Economic diplomacy counteracts pressure
Himalayan News Service
New Delhi, June 12:
After over a year in office, the widespread impression of the Congress-led United Progressive Alliance (UPA) government in India led by prime minister Manmohan Singh is that its reform agenda has been held hostage to pressure from coalitional allies like the communist parties.
There are reports every other day of the Communist Party of India-Marxist (CPI-M) or the Communist Party of India (CPI) threatening ‘severe repercussions’ if the government went ahead with its intention, say, to disinvest (divestment of partial equity) its holdings in public sector undertakings (PSUs) or liberalise the regime for foreign direct investments (FDI) in retail, insurance or banking sectors. Speculation, thus, is rife that not only the D-word, but also other second-generation reforms, are on the backburner. All of this is, no doubt, partly true. But the fact is that there is no coalitional government in India since the 1990s that hasn’t faced similar pressures from allies, including within the ruling party, to go slow on reform. For instance, during the five years of Bharatiya Janana Party-led rule between 1998-2003, the biggest source of opposition to the government’s efforts to push through strategic sales of PSUs, or up the insurance sector or reform labour laws was from its own ranks like the nationalist Swadeshi Jagran Manch, and affiliated trade unions. Similarly, the biggest opposition to UPA’s reforms is from its Left supporters.
Despite these constraints, however, the Manmohan Singh government is using whatever room for manoeuvre it has to confidently deal with the rest of the world. It would not be incorrect to state that it is, perhaps, the first government to consciously leverage the opportunities thrown up by globalisation. Its biggest triumphs so far have been in reaching out to South Asia, the Association of Southeast Asian Nations (ASEAN), China, Japan, Russia and the US, which Singh is visiting next month. For years, the world’s largest chip manufacturer has been mulling over alternative locations for establishing its facility, including China. Multinational firms like Intel have many options to set up shop and they will go wherever they feel comfortable. This appeal to Barrett from the highest in the land indicates a welcome change in the mindset to aggressively pitch for FDI inflows that can underpin a seven to eight per cent gross domestic growth trajectory over the next 10 years. Singh is well aware that the current FDI inflows of $4.5 billion are well below the requirements of $8-10 billion every year to help build more roads, ports and airports. There is therefore a warrant for more pro-active strategies to seek more FDI. An Investment Commission headed accordingly was established to facilitate more investments. There has also been a keen interest on the part of the government to ensure that the largest ever FDI deal to set up a 12 million tonne steel plant by POSCO in Orissa sees the light of the day, and so on.
The government’s drive to engage with globalisation was indicated in an address delivered by Manmohan Singh in February. According to him, steps taken by successive governments since the 1990s have helped eased what development planners used to refer to as the ‘external constraint’ on growth. The prime minister, however, added that all of this does not necessarily indicate that we are making full use of the emerging opportunities to tap international resources or global capital flows to fuel our economic development in a big way.
The biggest beneficiary of this self-confident, outward-oriented stance has been India’s relationship with the US. Till now, the American investments and trade with India were ‘flat as a chapati’ — to borrow an expression of former US ambassador to India Robert Blackwell. The investment climate, in turn, was described by a Bush administration official as a five-letter word ‘Enron’ to indicate its disenchantment with the lack of sanctity in honouring contracts. Not any more, especially after Boeing got the order to supply aircraft. Indications are also that Wal-Mart will come to India.
The US naturally is gung-ho with these developments and has indicated that it will help India become a major world power in the 21st century. To its credit, the government is focusing elsewhere as well. Singh is taking a keen interest in ensuring that the Comprehensive Economic Cooperation Agreement with Singapore is signed at the earliest. The stakes include the possibility of tapping billions of dollars of investments from the so-called Islamic funds that are heading towards the city state post 9/11, besides big-ticket investments from state-controlled companies like Temasek. This room for manoeuvre to engage with the rest of the world — garnering higher levels of FDI to underpin faster GDP growth in the process — is indeed the silver lining to the otherwise obstructive political scenario of the Left hemming in the government with its relentless pressures to keep big-ticket PSU disinvestments and other second-generation reforms. Singh’s pro-activism on the economic diplomacy front thus contrasts sharply with the widespread impression that his government’s reform agenda has been hijacked by pressures from the government’s own supporters.