A few hours after the presentation of the Union Budget 2009-10, I was part of a short panel discussion aired on CNBC-TV18 where the two anchors and an analyst were laying into finance minister Pranab Mukherjee’s fourth effort for being short on vision and substance. Taking a contrarion position at that time (there was a flip-flop the next day by most critics), I argued that the Budget had held out a lot of serious reform initiatives. They eluded detection because the Budget spelt out the general direction and was short on specifics or a precise timeline. One of the reform initiatives that I referred to was disinvestment.
Without specifically referring to any companies, Mukherjee had merely stated that the government was keen to return to the practice of divestment of its stakes in public sector enterprises by ensuring “people’s participation”. I had told the two anchors that the minister was being clever by avoiding specifics and, instead, it was the unsaid that held the sting—it did not bind the government and at the same time gave it much wider leeway.
Less than six months later, the minister has delivered on his promise and much more.
The latter first: The Reserve Bank of India, as reported in Capital Calculus on 2 November, kicked off some serious financial sector liberalization in its credit policy statement by expanding the portfolio of currency derivatives beyond the dollar and also setting the stage for the introduction of the much-maligned credit default swaps.
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This is not a case of “I told you so”. Instead, it is about how the Congress-led United Progressive Alliance (UPA) is slowly and steadily pushing the envelope on economic reforms. It is doing so without much fanfare and by cleverly linking it to its principled commitment to the social sector. The former ensures that it does not rouse too many critics and the latter blunts political criticism. This is precisely why the UPA has moved with such élan and boldness on an open-ended divestment plan, just weeks before Parliament is to convene for only the second session of the 15th Lok Sabha.
And once again the UPA has chosen to outline the broad contours of the divestment plan and carefully avoided any specific details on which company will go to the market when. It has straight away suspended the rules (for three years) governing the use of the divestment proceeds and committed that the money would be used for financing social sector programmes.
Once again the UPA has left unsaid what it would do if the funds generated through the divestment programme are not absorbed by ongoing social sector programmes. It is a given that several programmes return unspent funds as very often the system is unable to absorb the monies. Since money is fungible, it is clear that the UPA will use such surpluses to balance its fiscal arithmetic—which is so out of line with what is desired.
If, however, the UPA had stated its intent to do so upfront, there would have been a babble of protests—some even suggesting that it will be tantamount to selling family silver to underwrite bad debts.
The UPA has learnt its lessons well. It also helps that we are still in the grips of a global economic crisis, the new avatar of the UPA is bereft of the Left parties—which had checkmated any efforts at divestment in the first term—and that the Congress is a dominant majority with 206 members of Parliament in the coalition. More importantly, it has absorbed the first rule of politics: It is not what you do that is important, but what you are seen to be doing.
Its efforts to orchestrate its aam admi agenda in the first term through the National Rural Employment Guarantee Scheme and the record farm loan waiver gave its pro-social sector image a major boost. Now, once again by linking divestment spending to financing social sector programmes, it has ring-fenced itself from damaging political criticism.
The Congress, in its long association with economic reforms, has covered a lot of ground.
When it first tested the waters, beginning 1980-81 as part of the loan programme under the International Monetary Fund, it did so through what bureaucrats described as “reforms by stealth”. Then when it chose to accelerate economic reforms in 1991 under Prime Minister Narasimha Rao and finance minister Manmohan Singh, it was very often a fait accompli—it worked mostly and sometimes didn’t.
Subsequent governments engaged in a mix of the two methods. Weaker coalitions sought to do it through loud thinking either through the budget or some corporate forum—which fired up the Sensex, no doubt, but also provided ammunition to critics. Forewarned is forearmed and inevitably it led to the initiative being spiked.
It will be interesting to see how the Opposition responds to the new template fashioned by the UPA.
Reeling under repeated rejections by the electorate in several states across the country and beset with internal crises, both the Left and the Bharatiya Janata Party are visibly handicapped. But then politics, like cricket, is known for its glorious uncertainties.
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at firstname.lastname@example.org