Tuesday, June 19, 2012

Don’t waste a good crisis, learn from the 1991 lessons

Don’t waste a good crisis, learn from the 1991 lessons The reforms in 1991 took away some of that discretion but many sectors of the economy are still unreformed. Thus, scams happen in the dark alleys of unreformed sectors such as land transactions, mining and government purchases. So, the answer to corruption may well lie in actions of the 1991 variety. The real crime of the UPA government lies in not initiating the second-generation reforms. These would have significantly reduced the chances of scams in mining, 2G spectrum, Adarsh housing and purchases for the Commonwealth Games. Anna Hazare’s team has rightly blamed “crony capitalism” but it has not explained that the nexus between business and politics exists because there’s still too much discretion with public officials. Countries free of corruption do not allow discretion to officials but rely on the impersonal forces of the market to decide economic outcomes. The 1991 reforms succeeded in wiping out crony capitalism in many parts of the economy and replaced if with rule-based capitalism. There existed much greater corruption before 1991. The numbers were not as large because the economy was smaller. But the state intervened in almost every business decision. Evidence from around the world shows that a citizen’s freedom to do business’ is negatively related to the ‘corruption index’. In 2011, seven of the world’s 10 ‘least corrupt’ countries were ranked in the top 10 for ‘business freedom’. Among these were New Zealand. Singapore, Denmark, Canada, Sweden and Finland. The 10 most-corrupt countries had the lowest rank in business freedom. India ranked very poorly-167 in ‘business freedom’ and 95 on the corruption index. Our unprecedented corruption today is matched only by an economic crisis which has brought the nation to its knees. Inflation is unacceptably high, the rupee has weakened more than any currency in Asia, both fiscal and current account deficits are in a dangerous zone, and growth has plummeted from 9% not so long ago to 5.3% in the last quarter-the lowest in nine years. So, what is to be done? They say, ‘Never let a good crisis go to waste’, and this is the best advice for Manmohan Singh. A 1991-type crisis needs a 1991-type response. So, reform, more reform and still more reform. Not only will this bring enormous prosperity but is will scare away the corrupt. Extracts of an article by Gurcharan Das In TOI 10 Jun 2012

No comments: