First is clearly the fiscal challenge. The combined fiscal deficit of the Central and State Government remains unacceptably high.
Fiscal consolidation implies a more credible programme on down-sizing of Government, rationalizing and better targeting of subsidies, particularly food and fertilizer, application of user charges and adhering to the timeframe for phasing out Kerosene and LPG subsidies.
State Governments, whose finances have just crawled out of the debilitating effects of the Fifth Pay Commission award, have to seek fiscal rectitude in areas like curtailing of wasteful expenditure, putting a ceiling on fresh Government employment, quickly implementing power sector reforms and privatizing the loss making public sector undertakings, even while adhering to the discipline of meeting their expenditure not through fresh borrowings or creation of contingent liability through creation of parastatal entities.
While the Central Government’s tax rates have been rationalized, the early introduction of CENVAT, in spite of pressures from vested interests created through years of tax evasion, and improving the quality of tax administration, will improve Tax Buoyancy Ratio.
Government cannot afford to dither on privatization policies even while it can exercise some latitude in choosing the most appropriate sequencing and timing to complete the privatization process. The second challenge is an attitudinal one.
When will the Governments realize that the people in general are not anti-reforms but they are pro-growth? It is true that the fruits of growth do not automatically percolate to the poorer segments of the society and the rural areas. While growth with equity and justice may be a rhetorical slogan, it is necessary that policies of economic deregulation are coupled with credible social safety nets, reform of healthcare systems and improved infrastructure so that the benefits of reform are felt by the average Indian.
India is an old country with a young population with 700 million people in the younger age group. Their expectation pattern is to seek an improved quality of life and gainful employment.
Better roads to traverse in both urban and rural areas (the Prime Minister’s rural roads programme is a major initiative), improved telephone connectivity, assured power at affordable cost, will certainly alter perceptions about reforms being consumer-friendly.
For too long without being electorally tested, it has been wrongly assumed that reforms are unpopular and impending elections have logic in postponing difficult measures. On the contrary, populist policies are not popular. State Governments like Punjab, which guaranteed free water and power, fared badly in elections even while the incumbent Government in Andhra Pradesh has returned to power notwithstanding wide ranging reforms pursued by the State Government.
This approach is often prompted by strong vested and organized groups, but postponement of change is to the detriment of the people in general.
It must represent failure of the Communication Strategy of successive Governments for not being able to get the message across that the reforms are about bringing benefits to people in general and not to benefit the corporate sector, the rich, the elite or the pressure group which may drive these changes.
The refashioning of a credible communication strategy is critical in shaping perspectives and bringing about a mindset change in the way in which reforms are perceived. Conversely speaking, electoral penalty for weak economic management and growth is not yet high in the psyche of the average electorate.
Third, the growing regional divide and high pockets of poverty among States and within States is a matter of serious anxiety. Illustratively, the undivided Bihar with a population of 115 million which grew at just over 2% in the last decade will have to grow at 6.2% over the next five years or Uttar Pradesh which grew at 2.8% will have to grow at 7.6% or Orissa has to raise its level of growth from 3.9% to 6.2% while Madhya Pradesh will have to do it from 4.4% to 7% during the same period, if regional disparities are not to widen.
What is even more worrisome is even if the quantum change is made by some of these States, Bihar will still have 43.6% of its population below the poverty line, with Uttar Pradesh at 24.6% and Orissa at 41%.
These are way above the present national average of 27% of the population living below the poverty line, which is projected to decline to around 19% by 2007. Some of these States represent large demographic configurations.
The experience of resource transfers to address pockets of endemic poverty has met with limited success, and issues of governance loom large in any discussion relating to balanced regional development.
The medium term strategy for the next five years for addressing this issue requires not only monitoring but constant adaptation. This could well become the Achilles heel to disrupt the integrity of the overall growth strategy.
Fourth, while the six successive Governments since the commencement of the reform in 1991 have not reversed any major economic decisions and have continued the policy of economic reforms, the continuation of bipartisan support is critical to the passage of important legislations pending in Parliament. Illustratively, these relate to areas like Banking, Coal, Ports and Company law.
The Banking reform is crucial because the proposal to reduce Government equity to 33% has yet to secure the support of the main opposition party with the result that an average borrower may be paying 150 basis points higher due to inefficient banking intermediation making economic activity by small and medium entrepreneurs more difficult and uncompetitive.
The legislation to convert Indian Ports into Port Trusts will impart a new momentum to India becoming an efficient trading nation, while the legislation on coal sector permitting private sector participation will impart competitiveness to the energy sector. Political parties must cease to be nostalgic in terms of what they did in the past or persist with ideological barriers to permit the passage of these critical economic legislations during the tenure of this Parliament.
Finally, there is issue of the Government living up to its own promise. The promise of bringing about changes in labour laws, further rationalization of the reservation policy in respect of small scale sector, a rapid reduction in import duties to bring them on par with other Asian countries, restructuring of Railways projects and finances, a forward looking Civil Aviation policy which makes India an easier destination, need decisive action.
These are not either new or additional reform agenda if India can overcome these challenges, the next five years will catapult India as a major economic power. This is the vision for the next five years since a vision is merely a “compelling image of an achievable future”.