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Opinion
Trust! Manmohan Singh will Now Bat for Reforms
by Sushma Ramachandran
By using the
term "bonded slave" in his speech at the conclusion of the trust vote,
Prime Minister Manmohan Singh eloquently expressed his feelings during
the four years of ties between the United Progressive Alliance (UPA) and
the Left parties. The pioneer of economic reforms in the 1990s, Manmohan
Singh was expected to push forward the reform agenda during his tenure
as prime minister but was hamstrung at every step by the Left partners.
Having won the trust motion, it will be interesting to see how the prime
minister and his Finance Minister P. Chidambaram use their newfound
liberation to deal with the economy. At the same time, it will not quite
be an untrammeled freedom. With general elections under eight months
away, the Congress party will be keeping a close eye on policies that
could impact on the polls. So the chains of bondage have not been
completely removed for the prime minister, as he remains a slave to the
compulsions of electoral politics.
Even so, Manmohan Singh knows that the eight months left of this
government's tenure will be long enough for him to push through a slew
of measures that will help bring the government's exchequer back to an
even keel. As for the economy as a whole, much will depend on the global
situation, especially crude oil prices over which he has little control.
The first step that the government is expected to make to shore up its
finances is to bring what is called divestment of stake in public sector
units back on the agenda. The process of privatising sick public sector
units or selling equity in large state-run enterprises had become a dead
issue under the UPA government, owing to the blanket ban imposed by the
left partners.
Contrast it to the frenetic sell-offs made by the previous National
Democratic Alliance (NDA) government with the then divestment minister
Arun Shourie even trying to privatise the strategically important oil
marketing companies. Though that might have been an extreme approach,
the fact is that the now-defunct disinvestment commission had made a
series of detailed studies of public sector companies along with
recommendations for restructuring, strategic sale of equity or outright
sell offs.
The quick approach would be to blow the dust off these reports, update
them and take some quick action to dispose of those government
enterprises that are not worth operating by the state. This would
immediately give some relief in providing revenues to Chidambaram at a
time when soaring oil prices are leading to huge foreign exchange
outflows to purchase crude oil abroad - and adding to the losses of oil
retailers.
Another issue close to the prime minister's heart is opening up of the
retail sector which has so far been liberalised partially by allowing
foreign equity for only single brand retail companies to open stores in
the country. This is, however, political explosive reform, as some say
it will affect millions of small retailers. Surveys show they India has
the largest number of such mom and pop stores.
Protests of small retailers have already forced Uttar Pradesh Chief
minister Mayawati to clamp down on the spread of Reliance Retail, led by
billionaire industrialist Mukesh Ambani in her state. In the long run,
large retail stores will come as a boon to farmers who will have assured
buyers for this produce and without much effort. But in the short run,
there is worry over the possibility of large number of people employed
in small shops becoming jobless. The need to bring in this reform in a
carefully phased manner cannot be over emphasised in view of the massive
number of families who rely on the retail trade for their livelihood.
As for the financial sector, there are a host of measures that need to
be taken to complete the reforms agenda in this area. Even in this case,
however, it is not certain that the UPA government can push all the
pending matters. The bill to create a pension fund regulatory authority,
for instance, was stalled due to opposition by the Left parties. But
whether other political parties in the coalition will agree to the
provision of allowing investment of pension funds in equity markets is a
moot point.
It is, indeed, a legitimate concern because equity markets are riding
high now but any failed investment in the stock markets could cost
pensioners dearly. Both the prime minister and the finance minister will
have to ensure that sufficient checks and balances are kept in the
legislation to ward off any such concerns. Otherwise, the pension fund
bill is going to remain in the doldrums.
The bill to raise the foreign direct investment ceiling for insurance
companies from 26 percent to 49 percent, however, can be pushed through
quickly. Raising the equity stake for foreign players will enable the
much-needed infusion of funds into the insurance sector. Besides, it is
not expected to make much of a difference to actual operations of these
companies in India.
Similarly, another reform that needs to be given a high priority is to
allow shareholders in private banks voting rights proportionate to their
equity stake. Currently, the voting rights are capped at 10 percent
though they may have a much higher shareholding. These are certain
issues that are constraining the flow of funds in the banking sector and
a speedy resolution to them is urgently needed.
Apart from all these specific measures, the prime minister will feel
like a liberated man because of the freedom from being chained by the
constant niggling and nagging by Left parties over every aspect of
economic development. One must respect the fact that as the person who
launched economic reforms as finance minister under the Narasimha Rao
government, Manmohan Singh tried to give the policies a human face.
In charting out a route for the economy to sustain its high growth path,
he is not likely to forget those at the lowest rung of the ladder. It is
a different matter that the package for suicide hit farmers in some
parts of the country was not much of a success. But a massive farm loan
waiver scheme worth over $16.5 billion and benefiting some 40 million
farmers followed. So the economist in Manmohan Singh will look at
macro-level reforms that can reduce poverty, rather than merely giving a
boost to stock markets - which have already given their thumbs up to the
trust vote in favour of the UPA.
Now it is for the prime minister and his admittedly capable team of
advisors - often referred to as the "dream team" - to move ahead with
speed and resolution to complete the reforms agenda of this government.
(Sushma Ramachandran is an economic and corporate analyst. She can be
reached at sushma.ramachandran@gmail.com)
July 24, 2008
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