A V Rajwade: The political economy

WORLD MONEY

The challenge is to raise resources to finance investments "" but that doesn't interest our leaders much.

The completion of 100 days in office by the United Progressive Alliance (UPA) coalition coincided, almost exactly, with the passing of its Budget for fiscal 2004-05 without a debate.

The general disinterest of our parliamentarians in debating serious and important issues of economic policy is, of course, not a recent trend. I remember an exchange George Fernandes, now the convenor of the National Democratic Alliance, had with a newspaper correspondent long ago, when he was "George the giant killer", and not a "senior leader".

After a very studied speech in Parliament about the Railway Budget, he was asked why his normal parliamentary tactics were so different "" so different, in fact, from those of his socialist twin from Mumbai, Madhu Limaye?

Fernandes answered that the audience in Parliament for a speech full of data, analysis and argument is very small; nor is the media interested in it. Dramatic confrontations, slogan-shouting and walkouts have a wider audience. Not much has changed.

In his avatar as finance minister, Manmohan Singh had started a system of Parliamentary committees debating the Budget. To facilitate this, the Budget session was separated into two terms.

While the system continues, there is little evidence of the parliamentary committee bringing to bear its wisdom on the direction of economic and financial policy as represented by the Budget proposals.

When was the last time you heard or read a studied, analytical speech by a parliamentarian? Do we risk losing completely the habits of scholarship and study in parliamentary debate? What a climbdown from the Constituent Assembly debates and discussions!

The key question before the political economy is how to raise resources to finance badly-needed investments, particularly in infrastructure, education and health, investments that are needed to sustain an 8 per cent GDP growth rate "" which, too, is imperative if jobs needed by a huge population, still getting younger, are to be created.

If the state keeps borrowing to pay salaries and interest, how will the investments be financed? There are only a limited number of ways of finding the resources, given that raising the tax rates may only worsen, rather than improve, the resources position:

Limit subsidies to only the really needy and use the money saved for real capital investment and jobs. Is it better to provide free food "" or an opportunity for a job? A culture of dependency "" or the government helping those who help themselves?

A substantive solution to the Kashmir problem that would permit savings in the defence expenditure. But we seem to be falling back into a rut.

Privatisation of state-owned assets: Is holding on to the shares of an NTPC or an ONGC, or building airports with public money, more important than creating roads and water supply facilities in thousands of villages? Recently, China decided to sell old power plants and use the proceeds for renovating existing ones. Should we look at doing that? What is the cost of the delays inherent in a system where everybody has the opportunity to raise queries, level allegations, delay implementation for purely procedural, often trivial reasons, and nobody is accountable for making things happen? A Chinese company has taken a turnkey contract to build power plants in West Bengal, at an investment of Rs 2.6 crore a MW. How do our costs compare? How much does the inflated cost of infrastructure erode our competitiveness, quite apart from the permanently lost output because of the delays?

The worrying propensity to paint a picture that economic reforms, as practised, have been "anti-poor". Were they, really? And, if so, are not all parties in government over the past 13 years responsible? The truth, of course, is that reforms and growth have made a much bigger dent in poverty over the past couple of decades, than was happening in the first three decades after Independence, as Surjit Bhalla and many other analysts have proved.

Competition: is it good or bad? Can it provide more efficient results than the regulator? If our leaders refuse to debate such issues, surely we need to. In the absence of a debate on such issues, we would continue to have a strong consensus for weak reforms, provided they do not reduce my patronage distribution and other powers.

There are some signs that things are changing. Recently, Maharashtra State Electricity Board appealed to the regulator against the government's decision to provide free power.

In Andhra Pradesh, the new government is reviewing the free power policy (the 2004 version of NTR's prohibition?) against which even the farmers' bodies are protesting. Are we at last realising that "free" is not necessarily beneficial to the consumer?

Tailpiece: What surprises me is that the opponents of FDI do not utter even a whisper against our investments abroad. Surely a principled stand requires that they oppose, say, Indian Oil's investment in Sri Lanka or Indonesia as much as an increase in FDI in the telecom sector in India.

Apropos the new Karnataka government's sidelining of the Bangalore Agenda Task Force, the IT industry has cautioned that it would move wherever the infrastructure is best.

And this could well be Australia or China, countries that are putting in place long-term strategies for attracting the BPO industry, with far superior infrastructure, clear and stable tax regimes and a helpful administration, and would welcome Indian FDI.

Email: avrco@vsnl.com