Virtue in restraint

It seems to be an inescapable part of the NDA style of coalition politics that the leaders of the smaller parties are given the freedom to mismanage or milk one or two ministerial charges, as their price for staying in the coalition and for allowing the BJP to monopolise the grand national issues.

And so it is that, almost as soon as she assumed office, Mamata Banerjee announced a 15 per cent interim relief for over 5 lakh employees of Coal India and reversed a decision to close down 64 unviable mines.

How much of a reversal this was, is best seen from the surprise expressed at her decision by even the trade union chiefs of the coal industry.

This is of a piece with allowing Ram Vilas Paswan to run amuck in telecom, both him and Nitish Kumar to make the railways' development plans a handmaiden to Bihar's politics, and Chandra Babu Naidu to milk the Centre as a whole for funds.

It has been Bal Thackeray's reported complaint for a long time that he does not benefit enough from his party's ministerial presence in Delhi, while Ms Mayawati had no reins on her at all until she overstepped all limits.

Some BJP ministers too have not been shy of exploiting Mr Vajpayee's benign approach to such shenanigans.

Indeed, come election time and the Prime Minister himself has announced a massive and completely unwarranted increase in sugarcane prices, provoking a crisis in the sugar industry and a face-off between the mills and the government of UP (where there is risk of violence in the sugar belt).

And now Mr Jagmohan (whose Delhi constituency has a large percentage of government babus) has mooted a proposal that will give them a Rs 2,000-3,000 crore hike in salaries.

Fortunately, the finance ministry has clarified that no such proposal is being considered but it is not impossible for the idea to sneak through nevertheless.

Hopefully, someone will point out that none of the cost-saving and bureaucracy-trimming proposals of the last Pay Commission and the Geethakrishnan Commission have been implemented, and that it is such savings that will enable better emoluments for those who are actually required to function as part of the government.

While the government could justify the extra spending by arguing, as the finance minister has done, that the fiscal deficit will be well within the target, the fact is that the 10-11 per cent combined fiscal deficit of the Centre and states poses a serious problem "" as Anne Krueger of the IMF rightly pointed out at a Delhi seminar last week.

Also, as Icra's economic advisor, Saumitra Chaudhuri, argues, the reason why the high fiscal deficit has not done much damage over the past decade is that government and corporate investments ran in opposite directions.

In 1993-94, for instance, private corporate investment fell while government investment rose, while between 1994 and 1997 the opposite happened.

Since then, private corporate investment has fallen (by 3.5 percentage points of GDP between 1997-98 and 2001-02) while government deficits rose.

But now, with the government committed to spending more on infrastructure and the private sector ready to begin investing again, there is a problem of resources.

In other words, interest rates could begin hardening, and this in turn could turn off investments and slow growth.