The Hindu Business Line : Coalition politics delaying reforms

THE personal goodwill enjoyed by the Prime Minister, Dr Manmohan Singh, for his simplicity and integrity, has saved the Government from critical appraisal of its one year in office, particularly in terms of management of the economy.

A cross-section of industrialists, economists and officials that Business Line spoke to recount the constraints under which the Government is functioning, to explain why the star economic team of Dr Manmohan Singh, Mr P. Chidambaram and Mr Montek Singh Ahluwalia has just about been able to keep the economy afloat and has not succeeded in launching any significant economic reform measures.

The general view is that coalition politics is hemming them in. Every decision needs patient explaining during several rounds of discussions. Even then, there is rarely any consensus.

"The National Democratic Alliance was also a coalition Government, but the pre-dominance of the BJP in that combination provided that the Government had the power to go ahead even when there was some dissent. The Congress does not enjoy that luxury," says an industrialist.

An economist has another perspective. "The high foreign exchange reserves helped the country absorb the spiralling international crude oil prices and the trade deficit of nearly $30 billion. Otherwise, the Prime Minister would have been constrained to give his Government less than 6/10 for its performance in the first year in office."

"But for the forex cushion, the economy could have run into a balance of payments problem, could have had to curtail imports necessary to fuel industrial revival, and inflation could have been out of control," he added.

Economy watchers accept the fact that but for the increase in foreign direct investment limits in telecom, civil aviation and real estate, there has been very little movement on the economic policy front.

The implementation of the Electricity Act, said to contain the roadmap for power sector reforms, has been delayed by a year and is now likely to be pushed back by another six months.

A review of labour laws has practically been abandoned and the limited exercise of providing flexible labour policies in special economic zones dropped. FDI in retail trade is still "under discussion." Public sector disinvestment has slowed down to a crawling pace.

Even administrative decisions such as revising petroleum product prices have been hanging fire for more than five months. Despite countless rounds of discussions, the Government has been unable to decide whether to go ahead with a price increase or absorb some of the impact of high international prices. Similarly, a hasty announcement on the interest rate for Employees Provident Fund remains to be implemented.

The Government has before it an agenda. According to an official document, there is inadequate progress in releasing capacities which are locked up due to structural factors.

The Securitisation Act for the banking sector has been the only major step forward so far.

Proposals where there has been limited progress include repeal of the Sick Industries Companies Act, winding up of the Board for Industrial and Financial Reconstruction, passage of the bankruptcy and foreclosure laws, reform of the Industrial Disputes Act, release of excess land held by public sector units and privatisation of sick PSUs.

"There is an unfinished agenda as far as creating an investor-friendly climate is concerned... a number of critical policy and procedural constraints, particularly in the domain of States, that may be holding back private investment, including FDI, need to be addressed early. FDI is an important instrument for expanding private investment in the economy. While FDI inflows have continued, the perception remains that there are bottlenecks holding up such flows and these could be much larger if the concerns are addressed," the document says.

Summing up the situation, an official said, "The agenda is in front of the Government. But these are second-generation reforms which are much more difficult than the first round launched by Dr Manmohan Singh as the Finance Minister in the early 1990s. The second generation requires legislative backing, for which the Government is crucially dependent on the supporting parties."

The bottomline, according to the official, is, "Be prepared for delays."

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