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BW Businessworld

Reform Or Perish

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It is tempting to think of the seven-year itch when reviewing the term of the United Progressive Alliance (UPA) government, which has, together with its first term, completed seven years in office. And with the DMK government's removal from office in Tamil Nadu, and the fallout of the 2G spectrum scam associated with the former DMK member A. Raja, extending the analogy to getting a new partner becomes even more tempting.

But no celebrations are planned to mark these seven years, and informal advisories have been sent to ministers to keep it low-key. The directive is understandable. It has been a rather tumultuous 24 months in Prime Minister Manmohan Singh's second innings.

Usually, when voted back for a second term, governments in the states or at the Centre tend to accelerate the reform process, since the election verdict is an affirmation of their policies.

True, it is perhaps the first time that action has been initiated against a cabinet minister on corruption charges, and the UPA government could use that as a point to prove its probity. But other scandals and the spectre of inflation may keep those plans on hold.

 Taming inflation puts the government in a tight spot. Take fuel prices. A big step forward would be the reform of the administered price mechanism; in other words, freeing diesel and LNG prices. That would move inflation up immediately at first, but also have the salutary effect of reducing demand, leading to lower prices sooner rather than later. Will the UPA bite this bullet? Your guess is as good as ours.

On Sunday, 22 May, the Prime Minister's Office (PMO) will release a performance report of all the ministries, listing the government's achievements. This report is not just a stock taking exercise, but also a to-do list for the next three years. Officials in the PMO are confident that they would go ahead with the release of this report, despite the arrest of Kanimozhi, Rajya Sabha MP and daughter of M. Karunanidhi, the DMK leader, and a major ally of UPA; a charge- sheet has also been filed against Suresh Kalmadi in the Commonwealth Games scam.

Opening up the insurance and retail sectors to attract higher foreign direct investment are amongst the top reform challenges. The government is also under pressure to set up a Lokpal at the earliest, and introduce policy directions for critical sectors such as telecom, agriculture and energy. Agriculture is a case in point of ineffective reform. While policy direction has been given, the challenge is to get the state governments to get them implemented.

One way to emphasise the urgency of reform would be through a cabinet reshuffle following the release of the performance reports. Some UPA sources say a reshuffle scheduled in late May or early June might send just this message, rather than accommodate allies.

For their part, all the UPA allies are preparing for the national elections in 2014. The countdown has begun. Electoral performance in Uttar Pradesh and Gujarat, scheduled for next year, could be a mini-result of performance by the UPA-II in the run-up to the general elections in 2014.

The Congress Party has scheduled a brainstorming for its leaders and workers in June. A similar exercise is being undertaken by other UPA members, say sources. But the next three years will be critical. And there's the rub: will they scratch the electoral strategising itch or the reform one?

(This story was published in Businessworld Issue Dated 30-05-2011)