Meaningless Reforms that Distract, bring out yet again the Ineptitude of UPA Govt.

We are probably the most innocently naive subjects of a contemporary democracy. Last week Prime Minister Singh announced a few policy actions disguised as major reforms. These reforms were widely hailed by the media as the second inning of Prime Minister Singh. Commentators across the media networks and intellectual community decided to forget the ineptitude and corrupt governance choosing instead to re-brand him as a courageous leader who is not afraid to fight with the firebrand and errant Mamata and put his government to risk. Media narrative and discussions shifted to whether Congress would be able to retain majority, if these reforms were good or bad and if this meant UPA was back in action after years of slumber. We conveniently chose to shrug aside a report from the UN that India is home to the highest number of infant deaths in the world due to lack of healthcare and nutrition. We forgot Coalgate which had made us forget 2G which in turn had made us forget CWG which in its own very recent era made us forget cash for votes and the list can go on.

Let us examine the much praised reforms for their practical utility:

Petroleum pricing - I discussed this particular issue in details in earlier post (Read here). Rationing of LPG is an intellectually bankrupt decision and would create a black market for corrupt politicians and dealers. Diesel price hike and excise cut on petrol were good steps that had to be taken out of necessity. No action on Kerosene was yet again a clear signal this government has no intent to reform petroleum pricing and it wont let go of its legitimate black money machine.

FDI in Retail - I am a supporter of FDI in retail. BJP is both wrong and hypocritical in opposing FDI in retail when the party itself proposed this when in power.

40% of fresh produce goes waste in India due to supply chain bottlenecks. Farmers get a fraction of retail price while middlemen pocket all the profits. Retail labor productivity in India is 6% that of the US. In food retailing, it is 14% that of Brazil. Modern trade and an integrated supply chain is the solution to both lower prices at retail end and better incomes to the farmers and producers. As far as fears of jobs is concerned; firstly Big Bazaar, Spencers, Pentaloons, Shoppers Stop and otters are now present in all major cities and I have not seen any report that quantifies job losses or destruction of local communities as is widely propagated by the critics, secondly every change naturally leads to a disruption to the status quo and therefore there is no argument to protect the status quo that promotes inefficient subsistence retailing and illegal hawkers.

In all the developed and majoremerging nations, big box hypermarkets, supermarkets, specialty retailers and mom and pop stores have learned to coexist and I see no reason why it wont be the case in India.

So I should be all praise for this reform except that it comes with a caveat that renders it meaningless. UPA government has conveniently left final approval of opening a store owned by a foreign investor to concerned states!. This condition makes this reform meaningless. No retailer would invest in India knowing very well that it may very well end up with a holding company approved by the central government but no scale as State Government hold on to approvals. Congress led Kerala has already rejected FDI in retail in addition to opposition ruled states. There are a number of other ludicrous restrictions and conditions that raise more questions on the policy than answers (Read here). I need not mention this same government had launched this reform in Nov 11 and took it back under protest from its allies and that Congress had dubbed FDI in retail as 'Anti National' when BJP proposed FDI in retail. So this particular reform is not only half hearted aimed to fool people but also hypocritical.

FDI in aviation - A welcome step indeed. Who would invest is a question we all know the answer of - no one!. Aviation industry globally is in a turmoil. Japan Airlines just came out of recession. Most of American airlines are either coming out of bankruptcy or going through bankruptcy. Qantas is struggling. If one needs to invest in the Aviation sector, there are many lucrative destinations. Air India is a mess that cant be cleaned up. Jet, Spicejet and Indigo are fighting the battle to make money and be sustainable. Kingfisher is bankrupt and I doubt if anyone would invest there. A real reform in aviation would have been the decision to shut down Air India, auction its assets and save taxpayers the promised $ 5 bn bailout over next few years. Second reform would have been to mandate state government standardize sales tax on aviation fuel and reduce taxes that treat air travel as a luxury.

In conclusion, policy announcement of last week mean practically nothing. When someone with an average level of intelligence knows that, I am sure our technocrat economist PM knows it. But the reforms serve a great deal of political purpose. It has taken the focus away from corruption, once again given people who view Prime Minister Singh as a person of integrity a reason to believe in him and positioned the UPA as taking a step to reform in challenging times while BJP keeps whining as aggrieved opposition.

In truth, it has once again brought to the forefront the ugly face of out parliamentary democracy where majorities can be cobbled together by promising special favors to opportunistic regional leaders. Regional leaders whose only interest lies in keeping power in their respective states, who do not even remotely share ideology or style of governance with the government they choose to support and are often the worse of the lot up for grabs either for money or concessions.