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In the home stretch of its term, the mood within the ruling party is, in fact, to emphasise its aam admi or common man welfarist orientation than reforms, writes N Chandra Mohan
By Deep fish | N Chandra Mohan | Hindustan Times
UPDATED ON JUL 13, 2008 10:28 PM IST

For four years, the reform agenda of the Congress-led UPA has been held hostage to pressure from the Left. Now that the Left has withdrawn support, there is intense speculation regarding the revival of stalled policies like partial sales of the State’s holdings in public sector undertakings; further liberalisation of the foreign direct investment regime in retail, insurance or banking sectors; and more flexible labour laws.

There is, no doubt, a window of opportunity for such reforms. But it must be remembered that it comes at the fag end of the UPA’s five-year term when its priorities are to bolster its prospects in the forthcoming state and national elections. While the Left is the usual suspect in opposing neo-liberal policies, the Congress is also no less opposed to them. In the home stretch of its term, the mood within the ruling party is, in fact, to emphasise its aam admi or common man welfarist orientation than reforms.

There is another source of opposition to reform that is rarely mentioned in popular commentary — the private sector, considered as an ardent advocate of liberalisation and globalisation. Far from it. Instead, influential sections within big business oppose this process, even as they make it a point to applaud — through the apex chambers — whatever economic policies the government enunciates as historic. Deep down, however, they use their political supporters to sabotage these policies.

Not so long ago, India’s leading industrialist Ratan Tata regretted the fact that reforms suffered under the strong influence of vested interests, “sometimes more often than not from the private sector”. The special interest demands being made by the UPA’s latest ally, the Samajwadi Party — imposing a windfall profit tax on a particular company, review of telecom spectrum policy, fixing the rupee’s exchange rate — as a price for its support — exemplify Tata’s observations. Such dirigiste interventions are not reform. Even if reforms are a no-no in the current dispensation, there is surely a warrant for sensible economic policies. Over-all growth is beginning to flag as industrial production is decelerating. The stock markets are depressed. Finance Ministry mandarins joke that while inflation remains in double-digits, they won’t work on Fridays and will picnic instead at Lodi Gardens. Worse still, inflation is expected to climb further to 13 per cent and unlikely to fall below double-digits ahead of the national elections in May 2009.

With oil prices heading to $150 a barrel, this is hardly the best conjuncture to devise a more rational price mechanism to adjust domestic prices accordingly. But definitely there is scope for incentivising exploration of domestic oil and gas sources, in view of disturbing reports that ONGC Videsh Ltd, the overseas arm of State-owned Oil and Natural Gas Corporation, may be unable to meet its target of acquiring 60 million tonnes per annum of equity in overseas assets by 2025.

There is also a global shortage of natural gas, warranting a more pro-active approach towards making the Iran and the Turkmenistan gas pipeline projects a reality. Worse is the prospect of diesel shortages — with demand growing at 25 per cent, while refiners can cater to only 12-15 per cent growth. With a boom in generator sets and cars, and with 40 per cent of vehicles running on diesel, curbing demand by eliminating the existing duty differential in favour of diesel is in order.

With inflation currently at 11.9 per cent, the government must ensure that subsidised food and edible oils reach the poor through the public distribution system (PDS). The safety net needs to be better targeted as 58 per cent of the foodgrain hardly reaches the poor, with only 27 paise of every Re 1 transferred reaching them. Six per cent of the 47.23 million below the poverty line households have to bribe to avail this facility, according to Transparency International and Centre for Media Studies.

Even if comprehensive PDS reform is not possible due to electoral compulsions, the UPA must make it work better, as there is no other safety net to shield the poor from rising prices that devastates their living standards. Vigorous drives are needed to plug leakages; similar to the Delhi government’s crackdown on corrupt officials who issued bogus ration cards and connived with shopkeepers to siphon foodgrain and kerosene. There are other interventions in the food economy that are feasible, including the need to improve storage facilities. All the talk of record wheat procurement is meaningless, given that over one million tonnes of foodgrain, which could have fed over one crore hungry people for a year, was damaged in Food Corporation of India godowns during the last decade.

This record procurement of wheat is also likely to stoke inflation. Rajasthan and Madhya Pradesh, that are going to the polls later this year, have contributed to the central procurement pool of foodgrain but are likely to have less wheat in the market, leading to a rise in prices. The inefficiencies of the transportation system must be reduced so that grain is promptly imported from the surplus-producing states. Such interventions are imperative if people’s anger against rising prices is not to get out of hand.

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