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By Rajendra Prabhu
Fears of emerging inflation fed by several factors, mainly rising interest rates, first signs of a dip in foreign exchange reserves, weakening of the rupee, rising inter-state tensions following the ruling party'sinability to discipline its Punjab Chief Minister, apprehensions of fuelling extremism once again in that state, flare up all over north-east, setback to peace process in Jammu and Kashmir?three months into power at the Centre and in some more states, the Congress has little to show.
?Inflation has risen as well, more sharply than previously expected?it breached the 6 per cent mark sometime back and has stayed firmly on that level,? writes the Economic Times. This fear therefore is not a partisan picture of the Opposition. Why is there a reverse swing in the economy after successive years of just 2 to 3 per cent inflation? Economic experts warn that the much taunted Chidambaram effect has worn thin soon after the budget.
One reason could be that no one believes that the assumptions the Finance Minister has made in drawing up the budget, a Rs10,000 crore increase in direct tax revenue, for instance, would come true. Therefore, there is scepticism on his claim that the revenue deficit would be down from 3.6 per cent of the GDP in the previous financial year to 2.5 in the current one or that fiscal deficit would also go down from 4.8 to 4.4 per cent of the GDP.
The greater reason why inflation is raising its head is the Congress-led state governments? tendency to gift freebies in a bid to gain support. First Andhra Pradesh and Karnataka gave free power to farmers and now Maharashtra has followed. The power sector is the one that has suffered from ?free? power not because farmers are getting free power but because that sort of distribution enables a huge internal vested interest in the electricity boards to package their theft of power under the ?free power to farmers? and hide the theft.
Left meanwhile is pushing its agenda, making good use of the lifeline it is providing for the UPA government. We don'tmind the micro picture but keep us in the loop for all macro decisions, was what the Left insisted at the first meeting of the coordination committee of the UPA with it?and got.
The Electricity Act 2003 was enacted during the NDA regime with cooperation of the Congress to meet the distortions that are regularly occurring in the distribution side of electricity. The Act, if implemented, would generate surpluses in the sector and help achieve adequate capacity utilisation and encourage building of new power-generating structures. The UPA began its regime with a promise to review the Act and now the so-called free power to farmers would completely negate the entire economic philosophy behind that Act. If the power sector continues to lose some Rs 40,000 crores a year, how can inflation be prevented?
In the absence of any move to downsize the bureaucracy?the NDA had aimed at the unpopular but necessary step to reduce it by 10 per cent in five years?the fiscal reforms will not work. The budget nowhere shows any move to bring down the public debt. As a result, the servicing of the public debt would swallow a major part of fresh borrowings?the way in which small farmers used to become paupers applies equally to governments. So don'tbe surprised if inflation is raising its head again.
Experts say that objectives of the Fiscal Responsibility Act and the promises in the National Common Minimum Programme are not compatible and the budget merely makes some noises, without taking the ?bull by the horns?. For instance, where are the specific schemes to reduce revenue expenditure? Where are the specifics of a better targeting of subsidies even as the subsidies are increasing? Where are the special measures to reduce the debt burden substantially? The NDA had used disinvestment incomes for this purpose but for the UPA, disinvestment is a political untouchable, though the FM is seeking to dilute government holding and thereby achieve at least part of the aims of disinvestment. But that is creating a howl from his Left supporters.
On the political front, the Congress Chief Minister of Punjab has thrown a challenge to the Congress-led government at the Centre by unilateral abrogation of inter-state agreements. Now Congress Chief Minister of Manipur is threatening to do a similar thing with regard to state security by declaring that his state is not a disturbed one?that will effectively nullify application of the Armed Forces Special Powers Act, which the north-eastern states want withdrawn but Centre thinks is necessary. Manipur agitation against the Act has brought together all the student organisations of the north-eastern states and they are backing the demand for withdrawal of the Act.
In Jammu and Kashmir, the Vajpayee initiative is getting blunted as no one is sure of the present Central Government'scommitment to it despite the public stand saying that the talks with all groups would continue. The worst blow to the peace process has come from the Congress as the PDP Chief Minister in Srinagar suspects that his coalition partner, the Congress, is out to grab power from him.
The Left meanwhile is pushing its agenda, making good use of the lifeline it is providing to the UPA government. We don'tmind the micro picture but keep us in the loop for all macro decisions, was what the Left insisted at the first meeting of the coordination committee of the UPA with it ? and got. But despite such ?keeping them in the loop? on the EPF interest rates issue, the new airports issue and other such controversial proposals in the budget, they are saying they would be free to agitate outside. So it is support within the House and opposition outside it?
The Left is preparing for agitation in banks, in other establishments against the UPA government policies while it keeps the lifeline to the government on a tight leash.
Three months into power with a promise that no farmer need commit suicide in a Congress-led regime, suicides in Andhra still continue. The Andhra move to gain entry into the Mulsim vote-bank in Uttar Pradesh and Bihar by promoting job reservation for a religious segment is coming home to roost. The Congress leaders are leaking that the Chief Minister had no clearance from the party high command for these proposals. And the Centre is worried that the fire lighted by Captain Amarinder Singh might catch on, engulfing the entire country.
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