The government’s decision to allow 26 percent FDI in pension sector besides raising FDI in insurance sector from 26 percent to 49 percent is being touted as second generation reforms, while they are not going to make any significant contribution in improving the state of faltering economy. These moves are no less than strategic decisions. Whatsoever be the claims of the UPA government and its policy makers about these ventures, it is quite clear that these decisions have largely been aimed at impressing international rating agencies and media rather than a desire to improve the economic condition of the country. It is noteworthy that when the experts of the economic affairs and Indian media criticized the government for its inactiveness on economic front, they were brusquely snubbed; but when the government faced the ire of international rating agencies and foreign media over the same issue, the Prime Minister including many ministers of UPA government rushed to clarify their stand. It would have been appropriate if the Prime Minister’s Office had refrained from reacting to the criticism by a foreign daily regarding the government’s policies.

For the last few days, a political debate has been sparked following the government’s abrupt decisions to allow FDI in several sectors. Earlier, premiers of the western countries had expressed that the government of India should open its market for foreign companies. Their advices came in the backdrop of the fact that the market in the western countries has become saturated and there is hardly any scope for its expansion. In this situation, the foreign companies are mainly eying new markets which have greater expansion potential. These companies are of the opinion that investment in such markets will fetch huge profit for them. India is being seen as one such a market. The big companies engaged in civil aviation, retail, insurance and pension are willing to expand their business in India. Since India has not yet allowed foreign investment in these sectors, the companies are pressing for removing barriers citing importance of competition for healthy growth of the market. Though, it is quite easy to understand that these companies are coming to India for the sake of huge profit.

It is true that FDI will benefit the Indian companies in improving their services but can we be sure that FDI in the sectors like civil aviation, retail and insurance will change the face of Indian economy? When Indian firms failed to handle the crisis in the sectors like civil aviation, retail and insurance, how would the foreign companies tackle these problems? It is also to be made clear that whether the norms which are responsible for plight of these sectors will also be changed with decision to allow FDI. It is imperative to bring about most awaited radical change in these sectors with the decision to allow FDI otherwise, the reforms process would end up without fulfilling the expectations.

The rising burden of subsidy on exchequer is a big challenge which is posing a major threat to our economy. The government has been shying away from resorting to bold measures on the economic front which was largely responsible for the dithering state of the economy. The logic that huge deficit on import of petroleum products was a result of depreciating value of rupee against dollar is a half-baked truth. Nobody will deny that the decision to allow FDI in four sectors has sent a positive message to the foreign investors, which has reflected in the form of rising index of stock market. Now the rupee has started to appreciate with a hope of inflow of foreign investment in these sectors. It could offer an immediate relief to the economy, but we cannot expect a long term benefit from it. One can expect a long term benefit of the reform measures only after the steps to foster the fundamentals of our economy with significant reduction in the subsidy burden. Presently, it seems that the government is mainly focusing on strengthening the value of rupee against dollar. This mindset of the government’s policy makers is not appropriate because it is not going to help them in long term.   

Lack of political consensus on the government’s recent reform initiatives is another major challenge. Even the UPA allies are opposing these decisions. Clearly, it is a tough challenge before the government to evolve a political consensus over its recent decisions on economic fronts. It will be interesting to see how the government gets through the bills in the Parliament which were recently cleared by the Cabinet. Curbing the rising fiscal deficit is the biggest challenge before the government. The government can expect any help from the Reserve Bank only after bringing down the fiscal deficit.

Unfortunately, the government has been evading its responsibilities on this front since long. The politics of subsidy has been the biggest impediment on the way of economic reforms. Now the situation has worsened with almost all the political parties speaking against slashing subsidies, which is unfortunate. Political parties are required to think seriously how to reduce the huge burden of subsidy. Even the government also needs to be wary of not letting the economy fully dependent on the foreign capital. It will be better if the leaders from both the ruling and opposition parties sit together and contemplate over how to ensure boosting our economy by rising above their political interests. It is a fact that the subsidies can never be withdrawn completely, but it could be reduced to the extent to improve the economy. Now, it is the time when we can strive to get rid of the culture of subsidy. Subsidy has to be given only to unprivileged people of our society and that too only to help them to be self-dependent. Nowadays, it seems that people consider subsidy as their fundamental right. We cannot help the needy people to become self-dependent by offering subsidy as a crutch. Subsidy is not a right. The ill-effects of subsidy have already been witnessed by some of the western economies like- Spain, Greece and Italy. Even the privileged people in these countries have developed a habit to clamour over just small reduction in public spending of the government as they have considered the subsidy as their right. 

(An original copy of the article published in Hindi on October 7, 2012 translated by the English Editorial. The author is Group Editor of Dainik Jagran)