Wednesday, July 16, 2014

So much for "second generation" reforms

There is disappointment that Jaitley's budget didn't have much to offer in the way of "second generation" reforms. This was supposed to be just the right time. Two years from now, we would be approaching the next round of elections. Moreover, the government could now blame the state of the economy on its predecessor and justify reforms on that ground; further along, it would be difficult.

Why so? Well, because when the economy is floundering and people are in distress because of high inflation and lack of jobs, delivering "bitter medicine" is not easy, especially when it is not certain that the medicine will always produce the desired results. You can't have cash transfers unless you are reasonable sure these will work (so cash will reach correctly and there would be outlets from where people can access food, for instance). You can't privatise public sector banks wholesale and face the risk of a banking crisis. You can't allow foreign investors to gain control of companies in strategic sectors such as defence and insurance.

"Second generation" reforms can happen only in a gradual way and when conditions are more conducive. That's what the UPA thought and that's what the NDA is discovering. More in my article in the Hindu, Short-term costs, long-term benefits.


Rahul Jain said...

Agree. I believe if all the administration is made efficient, most of the issues will be solved. Read today in economic times that IT dept discovered more than 1 lac crore of black money in fy13-14. If it is made more efficient, there need not be any bitter medicine.
just started my blog.

Anonymous said...

Read the article &I think it is better to conduct a research studying budget allocations &gdp growth rate.For eg Thomas piketty's book "capital in the 21st century "depicts a decade's budget allocations ,inequality,gdp rate etc of many economies viz USA,UK,GERMANY etc. 8%/9% growth rate can be achieved ,the question is whether it will be inclusive or not.