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BW Businessworld

Tower Of Silence

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floundering on economic reform
and social targets (Reuters)

The images beat a thousand words — peasants braved bullets in Nandigram and state muscle in uniform deployed on farms — and sporadically haunted living rooms last year. Less seen and even less heard was investor wanting to set up a chemical hub in the rural district of West Bengal — uncertainty still clouds the plans of the Indonesian group Salem.
The bloodshed in Nandigram over the feared inadequacies and insensitivity of the process of industrialisation to the needs of those affected has already claimed 50 lives. The resultant delay has fuelled economic costs for the project. This twin breakdown at Nandigram best portrays a government, trapped between its stated imperatives of growth on one hand, and the discontent of the aam admi, on the other hand.
Nandigram may be dramatic but is not an aberration. The facts and figures on project implementation and social target achievement of the UPA regime point to rampant misgovernance (See ‘The Outlay-Outcome Mismatch’ on page 62 and ‘Paralysis By Analysis’ on page 63). The economic reforms too are chilling in the deep freezer; forsaken admittedly due to pressure from the Left. Infrastructure bottlenecks remain. Red tape is no less restrictive. “The UPA government has nothing to show for economic reforms,” says economist Bibek Debroy. “It was widely suspected that UPA’s social schemes would only raise costs and leakages without producing tangible benefits for the poor, and the latest findings are confirming those fears.”
Riled at the ‘policy paralysis’, economists termed the economic boom “growth despite the government”. But fortunately for it, a wave of good news — a confident corporate sector making global moves, booming stock market and a consistent 9 per cent plus economic growth — camouflaged the chaos resulting from the dissatisfaction so far. Bad governance, however, might just have caught up and be telling on the growth. After declaring a higher-than-predicted GDP growth rate of 9.6 per cent for 2006-07, last week the Central Statistics Organisation (CSO) revised downwards to 8.7 per cent its forecast for economic growth during the current year. To be fair, similar projections from various other — no-less-credible — agencies have pegged the rates higher than CSO’s estimate. Not one, however, foretells another year of 9 per cent plus growth. The industrial sector too has lost steam, its growth down to 9 per cent against 11.2 last year (April-December). Dalal Street is amid a longish correction. High interest rates are hurting consumers and home-loan borrowers.

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Could these be the first symptoms of the GDP growth succumbing to a comatose economic policy?
“The CMP included all that was necessary to bring about balanced growth in the country, but the UPA has failed in implementation,” says former finance secretary S. Narayan. When it was released in May 2004, the Congress-led UPA’s how-to-do-it manual, the common minimum programme (CMP), was unanimously hailed as an effective agenda for inclusive growth. It laid down, among other goals, targets for public spending on health and education and new social schemes. Though, it was silent on their implementation.


Unfulfilled Promises
Even after spending Rs 2,25,000 crore of taxpayers’ money in the last four years on poverty alleviation schemes — both new and old — the UPA has floundered on the goals. Its flagship programme Bharat Nirman — a four-year plan launched in 2005 for creating rural infrastructure — has met less than a third of its target. According to CAG audits, tardy implementation of the much-touted National Rural Employment Guarantee Act has produced marginal results in a few states. Corruption has hijacked the allocations elsewhere. Government reports acknowledge inflated or fictitious muster rolls and usurping of benefits by political workers.
Even out-and-out pro-poor economic reform is in limbo. In Uttar Pradesh and West Bengal, the UPA is unable to contain blockage by vested political interests of big retail plans, which cut wastage (40 per cent of total produce) and empower the farmer by eliminating the middleman. The delay in a policy for foreign direct investment (FDI) in retail is protecting domestic deep-pockets from foreign competition. Commerce and Industry Minister Kamal Nath is waiting for a report from the Delhi-based think tank Icrier on the vulnerability of unorganised retailers.
Fallen Stars
The coming together of Prime Minister Manmohan Singh, Finance Minister P. Chidambaram and Planning Commission Deputy Chairman Montek Singh Ahluwalia had raised expectations for a second round of the 1991-style economic reforms. But the star team has disappointed, if the election results from the recent polls in several states are anything to go by. Industrialist Rahul Bajaj says, “Reform-minded people like Singh and Chidambaram are handcuffed by the Left’s opposition and the current composition of the Parliament due to which industrial growth is slowing down.”
The prime minister has often taken refuge in public admission of the growing areas of government failure. Last May, addressing the second national conference on rural roads, he said, “We invest crores of rupees every year on road construction and maintenance, and yet with every monsoon our roads get worn out.” The next day, Singh stunned India Inc with “Resist excessive remuneration and discourage conspicuous consumption. Desist from uncompetitive behaviour. The cancer of corruption is eating into the vitals of our body politic.” A week later, on May 29, he told the conference of chief ministers on power, “We have failed to make a breakthrough in ensuring sustainable growth of the power sector.” Though he often got the diagnosis right, he hardly ever administered the remedies. For instance, of the bloody resistance to SEZs, he said at Ficci a year ago, “There is no reason why spread of industrialisation should be a contentious issue. Issues such as land acquisition, people’s displacement and rehabilitation should be transparent.” Singh promised an effective rehabilitation and resettlement policy within three months. Thirteen months on, the policy is still far from realisation. “Four or five ministers made all the difference to governance and pushed reforms in Vajpayee’s council of ministers but not even one UPA minister has performed,” says Debroy. “What prevents them from doing what was dear to Rajiv Gandhi (transfer of funds and power directly to panchayats)?”


Chidambaram is reluctant to introduce the Pension Fund Regulatory and Development Authority Bill in Parliament for the fear of taking on the Left. As a result, 325 million unorganised workers or 89 per cent of the work force, who have no political godfathers, can not access pensions. The finance ministry is the worst-affected by the UPA government’s inability to engage and negotiate with the Left. The government proposals on consolidation of public sector banks, higher FDI in insurance and banking and the sale of government shares in the State Bank of India are stuck. The restrictive ideologies of the Left allies and the burden of coalition are the oft-repeated excuses of the Congress for shunning reforms. But Narayan rebuts, “The Left could not have come in the way of effective implementation of the pro-poor programmes or construction of roads, improvement of airports and install electricity production capacity.”
The peak-hour electricity shortage has climbed to 13,897 MW, which is enough to power two states — Delhi and Uttar Pradesh. In the last five years, India built barely half of the target addition in electricity generation capacity. In January 2006, the prime minister had scheduled a crisis meeting of state chief ministers on the power sector. It was held after a delay of 16 months on May 29 last year. At the end of a day’s brainstorming, the prime minister delivered a no-brainer — new committees and panels. “Corporate governance is improving in the country but governance at the Centre and states is getting from bad to worse,” says Bajaj.
While the Left is blamed for the inaction, Singh — dubbed the weakest prime minister by the BJP — too has failed to set up a difference-resolving mechanism. At last count, no less than 80 groups of ministers (GoMs) were bickering over various issues. In its six years, the Atal Behari Vajpayee-led National Democratic Alliance (NDA) set up 32 GoMs. Rather than reconciling differences, UPA’s GoMs only defer decisions. For eight months, the GoM on aviation has not finalised criteria for letting domestic airlines fly overseas.

Also, opposition from within the Congress is no less frustrating than coalition compulsions. Last year, the Congress dissidents joined South-Indian ally the DMK and the Left to prevent the public sale of a 5 per cent stake in the public sector Neyveli Lignite Corporation. After the disinvestment was put off, Chidambaram met the prime minister seeking his intervention in placating the allies such as DMK. A frustrated Singh pointed to the dissidence within. There were differences of opinion in the NDA cabinet too — for instance, the then oil minister Ram Naik opposed the sale of IBP — but Vajpayee’s word was final. Singh is hesitant to assert and allies and congressmen hold the government to ransom. Despite two separate letters dated 2 October 2007 from the prime minister’s office questioning the proposed spectrum allocation pricing of the department of telecom, Telecom Minister A. Raja refused to allow a GoM to decide the issue. Singh’s latitude to rein in the adamant minister is limited given that he had little say in Raja’s appointment as minister when the DMK recalled his predecessor Dayanidhi Maran.
Frittered Gains
The UPA had the benefit of leveraging the combination of high tax revenue and growth. In the last three years, tax collections have more than doubled on high growth. But politics and stupor have overwhelmed the economic opportunity. The UPA has dipped into its bulging coffers with the desperate hope that capital would provide the answers to governance problems. When has a bigger overhead tank been a solution to the problem of leaky and blocked pipes?
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(Businessworld Issue 19 - 25 February 2008)

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