Subir Roy: Encore please, Mr Chidambaram

VALUE FOR MONEY

The President's address, setting out the contours of the Congress-led government's economic priorities, reads just a little differently from the Common Minimum Programme (CMP).

A process of correction seems to have started. Ever since the government was installed, Leftist leaders and sundry ministers have been airing their thoughts in keeping with their own priorities.

Journalists have added their intelligent guesswork to this, largely by extrapolating the known views of various players to arrive at the likely contours of future policy.

Significantly, the responsible duo who really matter, Manmohan Singh and P Chidambaram, have largely kept their own counsel and given out precious little on the actual shape of things to come.

This created a sort of a runaway policy which has been partially reanchored. Arun Shourie lost no time in observing that this was inevitable as a political consensus has been emerging for some time over a minimum reform package that the economy cannot do without, irrespective of who is at the helm.

In fact, the CMP was itself quite nuanced, a lot different from the off the cuff strong remarks that mainly Leftist leaders had been making to gate crashing TV crews in the first flush of victory. So how is sense re-emerging? The President's address repeats some positions which are by now almost axiomatic. It swears by 7-8 per cent growth which will be enabled by investment in agriculture and infrastructure. The new bit is mentioning agriculture right upfront.

It also kowtows to the god of fiscal discipline, even mentioning a date (2009) by which the revenue deficit will be eliminated. (That's the year when the country will go to the polls again if the present Parliament is able to live out its full term.)

There is even a mention of tax reforms so as to expand the revenue base and improve compliance. These assertions are like motherhood statements. Everybody swears by them, ability to deliver being another matter.

Then comes the tough part which has been fairly transparently disclosed. The address has reiterated what was stated earlier "" there is going to be a cess on all (my emphasis) central taxes to pay the bill for bringing universal primary education.

Not only will it do the major part of the needed additional resource mobilisation, with or without the investments promised, it will also allow the government to stick to the related promise of a stable tax regime. What this means is that this mother of all taxes covering every tax under the sun will rake in so much that there will be no need to do unpopular things like raising income tax.

The address also seeks to clear the air on disinvestment and privatisation. The latter, unmentionable if you were to go by what the Leftist leaders have been telling the media, is not ruled out but can be undertaken on a case by case basis.

If private sector suckers cannot be found to take over companies which are beyond redemption, they will be closed down. And disinvestment, that is selling equity to the public without the government losing control by going below 50 per cent, is very much on.

In fact, public sector organisations and banks will be encouraged to enter the capital market. All that this leaves out is selling profitable public sector companies to the extent of passing on control. This is no different from what the NDA's position when it went to the polls.

The wild cards, if any, are the proposed employment guarantee act, public-private partnership in infrastructure and the promise of continuity in power sector reforms. The employment guarantee, if followed to the letter, could drill a large hole in any budget.

Evolving a public-private partnership for infrastructure projects is easier said than done and it is totally unclear how you can move one step forward in power sector reforms without making everyone pay for what they consume.

No state government budget has the cushion to subsidise farmers' power consumption. Karnataka's fiscal correction has been derailed by precisely this and Andhra Pradesh and Tamil Nadu are steadily progressing in the same direction.

In sum, the President's address outlines a scenario that is not calamitous by any means and not very different from the previous government's practices. What now remains to be seen is what the Budget actually holds.

To have a glimpse into it, beyond the directional transparency already imparted by the address, we need to guess what is in Mr Chidambaram's mind. Left to himself, he will certainly like to present another "dream" Budget, like the one he presented in 1997, and hope that political uncertainty will not kill its good intentions.

That Budget lowered personal income tax rates, reduced corporate tax by removing the surcharge, cut peak customs duty, ensured tax-free dividend income in the hands of investors by levying a tax on distributed profits and took steps towards rationalising the excise duty structure.

There is little scope for Mr Chidambaram to reduce personal income tax but it is to be fervently hoped that he will further cut customs duty to bring Indian tariffs closer to South-east Asian rates, a goal reiterated by him in his Budget speech.

Between the two role models available to him, it will be so very sensible for him to choose that of Jaswant Singh rather than Yashwant Sinha. It is the cuts in import duty and expectations of more cuts in the future which have forced parts of Indian manufacturing to become competitive.

Perhaps the most significant part of that Budget from today's perspective lay not in the foregoing, which was in part B, but in the first part in which finance ministers traditionally pay obeisance to the hoary traditions in Indian public spending. A larger plan outlay, particularly in irrigation and the social sector, was promised.

More significantly, it was promised that the central plan would focus on rural development, employment and poverty alleviation! That is precisely the mandate that the present government has chosen for itself after reading the mind of the voter.

Thus, all that Mr Chidambaram needs to do is apply the same 1997 formula of impeccable reformist action and obligatory rhetoric!

sub@business-standard.com