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Corporate Jul 16, 2012

Obama's blunt talk only makes reforms harder to sell in India

By Venky Vembu

On the face of it, it's difficult to fault US President Barack Obama on the substance of his comments on the deteriorating investment climate in India and the need for another wave of reforms. Much the same point has been belaboured by commentators in India, particularly in the context of the policy drift within the Manmohan Singh government in recent times, which has caused virtually all decision-making to come to a standstill. And particularly during Pranab Mukherjee's tenure as Finance Minister, when he ran his ministry like a personal fiefdom and pulled out some of the most regressive taxation policies and bludgeoned foreign investors, the government appeared to take India's economy back to the notorious licence-quota raj.

Yet, Obama's remarks also betray an uncharacteristic insensitivity to the political reality in India, and the manner in which his comments may actually make it more difficult to hardsell reforms in the short term. And coming at a time when Manmohan Singh, who has in recent days shown the first signsof preparing the Congress party and the bureaucracy for taking some of the politically tough reform measures his government has avoided for years, Obama's comments are also badly timed.

Obama may have just made it harder for Manmohan to hardsell reforms.

Already, the backlash within India to Obama's remarks - from across the political spectrum in India, including the Opposition - reflects the challenges in framing the narrative of reforms in an Indian context.

The government has been immediately forced on the defensive, with corporate affairs minister Veerappa Moily blaming "international lobbies", including global telecom giant Vodafone (which is fighting to beat back a hefty tax bill that the Indian government has pinned on it), for having given Obama a flawed brief on the Indian investment story.

But even the BJP, which might have been expected to derive political mileage from any international criticism of the Manmohan Singh government's policies, criticised Obama's remarks, saying that India could not be expected to open up its economy and its markets merely because Obama wanted it.

Of course, the Left parties, which have a pathological aversion to both the US and to reforms, will likely feast off this for a while.

Curiously, even sections of Indian industry, who have in recent times had much to complain about the Indian government's policy paralysis, indicated that Obama's remarks were unwelcome. Sajjan Jindal saidObama was "merely repeating what industrialists in the US and Europe have been saying about India. It does not reflect reality."

Jindal sees Obama's comments as reflecting his own domestic political compulsions in the months leading up what looks like a close Presidential race where he is fighting to be re-elected.

In that sense, Obama's comments were primarily directed not at the Indian government (or at Manmohan Singh) but rather more at Big Business, whose trust he has effectively lost at home. It's a dog whistle to them that he was batting for them, and was therefore worthy of their support and their campaign donations.

The fact of it is that given the political reality in India, where the political narrative often descends to the lowest common denominator of populism, reforms happen only by stealth - and only when a crisis compels policymakers' hands.

Obama himself cannot be unaware of the difficulties in a vibrant democracy of evolving a political consensus on the need to do the "right things". It was reckless deregulation over a quarter of a century that has landed the US economy in the mess it finds itself in today, and yet Obama has not able to present a cogent narrative to challenge Republican obstructionism. And today, he finds himself competing for the patronage of the same Big Business lobby.

Additionally, Obama has in recent weeks been resorting to rank populism that borderline demonises outsourcing and targets India. He has been running a shrill political ad campaign against his Republican rival Mitt Romney's record of having "outsourced" jobs to countries overseas, including China and India.

The challenges of framing a political narrative in favour of reforms are all the harder in a country like India. Obama's remarks, however well-meant, may have made that task just that bit harder.

by Venky Vembu

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