The Hindu : Front Page : Chidambaram regrets delay in reforms

Online edition of India's National Newspaper
Monday, Dec 03, 2007
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Chidambaram regrets delay in reforms

Ashok Dasgupta

Hopes for a breakthrough during balance of tenure

P.Chidambaram

NEW DELHI: Union Finance Minister P. Chidambaram on Sunday admitted that the performance of the United Progressive Alliance government was below expectation on two fronts. One was its inability thus far in pushing ahead with further reforms in financial services, especially in banking, pension and insurance. The other was the failure to improve the delivery mechanism for the social security programmes.

As for the financial sector reforms, Mr. Chidambaram was hopeful that “some breakthrough” would take place during the remaining 16-month tenure of the coalition regime. For the setback in social security programmes, he blamed the rigidity of the bureaucracy, which still remained a hurdle in achieving “inclusive” growth.

Addressing global corporate honchos over lunch at the India Economic Summit, jointly organised here by the World Economic Forum (WEF) and the Confederation of Indian Industry (CII), Mr. Chidambaram expressed concern over the twin failures and said: “Financial sector reforms are lagging behind. We need to push through financial sector reforms in banking, insurance and pension and unfinished agenda in the capital markets. ... But, I still think that we have 16 months and we might be able to make some progress.”

The Finance Minister earlier appealed to the UPA allies for political space to carry out financial sector reforms. However, stiff opposition by the Left parties resulted in little headway. The proposal to raise the limit in foreign direct investment in the insurance sector from the current 26 per cent was referred to a Group of Ministers and has not made much progress.

In banking too, the overall Bill is yet to be legislated owing to opposition from the Left parties and the only forward movement has been in the flexible limit for the Statutory Liquidity Ratio (SLR). The Bill to extend statutory powers to the pension regulator is still pending in Parliament.

Failed systems

Mr. Chidambaram expressed dismay over the continued reliance on failed systems to deliver social sector programmes. “The other area of disappointment is while we expanded outlays and outlined very ambitious programmes, we still depend on largely failed systems to deliver these programmes. … I am not worried about resources. The outlay on education has expanded four times between 2003-04 and 2007-08, but are large outlays translating into outcome in the field?”

On the positive side, he said, was the high economic growth rate. “If I can increase the investment-Gross Domestic Product ratio to 40 per cent in the next five years, which is perfectly achievable, I can see high growth continuing in the next 15-20 years.”

Terming it the biggest achievement, he said the government had also succeeded in shifting the emphasis on the debate from whether the country should have growth or not, to “inclusive” growth.

Turning to the topic, ‘The shifting power equation,’ he he said the global economic power centre was not shifting to developing countries. Although economic growth was being driven by the developing world, economic power still resided with the developed world.

India and China currently contributed 60 per cent of the world’s economic growth. Yet, the key factors that drove economic power were knowledge, financial resources and material resources such as oil and gas. And, “as long as the developed nations have control over these, they would have an edge over developing nations,” he said.

Through better policies, good governance and better implementation, “we can reap the benefit of our demographic dividend and not allow it to become a liability,” he said.

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