On the route of liberalisation

A migrant couple prepares to work on the dry bed of the Himayathsagar lake in Hyderabad under the food-for-work programme in April. - P.V. SIVAKUMAR

If it is a fact that there is a zone of cooperation between the UPA and the NDA on economic reforms, then the political options for the Left are closing rapidly.

THE teacher and the economist in Prime Minister Manmohan Singh got the better of the politician in him when he awarded a grade of 6, on a 10-point scale, to his government after one year in office. High school students, worrying over their fate in the examinations, would have dismissed this score as mediocre.

In the past few weeks the Prime Minister has stressed - in public fora as well as within the Congress - that the pace of economic reforms needs to accelerate. His dissatisfaction with his government's performance arises out of the concern that the pace of economic reforms is slackening. The Left parties, generally portrayed as the spoilers of the reform party, have also given poor grades to the government. But their unease stems from a diametrically opposite perspective. Their discomfort with the ruling coalition appears to centre on the perception that the Congress is ambivalent on economic reforms.

The Left, despite its reservations about the Congress' attitude to economic policies, decided to support the United Progressive Alliance (UPA) in order to help form a secular government to replace the Bharatiya Janata Party-led National Democratic Alliance. In order to bridge the chasm in viewpoints, it placed a great deal of emphasis on the Common Minimum Programme (CMP) that was forged after the elections. The Left understood that the CMP only represented a minimalist agenda, but it realised the potential of the CMP as a manifesto that the Congress-led government could be pinned to. The Left's assessment of a "mixed record" in the last year arises out of its perception that the government has failed substantially in keeping the promises made in the CMP.

The most severe criticism has centred on the UPA's failure to keep its word on providing employment for the poor in urban as well as rural areas. Professor Jean Dreze, member of the National Advisory Council (NAC) and a social activist, regards the "absence of any major initiative in the field of employment generation" to be the "biggest failure of the UPA government". He told Frontline while on a yatra campaigning for the right to employment, that the National Rural Employment Guarantee Bill, tabled in Parliament on December 21, 2004, is "toothless and falls far short of the promise made in the CMP".

The national food-for-work programme was initiated "casually, without the safeguards required for effective implementation", he said and added that early field reports indicated a "dismal" performance. Meanwhile, he said, "major threats to rural employment, such as large-scale mechanisation, continue unabated".

The Budget for 2005-06 appeared initially to reflect the UPA's commitment to fund the employment guarantee scheme. But although Finance Minister P. Chidambaram "promised" to find the resources needed to implement the Employment Guarantee Act, the actual allocation of funds has been meagre, resulting in a dilution of the scope of the "guarantee". Dreze pointed out that the actual increase in allocations were only to the extent of about 40 per cent, instead of the impressive 276 per cent suggested in the Budget papers.

Why is there resistance to the funding of a nationwide employment guarantee programme? Dreze believes that a part of this reflects "genuine concerns about the financial implications of the proposed Act and the possibility of large-scale corruption". However, he believes that more substantial resistance comes from "privileged interests" particularly from the corporate sector and the middle class. Although this "privileged minority" is small in numerical terms, it can exert "considerable influence through various means, such as through the business media".

Dreze believes that some sections within the government, notably the Finance Ministry, are well integrated with these privileged interests and have played a major role in derailing the draft Employment Guarantee Act, which was prepared by the NAC, of which Congress president Sonia Gandhi is the chairperson.

Despite his disappointment with the UPA on the employment front, Dreze holds the view that it differs substantially from the BJP-led coalition. For instance, in social policy there are some "important differences", particularly the UPA's "greater willingness to consider major initiatives relating to the welfare of children". However, even in this case the UPA government has shown unwillingness to translate the statement of objectives into "concrete action". Although the UPA government is committed to the universalisation of the Integrated Child Development Services programme, there has been no progress on this front. Dreze points out that this objective is not even mentioned in the Prime Minister's recent "Report to the People".

The BJP's defeat in the last elections has been ascribed to its aggressive pursuit of economic liberalisation, which culminated, disastrously for it, in the "Shining India" campaign. The popular perception that economic reforms means loss of jobs in the town and country and liberalisation means favouring the rich resulted in the defeat of the NDA. The CMP represented the hope that a reversal of liberalisation would lead to the creation of jobs. In other words, the CMP promised to place equity at the centre of the new government's agenda. The failure to keep its promise of providing job guarantees to the poor is widely perceived to be the biggest betrayal of the UPA government.

Manmohan Singh recently announced funding to the tune of Rs.1,74,000 crores for the Bharat Nirman project, which aims to create rural infrastructure. The project, to be implemented by 2009, envisages that all villages will be connected by roads and telephones and provided electricity and safe drinking water. Those familiar with the government's working would regard this grand scheme as a mirage in comparison with the much simpler rural employment guarantee which could generate the building of such assets in a cost-effective manner, particularly if they are implemented under the supervision of panchayati raj institutions.

These failures have to be placed in the context of the widespread rural distress. The situation has been compounded by the extraordinary crisis in the agricultural sector in the last few years, symbolised by the massive increase in the number of suicides by farmers across the country. The failure to correct the serious anomalies introduced by the NDA in the public distribution system is seen as another major failure of the regime.

DESPITE the pressure from the Left, the Congress has managed to push through a number of measures that fall within the classical scheme of liberalisation. In the field of finance, the Congress has reiterated its intention to dilute its stake in public sector banks, whose promise as a vehicle for generating development finance has been impaired severely by the process of financial liberalisation. In the immediate context, the government has promised to lift the cap on voting rights by foreign investors in private banks.

The Congress has also promised to review the 26 per cent cap on foreign investment in insurance companies. In the telecommunications sector, it has lifted the cap on foreign investment to 74 per cent. This was done despite protests from the Left, which argued that there was no need for foreign investment since the boom in telecommunications in the last three decades - first through the spread of the landline network and then through the "mobile revolution" - had happened without it in any case.

When the UPA government refrained from creating a separate Ministry for Disinvestment, it was widely seen to be an acknowledgement of the need to stay away from the scandals that privatisation has come to denote in India. However, the recent moves to dilute government stake in Bharat Heavy Electricals Ltd (BHEL), even if only marginally, represent an eagerness on the part of the government to get on with the business of privatisation. The government has said that more disinvestment is on the cards, although the timetable is not clear. The government has also handed monopoly rights to private parties in Indian airports.

Meanwhile, the government agonises over the need to increase the prices of petroleum products, citing huge losses that the oil companies have to bear because of rising international oil prices. The Left parties and a Parliamentary Standing Committee have suggested alternatives, which appear reasonable if the objective is to spare the people and the economy another hike in oil prices. In the area of electricity sector reforms, the government remains committed to the Electricity Act, 2003, even though it is loaded heavily in favour of private utilities and hurts indigenous suppliers of equipment for generation.

On the policies that affect labour, the UPA has failed to move on implementing several promises made in the CMP. Promises to bring in legislation to protect the livelihoods of unorganised labour and agricultural workers have not even landed on the government's drawing board. The Finance Ministry continues to adopt an obstructionist attitude on the issue of meeting the shortfall in funds to pay interest on the Employees Provident Fund (EPF) accounts of lakhs of workers. The Finance Ministry vetoed the proposal of the Labour Ministry, in whose purview the EPF falls. This is despite several attempts made by trade unions to explain that the EPF differs fundamentally from other savings instruments. The government has moved in favour of privatisation of pension funds. The Left is expected to attack the move when the government seeks Parliament's sanction.

An interesting aspect of the functioning of the UPA coalition is that policy measures are generally announced in a flurry. Several apparently unrelated issues are bundled together for passage by Parliament or for implementation by the government. The Patents Act, which was passed recently by Parliament, is a case in point. While the Left managed to extract significant concessions from the government on the patents issue, the government exerted pressure on pushing through legislation on banking. On March 21, the government introduced the Pension Fund Regulatory Authority Bill, aimed at facilitating the privatisation of pension schemes. Three days later the patent bill was passed, incorporating the safeguards demanded by the Left.

More recently, when the government announced a sale of its stake in BHEL it knew that the Left would react strongly. Two days later, on May 27, it decided to offer 9.5 per cent interest on balances in the EPF, although the gain, if any, appears to be spurious because interest payments will be funded out of EPF balances. This will imply that EPF balances, currently amounting to about Rs.950 crores, will suffer a depletion of about Rs.716 crores.

These moves suggest that the Congress government wants to pursue a two-track policy with the Left parties. First, release policy measures in a flurry, much like an economic ambush, and then attempt a trade-off on unconnected policy issues so as to give a face-saving option for the Left while buying peace. It is obvious that there are limits to the pursuit of such a strategy.

On May 19, BJP president L.K. Advani made an obvious overture to the Congress. Speaking at the annual session of the Confederation of Indian Industry, Advani asked the Congress to be wary of the Left. He asked the Congress to "marginalise the ideological and political influence" of the Left because the policies of the communists would "neither deliver inclusive growth nor double-digit growth".

The most interesting part of Advani's address, and which is of relevance to the gathering he was addressing, was the BJP's offer of support for implementing economic reforms. This offer is not with precedent. During NDA rule there were occasions when the Congress facilitated the passage of crucial reform legislation in Parliament. The most notable of these was the passage of the Insurance Regulatory Authority Act in the face of strong opposition from the Left and other parties.

If it is accepted that there is a zone of cooperation between the two major political formations, then it would appear that the political options for the Left on economic reforms are closing rapidly.