Pricey reforms

Saturday, 3 September 2016 00:22 - - {{hitsCtrl.values.hits}}

REFORMS can come at a hefty price. Indian Prime Minister Narendra Modi is getting a first-hand lesson on how difficult it is to push through reforms with tens of millions of Indian workers going on strike to protest liberalisation of the Indian economy and fresh measures introduced by the Government to attract foreign investment.

India needs about 10 million new jobs each year to reduce poverty and increase its middle class, which were at the core of Modi’s election win focused on promises of investment and economic growth in 2014. But since then older forces have been holding sway, undermining painful reforms that have attempted to open up sectors and reduce dependence on loss making enterprises.

Modi has spearheaded efforts to ease labour laws to attract foreign investment and make it easier to do business in the country. The Indian Government also plans to sell its stake in State-owned companies, which are incurring heavy losses. One of the most controversial Government directives was to push State-run pension funds to put more money into stock markets, thereby increasing risk but reducing dependency on public funds.

Modi has also encouraged privatisation in sectors like airlines, defence and railways, which has raised concerns of national security and angered blue collar workers who fear a possible rise in transportation costs. Earlier this year he relaxed rules for overseas retailers who only need to source 30% of their products from India and brought in new rules to grant residency to investors willing to bring $1.5 million over 18 months or $3.75 million over three years and create at least 20 jobs for Indians each annum.

Unions, miffed by stalemate discussions and refusal by the Government to discuss privatisation issues, called for a countrywide strike this week, bringing public life to a halt. Union leaders say as many as 150 million workers are on strike shutting banks, Government offices, and factories. The strike has also disrupted transport and kept many private sector workers at home. Striking workers are adamant the Indian Government must re-think its pro-privatisation policies and increase minimum wages.

In many ways Modi’s pro-market reform agenda mirrors what the Sri Lankan Government is trying to achieve at home. They are also attempting to restructure loss-making State-Owned Enterprises (SOEs) by seeking Public-Private Partnerships (PPPs), which is essentially a euphemism for privatisation and is tinkering with liberalisation to attract foreign investment. But they are also likely to run into the same problems as workers, fearful of losing their jobs, fight against reform.

With increasing external challenges developing countries are fighting for a smaller and smaller part of the international investment pie. If even the world’s fastest growing economy is having such strong growing pains then Sri Lanka will have to brace itself for its own set of coming of age problems.

This makes it all the more important for the Government to get its policy framework in order and start implementation on points such as tax reform that will be deeply unpopular and has already proved to be troublesome. International Trade and Development Strategies Minister Malik Samarawickrama has already acknowledged people are “becoming impatient” for results and the longer they wait the harder it will get.