Budget over, reforms to resume after polls | india | Hindustan Times
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Budget over, reforms to resume after polls

The Govt steered clear of tackling economic reforms but once voting in 5 states is done, it is likely to take up the challenge and brave the wrath of the Left.

india Updated: Mar 02, 2006 15:24 IST
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The UPA government steered clear of tackling economic reforms opposed by its communist allies in this week's 2006/07 budget, preferring to hold fire until state elections are over in May, analysts say.

Finance Minister Palaniappan Chidambaram omitted any mention of reforms in insurance, pensions and retailing in the budget unveiled on Tuesday, except to say a bill on insurance would be introduced in parliament in the new financial year from April.

But analysts say once voting in five states is done, the government is likely to take up the challenge and brave the wrath of the left, just as it did with controversial airport privatisations in January.

"It is a very careful budget. Definitely it is a budget made with poll calculations in mind," said Mahesh Rangarajan, an independent political analyst.

Economic and political commentators felt the budget balanced fiscal prudence with pressure from the Congress party-led government's communist allies to spend more on health, education and agriculture.

Chidambaram stressed that, unlike in the past, budget day was no longer a platform for outlining "big bang" reforms. Instead, he said, reforms could be announced at any time, fuelling expectations he would try to push the agenda later in the year.

The communists are unhappy that he will not spend as much as they wanted on agriculture, which supports 600 million people and is a main driver of demand in Asia's third-largest economy, and they wanted more for health and education -- even though he raised spending on all three.

A decision to lift the cap on the amount foreign institutional investors can put into government and corporate bonds has also drawn their fire.

"We will not block his moves because we don't want the government to fall. But we will certainly oppose and try and rectify the proposals," said Nilotpal Basu, a senior communist lawmaker.

"There cannot be any unilateralism. There has to be consensus and engagement between the government and the left."

Still to come

Reforms expected later in the year are: letting foreigners own 49 per cent in insurance firms, up from 26 per cent; letting foreigners own 26 per cent in pension fund management firms; and opening up the strictly controlled retail sector.

The communist parties, who support the ruling government from outside the coalition and whose backing is necessary for a parliamentary majority, have blocked planned sales of government equity in some of India's profitable state firms and are adamantly against reforming its strict labour laws.

They also forced the government to put on hold a decision to cut food subsidies for the bulk of India's 260 million poor.

But one they lost was a struggle over allowing private consortia to modernise Mumbai and New Delhi airports. Unions and the left blocked many of the country's airports for three days in January but the contracts have nonetheless gone ahead.

"Where (the government) can push through with executive action they will. The real test case was the airport strike and they prevailed," Rangarajan said.

"But where it requires legislative action, unless they get support from the (opposition) Bharatiya Janata Party, it's not going to happen," he added.

Pension and insurance reforms are unlikely to find opposition from the BJP but analysts say Congress would be unlikely to strain the coalition by taking that route.

Elections are due in West Bengal and Kerala and Tamil Nadu, where Congress is in competition with allies, including the communists.

The performance of the communists, particularly in West Bengal and Kerala, will set the tone for the coalition dynamic, with political commentators saying if the communists lose ground locally, they are likely to blame Congress at the national level.

"These elections are the first real test for (Prime Minister Manmohan) Singh as this is the first time his allies, the communists, are pitted against the ruling Congress party," said polling analyst Yashwant Deshmukh.

"Singh has to see the results don't affect the equations in his coalition."