Not reform vs populism

It is tempting to characterise the current impasse in Indian politics as a clash between reformers and populists. On this view, the government has, belatedly, woken up to reform and is now being obstructed by a motley crew of opportunists and populists. It would be terrific if the spectrum of Indian politics could be defined in these terms; at least, it will bring the focus back to economics. Many of the government's decisions are welcome; a signal of intent was long overdue. Our economic situation is dire. A run on the rupee caused by bad fiscal management or the current account deficit may add colossally more to inflation than any diesel price increases. But it is still too premature to conclude that this is a contest between reformers and populists. It is still, at best, a contest over the marginal thresholds of economic rationality below which we will not fall. And these thresholds are determined by where you sit.

This is so for a number of reasons. First, the advantage of a crisis is that you have no option but to reform. Or else, you perish. The disadvantage is that your understanding of why a particular reform took place, and its extent, is limited by the logic of overcoming the crisis. It does not, by itself, generate an irrevocable momentum for greater reform. We saw that in 1991 when reform slowed down after the first couple of years. We saw that again in the early part of the last decade when consensus on things like fiscal responsibility and regulatory clarity quickly dissipated. Even now, the crisis framing, while providing a necessary justification for action, does little to embed reforms in a larger expanse. We are still haggling over anywhere between three to seven rupees on diesel prices; LPG subsidies may end up being offloaded on the states and so forth. Admittedly, there are political constraints. But let us not pretend that we are moving to a new paradigm in economic governance. We are simply offloading some peripheral ballast to prevent the ship from sinking.

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