Emancipation from Left ?slavery? has suddenly endowed an unbridled capitalist streak on the Congress. It has started talking as if only the corporates matter. After sleeping over economic mismanagement for over four years it has started talking of big ticket reforms all over again, on all sectors, from finance to education and health. Through a diktat on July 29, it ended the 55-year EPFO regime and by the back door allowed three private companies to manage provident fund. After the confidence vote win through dubious means, it is payback time for the corporate help.
How genuine is the new enthusiasm? The UPA wants us to believe that these reforms are the only panacea by which growth could be sustained, inflation brought down and poverty eliminated.
The Prime Minister Dr. Manmohan Singh says that more reform is the antidote for inflation. Finance Minister P. Chidambaram, who has always been claiming that the NDA was responsible for the economy going haywire for the last four years under him, suddenly turned soft and says he will talk to the BJP and persuade it to support to complete pending reforms. The reforms that he intends to initiate are serious and controversial needing parliamentary support. These are meant to integrate the Indian economy further with the global market.
These include completing the globalisation agenda in labour, insurance, banking, retail trade, allowing foreign universities and corporatisation of education and more SEZs. In the pension fund sector, the bill pending in Parliament since March 2005 seeks to give statutory status to Pension Fund Regulatory and Development Authority (PFRDA) to ensure that private fund managers can be roped in to invest the pension fund corpus in the equity market. This can fetch a better return as the Indian economy is growing. The new bill will propose to increase the foreign direct investment limit in the asset management company to 49 per cent. At present most of the fund is invested in government securities where the return is low. In the proposed new investment pattern both return and risks are high.
The insurance bill to increase the FDI from 26 per cent to 49 per cent is equally mouth watering for foreign companies and controversial across the political divide. Foreign partners in a number of insurance companies in India want their holding raised to 49 per cent. The argument in favour of this initiative is that it will bring in more FDI and on the ground there will be no change in the running of these companies. In the banking sector the government wants to push the bill to increase the voting rights of the shareholders in proportion to their holding. At present it is capped at 10 per cent, though private holding in banks can go up to 74 per cent. This will mean allowing the government'sstake in public sector banks to come down below 50 per cent and raising the FDI limit. Reform enthusiasts believe that this will bring in huge foreign investments and enhance banks capital adequacy ratio.
Yet another area is disinvestment in big profit-making PSUs like NTPC, NHPC, BHEL and other Navratnas. The disinvestment was abandoned after the Left along with the DMK blackmailed the government on the question of divesting stakes in Nyvelli Lignite. It is not clear if the DMK had a change of heart on disinvestment in the last two years.
There are reforms which the NDA wanted to take up and the Congress in the opposition resisted tooth and nail. Now the same reforms the UPA wants to push and it expects the NDA support. The economy would not have been facing the present crisis had the UPA been serious about governance. It is blaming the Left now for its failures.
Perhaps this is a ploy to counter the general perception that the UPA has become a one-issue entity. The other reason for the sudden enthusiasm for reform could be the eagerness to apportion all the blame for economic mismanagement on the CPI(M). To divert public attention for the sleaze associated with the confidence motion win could also be a consideration.
The government for long has been under pressure from the IMF to complete the monetary sector reforms. To strengthen the point, of late international rating agencies have started giving negative ratings for India. The Economic Survey 2008 also lists a number of reforms, which the World Bank Country Report had highlighted as priority.
The rating agency Goldman Sachs in a report said factors like the time left for the government to go to the polls, the need to meet the demands of the new allies and electoral concerns might force the government not to take up controversial issues. Similarly, Moody'sexpressing skepticism over the government'sability to push through the entire gamut of reforms given the short tenure and uncertainty of the support from its new-found allies said that raising FDI limit in insurance will boost the Indian economy. The NDA has already indicated that it will not support these reforms.
The fact is the UPA was busy creating pressure groups and vote banks by pandering to various sectarian interests in the hope of winning elections. The skyrocketing price rise, inflation and failure of the public distribution system totally upset its calculations. The left has been a convenient scapegoat for the UPA whenever it wanted to hold up progress and revert to wasteful populism. The Congress is no longer talking about NREGA which has proved a colossal failure and squandered over Rs. 65,000 crore. Similarly, an awesome Rs. 50,204 crore was spent on fertiliser subsidy and another Rs. 71,000 crore on farmer loan waiver. All this only helped in creating new opportunities for its political constituency. With elections only a few months away the government will be tempted to go for more such populist schemes discarding their impact on economic management. The UPA is spending as if there is no tomorrow. Or it is so sure that it will not return to pay the bill.
If the government was serious about reform, it would have created better investment climate in the country through better administration and improving the quality of public service. As we have pointed out in an earlier column, there was nothing but corruption and favouritism standing in the way of completing national highway programme and rural road building, irrigation programmes, drinking water mission, health mission and total literacy mission. All these programmes started and implemented successfully by the NDA government were left to languish under the UPA. T.R. Baalu had no time to work on national highway programme in his obsession with Ram Sethu and issuing contracts to his cronies. Health Minister Ramdoss was obsessed with feud in AIIMS and banning smoking on screen. HRD Minister Arjun Singh was steeped in the toxin of textbooks and injecting caste and communalisation of academic institutions. The Prime Minister was listlessly bidding for his time to salvage himself from Left bondage.
The UPA lost the growth momentum because of its failure in the infrastructure, education and administrative front. It cannot retrieve it by last minute big ticket manipulation.
(The views expressed in this column are personal. The writer can be contacted at [email protected])