Political reform is economic reform

May 19, 2009, 1:33 am IST in Cursor | Economy | ET

Veteran policymaker and chairman of the 13th Finance Commission Vijay Kelkar is fond of saying that India needs a reform stimulus than a fiscal stimulus. Fair enough, but what reforms? Build physical infrastructure, invest in education and healthcare, say the majority of our CEOs. Implement the proposed Goods and Services Tax right, say some others. Financial sector reforms, according to yet others. All these are relevant, but the most pressing economic reforms are squarely in the realm of politics. An easy example of political reform that will directly yield huge economic returns is appointing ministers for telecom and roads, whose prime focus is rolling out telecom services and getting roads built, rather than making money from these sectors. A slightly more complex example of political reform leading to economic gains is ending patronage of power theft and power give-aways without compensating the utility from the government’s budget. Nearly half the power generated in this country is not paid for. Can the cement or steel sector survive if half its produce is not paid for? Such financial unviability induced by base politics is the only real constraint on India’s power sector. If power theft is stamped out, as is happening in West Bengal and Gujarat, and if all governments pay their power utilities for the power they want given away free to farmers and all those entrepreneurs who can draw power from an unmetered farm connection (as the government of Tamil Nadu mostly does) power will become a commercially viable sector. People will invest in it, generate and sell the power demanded by consumers and make money, just as they do in any normal line of business. Stamping out power theft is essentially a question of political will. An even more complex example is that of improving the overall governance of a state that underperforms vis-a-vis its potential. Take the case of Bihar. Bihar should ideally be the sugar capital of India, perhaps, of the world. Its agro-climatic features are ideal for sugarcane, which draws a lot of water from the ground and can survive the occasional flood and come out stronger. However, sugarcane is not a popular crop in Bihar because cane requires to be crushed soon after being harvested and for that you need sugar mills in the vicinity of the cane fields. But sugar mills cannot come up if those who run them are perpetual targets of protection racketeers, kidnappers and sundry criminals. If Bihar’s law and order conditions were to credibly improve and stay stable at an acceptable level, the state would grow at least at the average rate of growth for all states and India’s GDP growth would go up by nearly two percentage points. Nitish Kumar is building on the empowerment of the oppressed kicked off by Lalu Yadav, and hopefully, things will continue to improve in Bihar.

DISCLAIMER : Views expressed above are the author's own.
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