Commentary: India: Don't Let Scandal Derail Reform

By Manjeet Kripalani

Finally, India seemed on the road to reconstruction. In February, the Bharatiya Janata Party-led government announced a series of reforms in conjunction with its latest budget, including liberalization of labor laws, speeded-up privatization of state industry, and a plan to fix the notoriously unreliable power sector.

But the coalition led by BJP Prime Minister Atal Behari Vajpayee may never get an opportunity to carry out its progressive plan. Instead, the government stands on the brink of collapse. The event that did the damage: a sting operation by an online magazine, which caught leading politicians and military officials on camera accepting bribes in connection with what they thought were military contracts. Defense Minister George Fernandes has since quit, along with the head of the BJP. Raucous opposition legislators closed Parliament for six days, insisting that the government step down.

SHREWD TACTIC. The administration should be embarrassed. But it would be a huge mistake for the opposition to initiate a new era of political turmoil. The principal casualty would be much needed reform. Already the opposition is calling for a pause in the drive for change--a shrewd political tactic, since reform, even good reform, always hurts in this hardscrabble country. Oddly enough, the most strident rhetoric is coming from the Congress Party, which initiated economic liberalization in 1991.

Yet India desperately needs to get its house in order. Last year, it took in only $2.6 billion in foreign direct investment. By contrast, China raked in $40 billion. The budget plan had raised hopes that long-discussed structural fixes would finally make India more attractive to investors. That would help Finance Minister Yashwant Sinha hit his goal of 9% annual growth over the next decade.

Most important are the proposed reforms of the labor laws, which for the first time would permit companies with fewer than 1,000 employees to hire and fire without government permission. Freed from these restrictions, business owners could invest in promising new ventures, instead of wallowing in sunset industries.

These are sensible proposals, but the current furor will likely block their enactment. "The scandal has killed off key reforms for a while," says Rajiv Chandrashekar, chairman of BPL Innovision Business Group. Yet India needs a boost now. Even its prized software industry is feeling the global chill. "Project starts are going to slow down," says Nandan M. Nilekani, managing director of Infosys Technologies Ltd., a top software maker.

Serious reform would attract more capital to software and other industries that need seed money. Says Ranjit Shastri, a partner in PSi Inc., a New Delhi economic consultancy: "What will attract foreign companies is the smell of money--lots of Indian companies making lots of money."

So instead of seeking to stall change, the opposition would do well to embrace it. One twist to the scandal is that the expose was launched by, a tiny but fiercely independent online journal set up a year ago for $800,000. Tehelka owes its place on the Net to earlier reforms that eased curbs on venture capital and unshackled phone rates enough to create demand for online ventures. Had this deregulation not taken place, Tehelka wouldn't exist. And the Congress Party wouldn't have a BJP scandal to feast on.

If the government survives, it must quickly redouble the push for reform when the budget bill hits Parliament in May. It won't be easy. Unlike China, which reforms by fiat, India's democracy is slow and sometimes regressive. But it must deliver economic betterment to the 800 million Indians who can't even dream of logging on to a Web news service. That means hard work and hard choices. It's time to tackle both.

Kripalani is Bombay bureau chief.

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