A molehill out of a mountain of promises

a year ago, finance minister yashwant sinha rode high on tall budgetary promises. the fall since then has been proportionately steep. strewn amidst a mess of broken reform promises lie the shards of this government's credibility on the economic front. it would be entirely understandable if mr sinha chooses to look bravely ahead rather than at what has passed, when he presents the next budget. his future promises would need to be evaluated on the basis of the track record so far, as much as of what is possible. a tally of what has been done to achieve what had been promised would lend the needed perspective. et does a quick stock-taking. mr sinha's flexibility of manoeuvre and roll-back was not the reason why newspapers compared him with nadia comaneci soon after the 2001-02 budget. commentators gave mr sinha's budget a perfect 10 because he promised to launch the second generation of reforms. factor markets would become flexible, protection would steadily be lowered, the government would downsize and press relentlessly ahead with privatisation of public enterprises and put india plumb in the middle of the asian miracle. as things have turned out, very little has happened on the large promises that warmed the cockles of corporate hearts. reforms continue to lag by a generation. the government continues to bloat, with the prime minister giving the lead by increasing the number of ministries and ministers. a hostile global economic environment, made worse by security concerns arising from terrorism and the war against it, has made progress difficult. a coordinated recession in the us, europe and japan has depressed stock markets and world trade growth. the gloom outside has, however, served to present india as a shining example of economic resilience — the third fastest growing economy in the world after china and russia. the fact remains that industrial growth has come down to 2 per cent. agricultural policy is all in a mess, with the government turning the largest hoarder in indian history and pricing food out of reach of the poor and export markets. services keep the economy buoyant but that may not be sustainable in the absence of robust revival in agriculture and industry. the finance minister promised to revive growth last year with reform in the financial sector, a big thrust in infrastructure and simplification of taxation, apart from government downsizing and labour reform. a group of ministers has reportedly cleared amendments to the industrial disputes act to do away with the need for government clearance for laying off workers in the case of companies with fewer than 1,000 employees. however, there is no agreement even within the government on how to amend the contract labour act, which should ideally be abolished altogether. once the labour market is made flexible by suitable amendment of the industrial disputes act, the distinction between formal and informal sectors would grow fuzzy and the need to regulate contract labour attenuate in practice. the trade unions, with the significant exception of the congress-led intuc, have decided to oppose these as yet amorphous measures to reform labour laws. finance minister yashwant sinha had promised revision of the industrial regulation and development act to give stress to development. industry minister murasoli maran has formally written to the finance minister saying that there is no need to amend the act. the promised abolition of the sick companies act, so as to facilitate fast winding up of unviable enterprises and swift redeployment of their resources back in production, remains unfulfilled. the promised competition law has progressed to the stage of a bill under parliamentary consideration. a significant part of the last budget's pronouncements related to development of a market for long-term debt. a number of measures were promised but have not materialised so far: these ranged from replacing the public debt act with a new government securities act that would facilitate retail trading of government paper in dematerialised form to the institution of an electronic fund transfer and real-time gross settlement system. unkept promises from past budgets —to end dual control over cooperative banks and to implement the deepak parekh committee report on uti—have cost the government dear. but this seems to have induced no greater urgency in translating words into deeds. lack of political commitment at the highest level has deflated the promise to downsize government and reduce expenditure. the prime minister has increased the number of ministries and ministers, even as the finance minister has abolished a handful of posts in the departments under his direct control. the promise to corporatise the coin and currency department and offer voluntary retirement to officials in the surplus pool has not been acted on. while the government has solemnly accepted multiple reports of the expenditure reforms commission, each suggesting practical and fairly conservative ways to reduce expenditure, it has chosen to sit tight on those reports. the government had promised to reform the food economy and bring down the subsidy expenditure on food and fertilisers. decentralisation of procurement, now a monopoly of the food corporation of india, and a group retention price scheme for fertiliser companies were supposed to reduce fiscal outlays and induce efficiency in the sector. nothing has been done on these promises. while the government remains committed to globalisation, it has proved incapable of rationalising taxes —unification of customs duties has been recommended by many experts — or taking tough administrative action to reduce corruption that fleeces exporters and importers. flaccid will alone explains the failure to implement the promised computerisation of all major government departments that interact directly with the public. this shows, in combination with the absurd incapacity to permit companies to replenish their extinguished adrs/gdrs, despite an enabling rbi notification, an abysmal lack of political control over the bureaucratic apparatus. of course, there have been some achievements as well. the most significant has been the attitudinal change towards privatisation. the present government has shown determination in this area in the face of considerable hostility from political parties and trade unions. although the receipts from public sector restructuring are likely to fall short of the ambitious target of rs 12,000 crore by half, the process of privatisation is well underway. the abolition of the banking services recruitment board, so that individual banks can pursue independent recruitment and personnel policies, is another creditable move. the progress made in the telecom sector, while not exactly a product of budgetary measures, is a success of official policy, however flawed. however, little progress has been made in creating market structures for other infrastructure sectors such as power. lowering the administered interest rate on small saving schemes, kicking off some insurance schemes for the underprivileged and getting banks to lend more to the housing sector and for films are some other notable achievements. even more significant is the success of the kisan credit card scheme, which provide farmers with revolving credit. this is an imaginative move to extend the reach of the formal credit system and needs to be pursued with greater vigour. true enough, all the blame for transforming the budget speech into little more than a discussion paper on the reforms cannot be placed at the door of the finance ministry. reform in power and agriculture depend crucially on the state governments. labour reforms call the commitment of the entire political class. governments cannot be downsized without courage at the highest level. raising the tax-gdp ratio calls for extending taxation to all services, which together account for half the gdp. this again calls for political resolve, to face down the protest of those newly taxed. unkept reform promises constitute a cross that the entire government must carry — even if it is the finance minister who becomes the chosen one for crucifixion. glory, of course, comes with a price.

A molehill out of a mountain of promises

A year ago, Finance Minister Yashwant Sinha rode high on tall budgetary promises. The fall since then has been proportionately steep. Strewn amidst a mess of broken reform promises lie the shards of this government’s credibility on the economic fr...

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