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  • Is India Embracing Market Reform?

    Was it something the entire rest of the planet said?

    Late last Friday, the much-criticized government of India went from devaluing market-based economic reform at seemingly every turn to embracing it—in the space of one press conference.

    While India still faces a mountain of challenges, it finally may be moving forward to confront those challenges.

    The steps Delhi now wants to take feature several longstanding matters:

    • Reducing subsides for diesel fuel and cooking gas,
    • Raising the cap on foreign investment in aviation and parts of broadcasting and power, and
    • Enabling foreign majority ownership in retail.

    What will get most attention is devolution to the states of the authority to permit foreign majority ownership in multi-brand retail. This would allow Wal-Mart and similar companies to bring domestic Indian supply chains into the 21st century, benefiting both consumers and producers, including tens of millions of poor farmers.

    Left out are the many small-scale middlemen who currently dominate the sector. There are loud demands on their behalf to reverse the liberalization, even though it merely gives states the option to proceed. The grandstanding opposition in multi-brand retail (and, to a lesser extent, elsewhere) ties to an important issue: Friday was a very nice start, but it was just a start.

    As much as better supply chains will help farmers, clear property rights to land are more fundamental. India’s land titling bill is nowhere in sight, and pervasive, pernicious state involvement in attempted land sales undermines the economic return to all activities based primarily on land—e.g., farming, mining, and transport.

    Similarly, fewer subsidies are a welcome development, but national tax reform is more important and still distant. Without a unified goods and services tax (GST), India cannot even properly be called a single market. The GST was to be implemented in 2010; now 2014 is perhaps the best case.

    Years of inaction cannot be shaken off in a single day, no matter how encouraging that day is. The Indian government has finally offered proposals that will help revitalize a struggling economy. It must first win the political battle to implement these proposals, and then it must take the next step, perhaps in fiscal policy.

    If India can again start changing itself, it can change the world.

    Posted in International [slideshow_deploy]

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