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The Parliament session started with an ambitious programme of action by the Manmohan Singh Government. The President’s address to Parliament incorporated the broad lines of action which the Government proposes. One has to wait for Finance Minister Mr Pranab Mukherjee’s Budget to fill in the details of the programmes.

It is perhaps ironical that the Government has to depend for the delivery of its services on its bureaucracy, which was recently rated one of the worst performers in Asia. The address promises to improve standards of governance by upgrading the standards of bureaucratic performance.

The President also mentioned the creation of an Independent Evaluation Office in the Planning Commission and a Delivery Monitoring Unit in the PM’s office. An Evaluation Unit has existed in the Planning Commission for nearly five decades. One of its chiefs was the redoubtable economist Prof A. Vaidyanathan. Is a more Independent Evaluation Unit coming up, modelled on the one that Dr Montek Ahluwalia headed in the IMF?

While it is true that evaluation and monitoring need to be separated in some contexts, it is however the same function elsewhere. It would be preferable to combine the two units to achieve the desired effect.

Regarding the creation of new innovation universities, it would seem more appropriate to concentrate on improving the existing IITs and universities instead, as the newly set-up institutions would be starved of personnel.

The President’s address places the right emphasis on the establishment of a mission on national food security. Food security depends on policies. There were enough mix-ups in the recent past when wrong pricing policies resulted in the accumulation of huge buffer stocks and frantic attempts to export wheat and rice at substantial losses to the Exchequer, as international prices were lower than our cost of procurement. Our lopsided procurement prices for wheat and rice result in subsidising the international consumer to whom we export! Economists familiar with the gyrations in the availability and prices of wheat and rice need to look into this issue.

On the all-important issue of power, the address emphasises the need for substantial additional power capacity. Obviously this will require close collaboration between the States and the Centre, and emphasis on reducing transmission and distribution losses.

The present situation, in which substantial power is given free, militates against any incentives for controlling losses and instead encourages theft, which is passed off as transmission and distribution losses.

Subsidised tariffs for farmers and the absence of metering combine to result in a financial chaos in the power sector. No wonder many of our power companies — the SEBs in particular — are running at a loss. It is difficult, given these losses, to justify and attract fresh investment in power so long as our pricing policies are uneconomical.

While mentioning a possible resort to fresh investment, the statement of intent is clothed in words that “express the desire of the Government to encourage more public ownership of stakes in public sector companies”. This is a confession of the Government’s reluctance to come upfront with “divestment”.

While disinvestment is obviously one of the methods to solve the fiscal deficit problem, one cannot be too sanguine about the prospects of pushing through a disinvestment programme in the present political climate. While it is true that Left opposition may not be a problem, there are elements in the Congress party itself and some of its coalition partners, including Trinamool Congress, who will be reluctant to espouse disinvestment. The Prime Minister will need his negotiating skills to arrive at an understanding with coalition partners and push through even a modest disinvestment programme.

The disinvestment programme may perhaps be strengthened to the extent to which Public Provident Funds and Pension Funds are allowed to invest in the public sector.

This can be legitimately presented as workers’ participation in public-sector ownership. In the recent nationalisation of General Motors Corporation in the US, the United Auto Workers’ Union got some of its dues from the company converted to shares in the new undertaking.

This example can perhaps be followed in our disinvestment programme. Critical issues will arise when disinvestment is proposed in financial institutions such as banks and insurance companies, even when subject to the limit of 51 per cent public ownership.

Here too, mutual funds and pension funds can be a source of funds for such investment. There is also the likelihood of foreign investors returning to invest in some of the Navratnas if the Government undertakes a proper branding exercise.

The disinvestment exercise can take several forms. Initial Public Offer (IPO) is one method, although the process is time-consuming.

A better option would be what the market calls “Qualified Institutional Placement (QIP)”, which is equivalent to raising equities in the disinvested PSU from qualified groups of investors.

This is more likely to fetch higher prices and the process is relatively quicker compared to an IPO. The Government needs to weigh the merits of both options before arriving at a disinvestment programme that can meet the needs of the fisc as well as revive the Indian public sector. What is important is to ensure transparency in the price discovery process and avoid unnecessary litigation. From this point of view, the QIP is definitely more satisfactory.

The Government has a lot of work to do in spelling out the roadmap for the agenda outlined in the President’s address. It goes without saying that the roadmap cannot anticipate all the problems that can arise during implementation. There has to be provision for flexibility and adjustments in line with circumstances.

There is a promise of providing the broad line of such a roadmap for the first 100 days. Whether this time limit is sufficient is uncertain. It would be far better to take sufficient time to draw up a detailed plan rather than hurry for the sake of an arbitrary time limit. Otherwise, the programme will remain a 100-day wonder.

Now that the President’s address has been presented and discussed, it remains to be seen how the Government and the nation will set about implementing it. There is a great deal of promises — good promises at that — in the address. Time will tell whether the Government’s performance shows that Manmohanji’s team means business.

More Stories on : Economy | Economy | Budget | S Venkitaramanan

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