The country’s next finance minister will be a politician rather than a technocrat, after the ruling Congress made its preference clear at a series of meetings between leaders of the ruling party and the government over the weekend.
A Cabinet reshuffle “is unavoidable”, said a top party manager, and indicated it could take place before, or immediately after, the monsoon session of Parliament, likely for four weeks from the beginning of next month, possibly August 7.
The prime minister is likely, therefore, to divest control of the finance portfolio well before the Fund-Bank meeting in October.
The party concurs with the government that getting the economy back on the rails is the first priority. “We are not looking at populist moves now. These can come later,” said a source. “The first thing is to stabilise the economy and reverse sentiment.”
But the party is also clear about what is do-able and what is not, by way of reform. “Foreign direct investment (FDI) in retail looks difficult,” said another source. “With 12 Assembly elections in the next eight months, we cannot take any radical steps like doing away with fuel subsidy.” Trinamool Congress chief Mamata Banerjee, the sources added, had revived her opposition to FDI in civil aviation. So this needed to be negotiated.
However, they said the government would go full steam ahead on the legislative route to economic reform. This means the Cabinet is soon likely to clear the amended Pension Fund and Regulatory Development Authority (PFRDA) Bill, 2011. The bill was brought before the Cabinet in the beginning of last month, but a discussion was deferred following opposition by principal ally Trinamool Congress. The Bill is now likely to get cabinet clearance ahead of the monsoon session, though there is no change in the Trinamool Congress’s view. The government might bank on support from Mayawati’s Bahujan Samaj Party and Mulayam Singh Yadav’s Samajwadi Party for the passage of the Bill.
But that is a stage-2 hurdle. Before that, the Union Cabinet has to clear amendments in the Bill: enabling contributors to withdraw funds from the pension scheme in case of an emergency; some subscriber to be given a minimum assured return for certain kinds of investment; and a 26 per cent cap on FDI in the scheme. Earlier, the cap was not specified. The BJP has been demanding the FDI cap of 26 per cent to be included in the PFRDA Bill.
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The Insurance Laws (amendment) Bill, 2008, was introduced in the Rajya Sabha in December 2008 to update the sector law and increase the foreign participation in the sector by lifting the FDI limit. However, a standing committee on finance headed by former finance minister Yashwant Sinha of the Bharatiya Janata Party had, in its recommendation on the bill, said there was no need to increase the FDI limit in the sector. Accordingly, the government had, in May, deferred cabinet discussion on this.
Party sources now say clearing these two pieces of legislation will convey the signal that the government is determined to push through with reform, thus creating momentum for it.