The reform announcements that have given Manmohan Singh and the Congress another lifeline are driven primarily by cold electoral logic
A week is indeed a very long time in politics. Suddenly Manmohan Singh, derided, criticised and dismissed as a figurehead over the past two years, looks the part as Prime Minister of India. This transition may seem ridiculously easy now, but only in hindsight. We had given up on him, and with good reason.
Since the unexpected UPA-II victory in 2009, the Congress party and this Prime Minister have done everything to fritter away a mandate that was seen in part as a vote for Manmohan Singh. The Congress did not see it the same away. Within days of the victory, he was saddled with a Finance Minister he never wanted—Pranab Mukherjee. From then on, it was downhill for Singh. After failing to stand up for himself within the first week of a victory that had given him some leverage in the party, he silently acquiesced in the slow slide of the Government, as scandal after scandal from UPA-I came to light.
Perhaps, he had learnt the art of masterly inactivity from his guide in Indian politics, PV Narasimha Rao, who always sat on difficult decisions till they became inevitable. In Manmohan Singh’s case, this inevitability emerged only over the past few months, as Mukherjee was thankfully granted a sinecure at the President’s office and Coalgate reinforced what 2G and Anna had volubly augured—the near certain decimation of the Congress in 2014 if the party continued with things as they were.
Much has been read into the announcements, largely from the ever-hopeful contingent of media economists in favour of liberalisation, who continue to persist in the belief that there is some idea of reform that exists independent of politics. The truth is the announcements have had to carefully blend the signals that have to be sent out to the global economy with preparations for the general election in 2014. The subsequent course of this government will be dictated by the need to walk this tightrope.
THE ECONOMIC LOGIC
The opening up of multi-brand retail, the hike in diesel prices and the cap on the number of subsidised LPG cylinders are measures that constitute a mix of reform and economic rationalisation. This is not lost on observers outside the country, who want to see this government build upon these announcements, but any such expectation must be tempered with the caution that only those decisions that can be sold to the public—more than whether they can be sold to political parties—in the run-up to the 2014 polls stand a chance.
As far as reforms go, the FDI decision, the only one that qualifies under this head, is the one least likely to have any direct short-term impact on the economy. It is at best a signal of the Government’s intent. Critics of the decision, who talk of the death of kirana stores and threat to small retailers, forget that Indian multinationals including Reliance and the Sanjiv Goenka- RPG group (which owns Open) have been in retail for a considerable period without having any such impact.
Writing in The Financial Express, MK Venu notes, ‘Walmart entered China some 20 years ago and has opened 350 stores till date. Walmart’s own philosophy is that it must become the biggest player wherever it goes, nothing less is acceptable. But in China it just has a 5% market share after two decades. Local Chinese retail companies, such as the Shanghai Bailian Group, Suning, Gome and Dashang, are all bigger than Walmart.’ Logic, though, has little impact on leftist rhetoric of the romantic kind. The award for the silliest opinion on this issue must go to Ian Jack, who has written a piece in The Guardian titled ‘Centuries of Indian Life could be extinguished by the arrival of Walmart’.
Equally stupid are the claims that this will result in a network of cold chains and improvements in rural infrastructure. Manmohan Singh has argued, “According to the regulations we have introduced, those who bring FDI have to invest 50 per cent of their money in building new warehouses, cold-storages, and modern transport systems. This will help to ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down; prices paid to farmers will go up; and prices paid by consumers will go down.’’
Even in states like Punjab and Haryana, where agriculture is attuned to the market, there will be no largescale shift in cultivation patterns in response to retail demands. The wheat and paddy cycle is stable and remunerative, if deadly for these states in the long run. Multi-brand retail is not looking to buy wheat and rice, and a shift away from these crops will require government intervention in addition to private investment to wean farmers away from producing rice and start growing other crops such as vegetables and fruits. This unlikely possibility should only be encouraged, but it is largely wishful thinking.
It has been argued that the hike in diesel prices was necessary. This is true given the Rs 2 lakh crore subsidy bill, which will now go down by Rs 40,000 crore. But Manmohan Singh also told us, “We raised the price of diesel by just Rs 5 per litre instead of the Rs 17 that was needed to cut all losses on diesel. Much of diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Should the Government run large fiscal deficits to subsidise them?’’
If this was the justification, why has the Government not bothered to directly target this sector instead of choosing an across-the-board hike? Over the last year, there has been a 35 per cent growth in sales of diesel vehicles; a Rs 5 hike is not going to change this. For the past three months, the Government has been thinking of an excise duty especially targeted at the segment Manmohan Singh has invoked to justify the hike. The two could have happened in tandem.
Unsurprisingly, Anand Mahindra has been quoted in the media, “We have said this before and will say this strongly. Any duty levied on the point of sale of a product [like a diesel-run vehicle] to compensate for a distortion upstream is wrong.” It is another matter that he sees no problem with some manufacturers benefitting disproportionately due to distortions upstream.
It is no secret that car manufacturers and industry associations have persistently lobbied the revenue department over the past few months. The number of representations has even become a matter of some discussion in the Finance Ministry, but it has had the desired effect. A realistic reading of this development would suggest that with elections due soon, potentially large sources of funds (with scams such as 2G and Coalgate obstructing many other such channels) will now have considerable traction.
THE POLITICAL LOGIC
This is far more compelling. This decision would have made as much economic sense a year or two ago, but it could not have happened then. Problem number one was Pranab Mukherjee. His approach to the Finance Ministry virtually left no room for the Prime Minister. Mukherjee enjoyed the confidence of the party and he was seen as someone who brought political pragmatism to the Finance Ministry. But he seems not to have realised that the country had changed since the 1970s, when he was first appointed minister. Attempts at policymaking through bureaucratic tinkering during his tenure in the end yielded neither economic nor political benefits.
Even as Mukherjee made his exit, Chidambaram’s entry into the Ministry strengthened the Prime Minister’s hands. The two have been in agreement as far as economic reforms go, but the Chidambaram who came back to Finance enjoyed greater clout with the party after his tenure at the Home Ministry. No one can claim that his tenure was successful, but given the work done by his predecessor, Shivraj Patil, Chidambaram’s tenure came as a relief to the party, and reinforced the confidence Sonia Gandhi had reposed in him. Within the party, where indications of 10 Janpath’s benediction are constantly examined, the decision to let Chidambaram speak immediately after Sonia Gandhi at the 25 September CWC meeting is seen as a sign that post-2014, he could play a crucial role in the absence of Manmohan Singh.
This change happened on the heels of the Coalgate scandal, which reinforced the sense of siege within the party. Realisation began to dawn that corruption as an issue was not going to disappear, rather its taint was spreading to include the Prime Minister himself, so far the party’s fig leaf against any such accusation. If the party was to sink through inaction, in the face of the campaign that tarred it, it was better to sink through action that at least wrested the initiative in terms of public discourse. In doing so, the party could once again bring back the focus on Manmohan Singh the reformer, which is by far the best face Manmohan Singh can show to the public.
Finally, the party needed a positive platform on which to announce Rahul Gandhi’s elevation within the party. It would have been suicidal in the wake of the UP elections to announce his elevation while the public discourse was focused on Coalgate and corruption. It has been no secret that Rahul Gandhi is pro-reform and clearly he was party to the announcement that seems to have been in the offing for some time. As far back as July, Rahul Gandhi is believed to have assured members of the city’s diplomatic circles that they should expect a major announcement on reforms before December.
THE WAY AHEAD
The party, as was made clear by Chidambaram during the CWC meet, hopes to link the reforms to ‘pro-poor’ programmes. This is not simply a matter of public contact or a series of rallies, it will also have to be linked to specific measures. It is one thing to say economic reforms made the NREGA possible, but the Congress will need to link the latest series of reforms with subsequent initiatives. We have already seen the Rs 2,300 crore one-rank-one-pay announcement for retired defence personnel, but that is just a prelude.
Jairam Ramesh was quoted as saying, “Just like RTI and NREGA acts were the political statement of UPA-I, the Food Security Bill and Land Bill will be the twin pillars of our political strategy for 2014.” Money saved through the diesel fare hike will soon be spent on such measures, irrespective of what economic wisdom may say. But both require legislation that may not pass. The Government is not going to shy away on this account. The calculation is that opposition to such measures gives it political play, turning the discourse away from corruption to the Opposition’s failure to endorse measures that work for the ‘aam aadmi’.
Reaching out to people cannot entirely substitute reaching out to allies. The Congress will need to keep both Mayawati and Mulayam Singh happy. From past experience, the party knows this is not going to be easy. After the Nuclear Deal was approved by the UPA-I, Mulayam Singh extracted such a heavy price that the Congress soon became nostalgic for the good old days of support by the Left. Mulayam Singh and Mayawati, as opposed to the Left, do not see policy in clear terms. The need to canvass their support day to day, and from issue to issue, is not going to be easy, especially when it comes to legislation one opposes and the other is determined to get, such as an SC/ST quota in promotions.
None of this guarantees that what the Congress most fears does not come to pass. Recent announcements have seen the focus shift from corruption, and the Congress hopes that news generated by a now proactive government will keep things going in this fashion. But all it takes is one court observation or an indictment in the 2G, CWG or Coalgate scams for focus to shift back. The irony of the situation is not lost on the Congress. A Raja’s party, the DMK, is afraid to be associated with this government because of the taint of corruption that has smeared the UPA-II. Even Ajit Pawar’s grandstanding over a scam in Maharashtra is enough for people to once again ask what action the Congress took against the corrupt. This gives Manmohan Singh and Chidambaram room to manoeuvre, but it does not by any means ensure that they can repeat 2009 in 2014.
Hartosh Singh Bal turned from the difficulty of doing mathematics to the ease of writing on politics. Unlike mathematics all this requires is being less wrong than most others who dwell on the subject.