The anti-reform Congress

Last Updated: Sun, May 13, 2012 19:51 hrs

The United Progressive Alliance’s second government, which has become almost synonymous with inaction, is accustomed to citing its unruly allies as responsible for its inability to make policy. Major reforms like foreign direct investment (FDI) in retail or a land acquisition law, for example, have been put on hold because alliance partners like Mamata Banerjee have declared themselves uncomfortable with their passage. Yet, in the Cabinet’s treatment of the long-awaited insurance Bill, it becomes clear that the Congress party needs no outside agency to catalyse its paralysis; it is capable of holding up reform perfectly well on its own. The Insurance Laws (Amendment) Bill, 2008, has been hanging fire since that year; industry observers have said the Bill is crucial for mobilising more funds for that sector, reducing its costs of operation, and modernising mergers and acquisitions. On Thursday, however, the Cabinet deferred its passage.

The reasoning given for this self-inflicted injury on the reform process was that the parliamentary standing committee on finance, headed by the Bharatiya Janata Party’s (BJP’s) Yashwant Sinha, had objected strenuously to the Bill’s proposal that the cap for FDI in the sector be raised from 26 per cent to 49 per cent. This firmness on the part of the committee reflects the government’s inability to make the case, for over three and a half years, for the importance of more funds in insurance. It also reflects a lack of imagination: though the FDI cap is important, it is not the only part of the Bill. The government could well have separated the controversial and the agreed-on provisions and moved forward. The Bill’s provision for the foundation of health insurance companies in India, for example, should not be delayed because political parties disagree on FDI. The lack of imagination and the timidity that UPA-II has displayed on this occasion show that, even without pressing coalition compulsions, this government is unable to organise itself to pass reform. This is underlined by the fact that the two other “decisions” the Cabinet took on Thursday were both deferments, too. The crucial legislation to set up a coal regulator was put on hold, as was the expansion of the Competition Commission’s ambit to bring under its purview pharmaceuticals and banking. Both reforms were important for the independent regulatory environment; both were held up either by concerns that the executive would lose power or because UPA-II failed to achieve consensus on what the Competition Commission’s regulatory ambit ought to be. Is this how a reformist government is supposed to behave?

In truth, the Congress party’s own policy incoherence and divisions over reform are such that it cannot make a clear case externally — to its allies or to the parliamentary opposition. UPA-II is no longer a reformist government because it no longer seems to be led by a reformist party. Indeed, reform is scuttled more often than not exactly by those political leaders once labelled reformists — though that fact is true of both the Congress and the BJP. The Congress must stop looking outside itself for the problems of the government it leads. Unless its own leaders develop a sense of urgency and recall their commitment to reform, their government will continue to flounder.

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