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On the reform route

Print edition : Oct 27, 2001 T+T-

The S.M. Krishna government in Karnataka has stuck to its World Bank-aided reform agenda in its first two years; however, it creates a constituency of support for itself with its sincerity of purpose.

THE S.M. Krishna government came to power in Karnataka in October 1999 on the crest of a wave of popular support that gave the Congress(I) 133 seats in the 224-seat State Assembly. While several factors contributed to the massive mandate, the most important one was the people's desire for a change of administration. The last two years of the J.H. Patel Ministry were characterised by virtual non-governance. The Congress(I) government, therefore, started with the advantage of a large reservoir of public support and confidence. This groundswell of goodwill was also an endorsement of the leader of the team, S.M. Krishna, who was seen as a politician with integrity and administrative acumen.

Two years downstream, much of the goodwill remains. Politically the government has had a fairly untroubled tenure; its absolute majority has given it the stability needed for smooth governance. Although he promised a small and efficient Ministry, Krishna started with a large team of 42 Ministers, obviously compelled by the need to placate diverse representational groups. But the party has remained united in its support to him. There have been no corruption scandals against Krishna or any of his Ministers.

Perhaps the most trying period for Krishna was the 100 days that Kannada film icon Rajkumar was held hostage by the notorious poacher and smuggler Veerappan. Rajkumar's safe return, in a sense, saved the Krishna government, but the high price that Veerappan reportedly extracted is still a closely-guarded secret.

If the kidnapping of Rajkumar marked the most sensational development during the present regime's tenure, there have been other markers to test the Krishna government. There is, for example, the general downswing in agriculture experienced over the past few years, which has been compounded by the impact of World Trade Organisation-dictated policies. Most notably, the Centre's new export-import policy and the removal of quantitative restrictions on the import of a range of goods have had a disastrous impact on farming families, particularly growers of coconut, areca and oilseeds. A severe drought followed in a large part of the State owing to the failure of the monsoons this year. As a result of indebtedness and social distress there has been a steady increase in the cases of suicides among farmers.

In recent times there have been at least two incidents of government high-handedness in dealing with issues of public concern. The first was the brutal manner in which the police dealt with the students and staff of the University of Agricultural Sciences, Bangalore, who were protesting against the construction of a biotechnology park on the campus without consulting them. Although Krishna later took a placatory stand, the incident has created anger in the academic community against what it sees as governmental non-transparency and high-handedness. The second incident was the police firing on a group of farmers in Channapatna district in connection with tapping neera (fresh toddy) from their coconut trees. The tapping of neera is an excise offence. While the ostensible objective of banning tapping was to stop the consumption of adulterated toddy, farmers' organisations such as the Karnataka Rajya Raitha Sangha blame it on the arrack lobby which, they say, sees a commercial threat from neera.

By far the most important decision of the government, which will have implications for the development directions of the State and future State policy, is the $150 million (around Rs.720 crores) it has sought from the World Bank as a Karnataka Economic Restructuring Loan (KERL). The government has initiated a package of fiscal and administrative reforms that conform to the World Bank-imposed loan requirements. The economic and political costs of the restructuring will have to be borne by the Krishna government in the remaining period of its five-year tenure.

At the press conference to mark his government's second year in office, Krishna emphatically stated that his government's priority was not Information Technology (IT) but the social sector. The Chief Minister has chosen to shift the focus back to the traditional areas of development, in which the State has not done particularly well - poverty eradication, health, school education and agriculture, and so on. He also highlighted the State's privatisation drive within the power sector.

The change in emphasis in respect of the State's priorities is reflected in this year's budget. The measures taken for fiscal recovery and the reforms initiated in the power sector, both critical aspects of the World Bank-driven reform package, received considerable attention in his budget speech. The revised estimates of last year's fiscal deficit was Rs.4,148 crores, which was marginally lower than the previous year's deficit of Rs.4,276.49 crores.

The Chief Minister said that 60 per cent of the State's revenue deficit was because of the explicit subsidies in the power sector. Although this year's budget estimate puts the fiscal deficit at Rs.5,127 crores, or 5.87 per cent of the Gross State Domestic Product (GSDP), he said the State was committed to bringing down the revenue deficit (2.79 per cent of the GSDP) to zero by 2004-2005. In respect of the allocations to the social sector, compared with the actual spending in 1999-2000 (the last year of the J.H. Patel Ministry), there is a modest increase in the revised estimates for 2000-2001 and the budget estimates for this year. Agriculture and allied services account for just 4.38 per cent of the Plan allocation this year, a marginal increase from last year's 4.31 per cent. The outlay for education has increased from 5.83 per cent of the Plan allocation last year to 6.34 per cent this year; health from 3.10 per cent last year to 3.13 per cent this year. The allocation for irrigation is the highest although the outlay has actually fallen from nearly 40 per cent of the Plan allocation last year to around 32 per cent this year.

The State's performance in the field of school education alone indicates how seriously it has addressed this vital sector. A study on the status of primary education in five districts by A.R. Vasavi of the National Institute of Advanced Studies, Bangalore, is a telling comment on the deplorable level of primary education in the State. According to it, the State's record in providing educational opportunities to the poorest 20 per cent of the population compares with that of Bihar, Orissa and Madhya Pradesh, where the levels of non-enrolment are particularly high. The study notes that the State has the second highest proportion of working children (22 per cent of children in the State work).

While statistical data for Karnataka indicate that in 1999, 91 per cent of habitations had primary schools within them and 96 per cent had primary schools within a distance of a kilometre, the study notes that in actual fact there are hundreds of habitations that do not have convenient access to schools. Private initiatives in primary school education, such as the one launched recently amid much media promotion by Azim Premji of the Wipro group, cannot compensate for what the Government has not achieved.

Government policy vis-a-vis the IT sector, the State's jewel in the crown, is likely to see a shift from a Bangalore-centric, large-company-oriented one to a policy that takes IT to smaller towns and finds ways of using IT to bridge the digital divide.

"What is the IT economy actually all about?'' The new Minister for Information Technology, B.K. Chandrashekhar, posed this question in an interview to Frontline. "There are 80,000 professionals working in IT in Bangalore city alone, and Karnataka's software exports are of the order of Rs.7,457 crores." The foreign exchange inflow on account of software exports is of only indirect benefit to the State. However, the employment it generates and the spin-offs from that employment, in respect of a substantial infusion to the local economy, is of direct value.

The IT policy under Chandrashekhar will aim to promote small and medium IT companies with a view to encouraging employment; set up incubation centres in engineering colleges to promote small entrepreneurs; instal around 7,000 information kiosks in the State, which will provide information on rural credit, weather, cropping patterns and prices; and encourage the Yuva.com project, which envisages an IT cell in each Assembly constituency to teach IT skills to educated boys and girls.

Chandrashekhar, who as Information Minister piloted Karnataka's Right to Information Bill in the Legislative Assembly, hopes to bring in e-governance through his department. "Once information is objectively stored and government departments are networked and information is made available, it will ensure transparency in governance and bring down corruption," he said.

KARNATAKA'S economic path for the next two or three years will be influenced heavily by the conditions that are contingent to the World Bank releasing the $150 million loan it has committed to sanction this year. In order to qualify for the KERL, the government has set in motion fiscal and governance reforms. The loan is to support the State through the reform process.

In its Report No. P7453 dated May 25, 2001, the World Bank has commended Karnataka for the major programme of fiscal and governance reforms it has embarked on. The World Bank has identified the power sector as an important area where reforms are essential. "The ultimate objective of the power sector reforms is for the government to withdraw from the power sector as an operator and regulator of utilities," the Bank has noted. In response to this, the government passed the Electricity Reform Act, 1999. The power sector reform policy that the Cabinet approved in December 2000 will chart the privatisation map for the power sector. The government also set up the Karnataka Electricity Regulatory Commission and committed itself to the privatisation of power distribution by 2002.

The privatisation process in respect of the State Public Sector Undertakings (PSUs) is another area that the Bank is closely monitoring. A committee set up to review the 81 State PSUs, which gave its report in October 1998, recommended that in the first phase, 15 PSU be privatised and voluntary retirement schemes (VRS) offered. A report on the status of the PSUs and the action to be taken on each is to be got ready by October 2001. Reforms, which have a substantial privatisation component built into them, will also be extended to sectors such as roads and water supply and sanitation.

In sectors where the government has provided in-built subsidies, the impact of the reform programme will be felt by the poor, and by the low- and middle-income groups. Hiking user charges in the power sector, in the water supply sector and even in higher education where there have been attempts to increase fees, can only be politically unpopular. Yet 'progress' in these sectors, and on these issues is being closely monitored by the Bank. In a recent note to the State's Chief Secretary, the World Bank's Country Director indicated the key areas in which reforms had to be accelerated. These included the power sector (the Bank suggested an increase in the power tariff), the revenue deficit in the latest budget, and the need to accelerate reforms in the State PSUs.

The S.M. Krishna government may not have come through the first two years of its tenure with spectacular results, an unrealistic expectation from any government that must assume the backlog of the preceding regime. However, Krishna has created a constituency of support for himself and his government, particularly amongst the urban middle class, through his apparent sincerity of purpose.