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PM’s Travails Not Over:REFORMS ON BACKBURNER?, by Shivaji Sarkar,25 July 2008 Print E-mail

Economic Highlights

New Delhi, 25 July 2008

PM’s Travails Not Over

REFORMS ON BACKBURNER?

By Shivaji Sarkar

Corporate India hopes for fast-paced reforms. In whatever way the Government may have managed the trust vote victory, it has heightened expectations. But would the Government be able to go ahead with its avowed programmes as it is no more under pressure of the Left? It seems unlikely. The reforms may be on the backburner.

The market however is behaving in a different way. The sensex that has been lying low suddenly rose by 1529 points or 13 per cent. It had been rising for four days preceding the vote of confidence. Market punters who were pinning their hopes on the survival of the Government are celebrating the daily rally.

How could the market sense the edge of the Government when the political observers were keeping tight on their predictions? This opens up yet another question whether the market knew about the actual game that had preceded the saving of the Government? Pertinently, recall how a former stock market dealer was reportedly caught with suitcase full of currency notes before a trust vote during Narasimha Rao’s regime in the nineties. This only suggests that the market is closer to such operations.

However, the market’s expectations of the Government being on the fast pace may be a bit misplaced. The Finance Minister P Chidambaram has for the first time brought down his growth projections from 9 per cent. The observers believe it may be far less.

The Government may be celebrating its victory, but the Congress Party is not sure about it. Apart from the political spectrum, it has anxiety over the reform process itself. Since the Left had been playing the game of keeping the Government on leash, as stated by the Prime Minister Manmohan Singh, Congressmen worried about their electoral future kept quite about their reservations. Specially, the conservatives who were always skeptical about the reform process as they were not oblivious to what it had cost the Atal Behari Vajpayee-led NDA. Now they are likely to be more vocal.

The FICCI President Rajeev Chandrashekhar has stated that major bills relating to pension and banking reforms would be pushed through in the next three months. It seems too big a hope. The brakes on the Government would now be applied within the Congress.

The Party is in election mode and is more calculative about garnering the popular vote. It should normally avoid taking any adventurous step. Given that inflation at around 12 per cent is adding to its difficulties. Many of the Party leaders aver that an apolitical Manmohan Singh has the least to lose. But most sitting MPs may lose their seats.

Even if the Party allows Singh to function, and that is a big if, with double digit inflation and signs of a slow-down, the Government would find itself pulled in opposite directions --- sustaining the growth momentum and keeping prices under check.

Besides, the political space is limited. Elections are nine months away. Normally the Government’s decision-making capability closes months before that. The space for the Government to act is limited to five months or so --- till December.

However, given the fact that over the years the UPA Government has always delayed the decision-making process, thanks to the mechanism it had set-up of leaving decisions to various Committees comprising a Group of Ministers (GoM) this seems doubtful. At last count, there were 80 GoMs set-up to iron out differences between Ministries, not allies, on a spectrum of issues ranging from Special Economic Zones to drug pricing. Thus, the Government cannot wish them away in a jiffy. They are the Government’s own creation.

Despite this the some Ministries might seek to open up the investment floodgates. Chidambaram would like to shortlist PSUs for disinvestment to raise the falling resources of the Government. He would also like to rush through the Banking Regulation (Amendment) Bill that seeks to remove a 10 per cent cap on the voting rights of private banks, amend the State Bank of India Act to bring down the Government stake to 51 per cent from 55 per cent and the Pension Fund Regulatory and Development Authority Bill that allows private pension funds to solicit participation from the $ 325 million unorganized sector.

The Commerce and Industry Minister Kamal Nath would like to push for FDI in the retail sector now partially allowed. The Civil Aviation Minister Praful Patel would like to go ahead with the Civil Aviation Policy spelling out a timeframe for allowing foreign airlines to pick up stakes in the domestic sector. Remember, the Left had opposed all these moves.

But the Congress itself may put many of the Government’s moves in back gear. Despite the professed support of the Samajwadi Party, when the actual time comes, it would like to have its pound of flesh. Though the BJP might have initiated many of the moves, it would certainly oppose them today. The support of the Left is out of question. Since all these processes are legislative, it would not be easy for the Government to sail through in Parliament, when it meets in August for the monsoon session.

This apart, it requires bold initiatives to carry out the operations. Many of these reforms like increasing the stake of private banks, foreign airlines and foreign insurance players and retail houses are not likely to enjoy popular support of the electorate. True, the nuclear deal might be a sovereign issue but whether it would be lead to an electoral advantage for the Congress seems doubtful.

With too many issues before it, in all probability the Government might flex its muscle on reforms. But when it comes to their actual execution, it is likely to tread cautiously. Besides, it might have honest intentions about reforms but in the prevailing circumstances with pulls from too many sides, particularly from within the Congress Party, the nation can hope that most of these would be shelved till the elections. The ‘fast track’ Government would actually be on slow pace. ---- INFA

(Copyright, India News and Feature Alliance)

 

 

 

 

 

 

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