The Hindu : The political case for reform

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Tuesday, Sep 23, 2003

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The political case for reform

By Pratap Bhanu Mehta

The Supreme Court has done well in reminding us that the politics of reform and the reform of politics are two sides of the same coin.

THE JUDGMENT of the Supreme Court blocking the disinvestment of state-owned oil companies without parliamentary approval implies that any Government will now have to make a political case for the disinvestment programme, rather than hide behind economic technicalities or executive prerogative. Economic reform has been singularly weakened by the fact that it has not come with any political philosophy attached to it. Other than as a measure of fiscal prudence, always a boring argument in politics, what is the point of disinvestment? Margaret Thatcher and Ronald Reagan at least convinced their electorates that a smaller state was about giving more power to the people and putting more money in their pockets, an altogether more rousing political agenda. Reform can succeed only if it allies itself to a programme of transformation of government itself. The only trouble is, no political party is willing to make a concerted and systematic case for this linkage.

The debate over disinvestment is mired in technicalities or hijacked by special interests. Although it is easy to argue that oil companies or some of our big airports make money for the Government, there is still a good case for privatising many of them. Often these companies are in industries where the general trend has been towards profitability as in the oil sector, and there mere existence of profits does not by itself say much about the economic uses of keeping those firms in the public sector. The profitability of many of these companies is not guaranteed in the future and it is better to sell them off while the going is good. Often some of the services that even profitable public sector companies provide can be better provided outside the public sector. There are many plausible arguments for having some public sector companies, in areas where market failures have been clearly demonstrated, in strategic sectors or in the area of utilities and infrastructure. But opponents of disinvestment have often stretched these arguments to the point of incredulity.

What is the political case for disinvestment? Disinvestment, though not a panacea, represents one aspect of a transformation in the place of the Government in our lives. The Government, at the moment, is a massive concentration of power that promiscuously intervenes as and when it please, frames rules to maximise its own rents and powers of patronage, uses taxes inefficiently and spends vast energies on things that are peripheral to bettering our existence. Reorganising government, to take it out of areas where it does not belong, so that it can better concentrate on areas where it does, ought to be the prime goal of reform. Disinvestment is one aspect of this aspiration. Secondly, the economy needs credible signals for private initiative. Investors need to be assured that enterprise will not be stifled, curtailed, or distorted by a huge Government presence. But it also has to signal that the Government will not do what it did in the past: step in for the failing of every private initiative and pass the burden on to taxpayers. Disinvestment is a way of signalling that Government thinking on both these incentive-distorting interventions in the economy has changed. As a matter of principle it wants to restore the by now lost distinction between the Government and a trading company by getting rid of needless commercial involvement. Thirdly, disinvestment is a way of reorganising the Government's priorities. It is a pity that the Government has used proceeds from disinvestment in a purely technical way: reducing fiscal deficits. What it should have instead done is made a social contract that proceeds from disinvestment will be used to completely transform and reallocate the government's budget. It would lead to massively greater spending on two sectors where the Government is badly needed: health and education. Imagine the difference between saying: "We need the 40,000 crores from disinvestments to cut fiscal deficit," and, "This 40,000 crores will be earmarked, above existing allocations, to ensure that every child, but especially those from deprived communities such as Dalits, will have access to health and education." This would be hard gambit to say no to. The deficit can be reduced in other areas: frivolous government expenditure, subsidies and so forth. Spending the proceeds from disinvestment might even provide fiscal cover for hard decisions elsewhere.

Unless disinvestment is linked to credible reform in governance and its gains earmarked for convincingly productive purposes, it will remain a precarious enterprise.

Here is a suggestion. On the last day of the last session before the next general election, Parliament should pass an omnibus legislation authorising disinvestment without parliamentary approval if its proceeds are used in a certain way. Whichever party comes to power will have an easier time with disinvestment and therefore it might just be in the interest of all parties to agree to this legislation.

The Supreme Court has done well in reminding us that the politics of reform and the reform of politics are two sides of the same coin. It was an illusion to aspire for one without the other.

(The writer is Professor of Philosophy and of Law and Governance, JNU.)

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