country, with hundreds of thousands of people lacking even the most basic necessities. So long as New Delhi tries to solve all problems with the state, the slower growth will be—and the more people will be confined to poverty. A weak state also can’t confront the growing internal and external security threats the country faces; in particular, Maoist violence which has killed hundreds over the past year over vast swathes of the country.

Mr. Singh isn’t an economic neophyte; he understands what needs to be done. But will he stand up to Mrs. Gandhi and push reform? If he doesn’t, the drift will only continue and deepen.


This article was published in Wall Street Journal Asia on May 27, 2010