First there was poor governance. Now there is, shall we say,the death of reform. That has been the story of Manmohan Singh’s UPA-2.
The budget, presented by Finance Minister Pranab Mukherjeeon Friday, reinforces the latter point about reform and has been slammed by alland sundry.
Parties have called it “anti-poor” and“status quo-ist,” among other things. Economists, bankers andeditorial writers have pointed out the lack of even a token stab at reforms,besides questioning the validity of key numbers — fiscal deficit targetof 5.1%, GDP growth of 7.6% for the next fiscal year, and even the proposed capof 2% of GDP for subsidies.
In the context of a sharp decline in growth and theuncertain global environment, the budget does little to boost growth, and maybe downright inflationary, adding to policy constraints. Far from bringing anyreform, Mukherjee’s budget is also regressive on some counts. Forexample, the retrospective change in tax laws to overrule a Supreme Courtruling on Vodafone’s tax liability arising from its acquisition of Hutch’stelecom network.
The loud and clear signal from Mukherjee’s budget isthis: The government has simply given up building political consensus onreform, and on reform itself. That’s a pity for both the nation as wellas the Congress Party.
India’s growth rate slipped below 7% this year andmany fear it could languish in that range in the absence of genuine reforms;and the Congress’ slipping numbers, evidenced by the recent round ofelections in five states, could languish if it does nothing to redeem its governancerecord.
The Congress Party’s political compulsions — andthe accompanying frustrations — are understandable. Still, with two yearsleft in its term, UPA has no right to just give up and choose to remain a lameduck government. It will hurt the nation and it will likely hurt the CongressParty itself in the next general elections, and, perhaps, even galvanize theregrouping of the so-called Third Front.
By simply submitting to Trinamool Congress’ persistentand often unreasonable threats, the Congress is betraying its aging leadership,and a lack of enthusiasm, when the time might be quite opportune to demonstratemore daring and a can-do attitude.
A bolder party would take advantage of the new politicalequations, rather than be dispirited by the losses and sink further intoinaction. It could start by building bridges with the Samajwadi Party, whichwon an overwhelming mandate in Uttar Pradesh. After all, the regional party, alikely catalyst in any regrouping of the so-called Third Front, has reiteratedits support to the UPA.
Even more importantly, the Congress needs to finally callthe bluff of Banerjee, whose party blocks every economic reform measure with azeal greater than that shown by even the communist parties, which lent supportto UPA-1. Recently, Trinamool opposed a marginal rise in passenger railwayfares, the first in nine years during which period diesel prices have nearlydoubled, even when it is proposed by its own minister-nominee, Dinesh Trivedi.Banerjee’s party makes mockery of any reform.
The emergence of a ragtag Third Front, with constituentssuch as Trinamool Congress, Samajwadi Party and the AIADMK, is likely in thenext two years. It could even win a significant mandate, given the state ofboth the Congress and the Bharatiya Janata Party.
But that is hardly good news for the nation. In fact, itcould be downright scary. Besides the lack of a broad agenda, the likely ThirdFront coalition has no leader that believes in economic reforms. Consequently,we could be pushed into a prolonged reform-less period that could further hurtgrowth. That is why the UPA, a coalition led by a reform-minded economist,needs to show greater zeal for reforms, regardless of its so-called coalitiondharma, and find support for positive measures. In fact, that may also be thebest way for the Congress to avoid a possible rout in the next elections.