Column : Shivirs of anticipation

Written by MK VENU | M.K. Venu | Updated: Jan 24 2013, 06:26am hrs
How do you explain the relative ease with which the government is now taking tough economic decisions In the recent past, it would have been unimaginable for this government to announce increases in diesel price gradually by R8 over the next 16 months. More so because India is scheduled to have general elections after 16 months. Strangely, the opposition to the diesel price hike over the next few months is also quite muted, relative to what one might have seen in the past. There have been no violent Bharat Bandhs announced so far by the BJP or other opposition parties. Suddenly UPA-II has decided to do all the right things without any regard fortheir political repercussions. So what is really going on

This phenomenon can be looked at in different ways. One, it is possible that the opposition itself is a bit fatigued after raising its protest to peak level in 2011-12over various economic decisions such as FDI in multi-brand retail, direct cash transfers and so on. The UPA successfully changed the political-economy discourse over the past five months by pitching controversial reforms, like direct benefit transfers, which have the potential to attack entrenched interests. This seems to be deliberate and is being done to a plan. Rahul Gandhi had hinted in his Jaipur speech that the existing system needs a serious overhaul. Besides, the Congress has decided that it must fully own up to some of the most disruptive instruments of governance it has created. The RTI legislation is one of them.

It is possible that the Congress is well aware of the two-term anti-incumbency sentiment loaded against it and may have decided to do the right thing and play some serious politics of disruption. Some believe that Rahul Gandhi, sensing the mood of the youth in the country, wants the UPA government to shake up the entrenched interests, even if they are aligned to the Congress party. The implementation of the direct benefit transfer programme, if done well, will seriously attack the contractor-raj, which thrives on centrally funded programmes in state governments.

Cabinet minister Veerappa Moily, who had authored the series of administrative reforms commission reports, told me the Congress had decided at its Chintan Shivir in Jaipur that some key recommendations of the administrative reforms commission will be taken up for implementation over the next six months. This also includes giving the IAS cadre a reality check by officially allowing substantial lateral entry into various public services. The IASis also seen as a cosy club that resists true governance reforms.The idea is to improve the delivery of myriad public goods and services to the satisfaction of the people.

The Chintan Shivir seemed to suggest the Congress is now in a mood to take big risks in the months ahead. The diesel price hike clearly was the most risky one, politically speaking. With inflation not showing any signs of settling back to lower levels, it was indeed courageous to increase diesel prices. The petroleum minister told this writer that, while inflationremained a concern,the biggerproblem clearly is macroeconomic stability and the growing twin deficits on the fiscal and current account.

We have to do the right things, Moily says. Besides, the oil companies were going bankrupt under the growing burden of diesel subsidies, which had reached R98,000 crore. Moily said the borrowings of the oil companies had reached an unprecedented R1,63,000 crore.

The Union Budget statement will also reflect some of the big new ideas that the government will try to put before the nation. Many of these announcements could have a long-term impact on the way we do things. Finance minister P Chidambaram has told foreign investors in Hong Kong that India would bring the critical legislation of Goods and Services Tax (GST) in Parliament within six months. GST is regarded by everyone as the single-biggest piece of tax reform, which will dramatically widen the tax base to bring into its fold a lot of the black economy that operates in the shadow today.

The finance minister has also done well to clarify that he would not tinker with the simple tax rates of 10%, 20% and 30%, which he himself had authored in 1997. His big focus in the budget will be on expenditure rationalisation, which will be aided by the Direct Benefit Transfer scheme. Chidambaram has also said he would bring the fiscal deficit down to 5.3% of GDP this year and will possibly keep the 2013-14 target at less than 5% of GDP.

It is clear that the bulk of the fiscal correction will be done by expenditure compression and, of course, some of it will have to be by raising more tax revenues. Chidambaram will certainly find a way of squeezing some extra tax revenue from the top income bracket without disturbing the basic tax structure.

More than the numbers, the budget will be a big statement of new ideas that the Congress would want to put before the people of the country. It is significant that Rahul Gandhi has taken charge as the No 2 leader of the grand old party at a time when the Congress-led UPA is taking bold decisions, some of which may even hurt its prospects at the elections. Rahuls inputs on key economic decisions will have a more clear and direct impact now that he is vice president of the party. For instance, Rahul Gandhi, by temperament, would support systemic reforms which can bring about big changes in the way public services work. In contrast, the Congress president is far more cautious and takes inputs from the old guard who tend to be somewhat status quo-ist. This tension will be interesting to watch in the months ahead. But there is little doubt which side will win within the party this time round.

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