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Reforms? What reforms?

The nineties has been a decade of economic reforms and liberalisation for the Indian economy. Where have these reforms taken us at the dawn of a new millenium?

Did someone say closer to the ASEAN countries? What? Almost next to Asian tigers?

Neither.

According to the 1999 Index of Economic Freedom prepared by the Heritage Foundation and The Wall Street Journal, we have, in fact, been relocated in sub-Saharan Africa among the world's most repressive and poor economies. Not near south-east Asia or even the rest of south Asia. "Mostly unfree"(to quote the study) we are surrounded by countries like Mauritania, Mozambique, Niger, Sudan, Yemen and Congo. We are "most unfree among the mostly unfree" countries.

Even communist China, ill-famed for its dismal human rights record, has an index of economic freedom 26 per cent higher than India's. In the last 10 years several countries of the erstwhile communist bloc like Ukraine, Kazakhstan, Armenia have achieved far greater degrees of economic freedom than India has.

For the past six years, the Heritage Foundation and the WSJ have been publishing the Index of Economic Freedom for a large number of countries. The index is based on 50 economic variables in 10 broad categories : banking, capital flows, trade policy, wages and prices, government intervention in the economy, property rights, regulation and black markets.

Many leftist thinkers may question the need for economic freedom. But a glance at the Index will show why we need economic freedom. Economic freedom brings prosperity. The world's most free countries are also among the most prosperous ones. As the report of the Heritage Foundation concludes, "Countries with the most economic freedom also have higher rates of long-term economic growth; their people are better off, at all income levels".

The problem with Indian policy makers is that they neither have the political will nor the courage to cut down the size or strength of the bureaucracy. Economic reforms are a western concept. We have undertaken reforms only to please international institutions like the IMF or the World Bank so that we get the next loan installment. Once the loan is disbursed, politicians like spoiled children roll back reforms. Some even consider that an expression of economic sovereignty!

Economic reforms and liberalisation are a continuing processes. Even the most economically free countries continue to dismantle controls that hamper growth. Policy makers need to change policies according to changing economic conditions. Last month, the US Congress repealed the Glass-Steagall Act which prohibited banks, investment banks and insurance companies from entering into one another's business. The Japanese government has allowed foreign banks and companies to take over some of its top brokerage firms and banks. If Japan can let foreign banks to takeover its sick banks, why are we so afraid of exposing Indian banks to foreign competition?

The unfortunate reality is even after a decade of economic reforms most of India still remains under bureaucratic controls whether at the village/block level or at the Centre. When the IMF imposes conditions on a loan, its primary interest is to ensure that the loan is paid back. It is not concerned about reforming the Indian economy.

Unfortunately, we have not evolved a desi version of economic reforms, which will transform the entire economy from top to bottom, freeing people at all levels. We need to reduce the presence of the government at the grass roots. It is only when people in villages get the fruits of liberalisation that we will finally be able to claim that the economy is free.

(Neeraj Kaushal is a financial journalist who lives in New York and is a former senior editor of The Economic Times)

Neeraj Kaushal

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