A K Bhattacharya: Why blame the Left alone

NEW DELHI DIARY

The cat seems to be out of the bag. All these months you thought that it was the Left and its cohorts, who were holding the Congress-led United Progressive Alliance (UPA) government from speeding up economic reforms.

The truth is that it is not just the Left but powerful sections within the Congress which are equally wary of the kind of economic reforms that you or I have been associating Prime Minister Manmohan Singh or Finance Minister P Chidambaram with since the 1990s.

The result, as everyone can see, is that economic reforms have slowed down considerably. The Left may take credit for it, but the Congress leaders are no less responsible for the amber light shown to reforms.

Even the Nationalist Congress Party (NCP), a UPA partner, has raised its banner of protest over disinvestment of government equity in profit-making public sector undertakings (PSUs).

This is not surprising because opposing economic reforms has become fashionable once again, particularly when such protests are seen as an attempt to guard the vested interests of any organised section of society.

Which is why political parties find it useful and politically rewarding if they oppose disinvestment (because that seemingly protects organised workers, but not necessarily the PSUs where they are employed) or demand and agree to a higher rate of interest on employees' provident fund (even though this might benefit only the "creamy layer" of the labour force and jeopardise the financial viability of the fund).

Clearly, the broad consensus over the need for economic reforms, which had been achieved by almost all political parties during the mid-1990s, has broken down.

Most leaders today are reluctant to suffer adverse political consequences of any action even though that might be economically or fiscally correct. So, even when political parties recognise the importance of economic reforms, they are acutely conscious of the need to package them politically so that there is no resistance or adverse fallout.

In other words, no political party wants to push through reforms in a manner that can cost them votes or an election.

Thus, the Congress has revised its stand on the disinvestment of PSUs or market-linked prices for petroleum products. In a bold move some weeks ago, the government decided to sell a 10 per cent stake in Bharat Heavy Electricals Limited (Bhel).

This was the first decision by the UPA government to disinvest in a profit-making company, even though a 10 per cent divestment would have retained the government's majority control over the company. But the Left parties cried foul, alleging that the solemn promises made in the National Common Minimum Programme were being dishonoured.

In a more daring announcement made during an overseas tour a few weeks later, Mr Chidambaram said profitable companies operating in a monopoly environment will be encouraged to seek strategic partners and joint ventures.

What's more, loss-making PSUs would be sold and closed down, the finance minister said. It appeared as though the Manmohan-Chidambaram duo were back in their 1991 mindset.

But this turned out to be too good to be true. Newspaper reports revealed that by the end of May, Petroleum Minister Mani Shankar Aiyar had shot off a letter to the finance minister questioning the logic of disinvesting government stakes in PSUs.

This brought out for the first time serious differences over disinvestment within senior ministers of the UPA Cabinet. It became clear that the Congress' own approach to disinvestment was not unanimous.

The Left also voiced protests over disinvestment, never mind that its government in West Bengal continues to pursue it with renewed vigour and has even privatised state-run undertakings.

It, therefore, seems that economic logic is of no consequence. All that matters is how well the ruling political establishment can package such decisions and make them acceptable to the people.

The Left Front in West Bengal is confident that it can continue to stay in power even if it privatises state-run enterprises and divests its stakes in others. The Congress at the Centre is not that confident.

In any case, it has to first sort out differences among its leaders on this issue.

No wonder the Congress had to beat a hasty retreat at its meeting with the Left leaders on disinvestment. Making a compromise of sorts, it said that a disinvestment of a 10 per cent stake in Bhel would be pursued, but the public sector character of the Navaratna units would be retained.

At the same time, the government told the Left that the proposal to privatise Nalco was being dropped. These are political compromises that make a mockery of the logic of reforms.

Similarly, the oil price hike became inevitable after the continued rise in international crude prices.

Yet, the Left opposed any hike and even the NCP joined the chorus of protest. Eventually, the oil prices were hiked""after a gap of eight months""but only after the civic polls in Kolkata and its suburbs were completed by last Sunday, so that the Left Front's prospects stayed unaffected.

It is an irony of a unique variety. The Left, whose heart bled over the proposed PSU disinvestment, was comfortable with the non-revision of petroleum product prices even though it dealt a huge financial blow to the oil PSUs.

In the same way, the UPA government continues to keep tight control over petroleum product prices, disallowing them to be linked to movements in international markets.

The underlying spirit of reforms is that economic policies should move towards a transparent, non-discretionary and rule-based decision-making system.

The government can intervene, but such interventions also have to be transparent and explicit. Today, every political party in the system has scant regard for this principle and is instead pursuing reformist policies in a half-hearted manner provided they do not become a political liability.

The Left started it, but almost every party including the Congress has followed suit.

akb@business-standard.com