T N Ninan: Over to Mumbai

WEEKEND RUMINATIONS

Time was when the main statement of government policy that businessmen looked at was the Budget. The second most important statement was the trade policy. This latter has gradually lost importance, though commerce ministers use it to do some grandstanding, just as railway ministers use that archaic ceremony which is the presentation of the railway budget. All three Delhi ceremonies are now making way for the Reserve Bank's quarterly monetary policy pronouncements in Mumbai. This transition signals more than anything else the changes that have taken place in economic policy management. It will be complete when both the trade policy and the railway budgets are abolished as public ceremonies, and when two other things happen: advertisers lose interest in Budget coverage, and the Speaker puts a half-hour limit on the length of the finance minister's speech.

Trade policy was important when there was extensive licensing of imports, very high tariff walls, and much money to be made from working the system. With all those having more or less disappeared, it now has a smaller impact on importers and exporters than currency movements, which the Reserve Bank influences. The railway budget is about as important as Reliance Industries' announcement of results and investment plans; the fuss about railway fares is surely excessive when no one pays attention to changes in bus fares.

The Union Budget, still the most watched for document, has lost a lot of its sting now that tax policy has been rationalised and is broadly in line with what exists in most countries, with moderate tax rates, low tariffs, converging excise slabs, and few changes from one year to the next. Whatever sting there is, is now buried in the fine print, which chartered accountants take days to figure out. Attempts at greater equality are focused, not on tax policy but on the spending side, with big-ticket announcements marking the effort to provide a social safety net in one form or other. Once again, this reflects the budgets of the developed economies.

While the pronouncements from New Delhi have declined in importance, the new focus is on the monetary policy pronouncements from Mumbai; these used to be twice a year, now they are quarterly, and could become even more frequent. And so, the debate in the business press these last few weeks has not been about the provisions in the already forgotten Budget, with the exception of the loan waiver programme. Instead, it has been about whether the rupee should be allowed to climb or whether the RBI should intervene; whether interest rates should be lowered, raised, or left where they are. And the fiercest arguments have been about the expert committee reports that have come out on financial sector reform. Twenty years ago, all this would have been unthinkable. But note that even in the US and the UK, while fiscal issues (tax policy, social security, the health service) dominate the political debate, the issue that businesses focus on in those countries and round the world, are the statements by the Federal Reserve and the European Central Bank.

The reasons are obvious. If everyone's primary concern is inflation, growth and external balances, all three are influenced primarily by the central bank. And so, just as there was fierce debate for many years about the appropriate fiscal policy (the issue is now more or less settled), the debate now is about how the central bank should go about its job, indeed about the very definition of the central bank's objectives. This is part of a global debate. And perhaps five or 10 years down the road, there will be as much of a consensus on monetary and currency policy as there is now on fiscal policy.