The UPA government arguably had the best economic team, raising the hope that it will go ahead with economic reforms. However, the ‘holy trinity of reformers’ failed to live up to expectations.
Future historians will, no doubt, applaud Dr Manmohan Singh for his contributions to building a modern economy as finance minister and to freeing India of nuclear apartheid as prime minister. But they will also record the setback to reforms during his tenure as prime minister.
The National Democratic Alliance (NDA) had contested the general election in May 2004 on a pro-reform platform. Therefore, many in the Congress interpreted its defeat as the rejection of reforms by voters. Prospects for reforms under the incoming Congress-led United Progressive Alliance (UPA) looked bleak.
Yet, when Mrs Sonia Gandhi decided to step aside in favour of Dr Manmohan Singh as prime minister, reform advocates saw a ray hope. As finance minister under Prime Minister Narasimha Rao, Dr Singh had earned the title of the chief architect of India’s economic reforms. The appointments of Messrs P Chidambaram and Montek Ahluwalia as finance Minister and deputy chairman, Planning Commission, respectively, completed what many came to call the “holy trinity” of reformers.
Sadly, however, reforms did not takeoff. The Common Minimum Programme (CMP) the UPA negotiated with its allies ruled out key labour-market reforms at the outset. As for many other reforms, Mrs Sonia Gandhi held back Dr Singh’s hand. She had him appoint the National Advisory Council (NAC) under her chairmanship with statutory powers to oversee the implementation of the CMP. Mrs Gandhi also ran the NAC from a location outside of the Prime Minister’s Office, making it easier for the anti-reform lobby within the Congress, which had lost out to Dr Singh’s reforms in the early 1990s, to regroup. The Left Front parties also found it convenient to work with Mrs Gandhi rather than Dr Singh. The National Rural Employment Guarantee (NREG) Scheme, UPA’s flagship policy initiative, was crafted entirely in the NAC. The legislation on special economic zones, another important UPA accomplishment, was stripped of its key labour-market reforms embedded in the original NDA Bill.
For his part, early in the term, former finance minister Chidambaram made the completion of the ongoing pension reform a high priority. Five years later, the Pension Fund Regulatory and Development Authority Bill still awaits passage in Parliament. Further opening of the insurance sector, another item on the finance minister’s list of reforms from the outset, has suffered the same fate. The minister’s main reform successes have been trimming the small-scale industries reservation list and moving trade liberalisation forward but these reforms too have come to a standstill in the last two budgets.
The greatest disappointment from the UPA has come in the area of infrastructure (except civil aviation and railways, which are both led by dynamic ministers). The need for building the country’s roads, ports and airports at an accelerated pace had been well recognised when the UPA came to power; undertaking this task did not require any controversial legislation; and the UPA had the unusual opportunity to build on the success the NDA had already achieved.
Thus, in December 2000, the NDA had launched the process of building up the country’s highway system through Phase I of the National Highway Development Programme (NHDP). In less than 15 months, it managed to award all but one contract to convert 5,846 km of Golden Quadrilateral highway into four lanes. By November 30, 2004, less than six months after the NDA left office, work on 4,203 km had been completed. The NHDP I also included the conversion of 981 km of a total of 7,498 km of road on North-South and East-West (NSEW) highways to four lanes. By March 31, 2004, work had been completed on 588 km and was under implementation on another several hundred kilometres.
Therefore, when the UPA came to power in May 2004, it had a solid base on which to build. By all indications, the UPA was keen to seize this opportunity. It moved swiftly to appoint the Committee on Infrastructure on August 31, 2004 under the chairmanship of the PM with its secretariat at the Planning Commission.
But sadly, through Committee on Infrastructure, the Planning Commission became a major obstacle to progress. Notwithstanding the fact that the NDA had given out hundreds of successful contracts for work on thousands of kilometres of road and that even UPA had issued 33 contracts for work on 2,000 kilometres of roads in its first few months using the documents it inherited from the NDA, beginning in early 2005, the Planning Commission forbid the National Highway Authority of India from issuing new contracts until the Committee on Infrastructure came up with its new “Model Concession Agreement” (MCA).
As Mamuni Das noted in an excellent recent article, it was not until late 2006 that the Committee on Infrastructure came out with its new MCA. Even then the contracting process could not move smoothly forward. In mid-2007, a new model Request for Qualifications document — another key document necessary to complete contracting process — was introduced. Road developers found the new model document objectionable and took the matter to the court.
The delays by the Planning Commission were compounded by a whimsical road transport and highways minister who frequently meddled in the affairs of the National Highway Authority of India, appointing as many as five chairmen to it in half as many years. Sadly, Prime Minister Singh seems not to have intervened to resolve the conflicts. This was unlike Prime Minister Vajpayee who often used his authority to settle conflicts among feuding arms of his government.
In June 2004, economist Shankar Acharya wrote about “good men” in the UPA Cabinet — Dr Singh, Mr Chidambaram and Mr Ahluwalia — arguing ‘it would be difficult, perhaps impossible, to conceive a stronger economic top team.’ Four years later, in September 2008, when he returned to the theme of “a few good men” assisting god look after India, his list had shrunken: this time around, it only included Dr Singh from the original list for securing the nuclear deal against all odds plus the newcomer Dr Y V Reddy who had served with great distinction as the governor of the Reserve Bank of India.
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