Sunday, 5 January 2014

Save the country, Dr Singh

It is indeed interesting that in all the reactions—solicited and unsolicited—that have come after the drubbing that the Congress party has just got in the assembly elections, one voice has not been heard at all—that of Prime Minister Manmohan Singh. That, clearly, is a measure of the man's irrelevance. But what he does in the next few months will become increasingly relevant, by virtue of the office he occupies.
Local factors and the disarray in the Congress party no doubt added damaging volume to the anti-Congress wave, but what led to that wave in the first place? Was it not a complete popular disenchantment with the functioning of the United Progressive Alliance government headed by Singh, whose policies have fuelled inflation, messed up the economy and fostered widespread corruption?
Singh is as responsible as the Gandhis for electoral debacle. Had he refused to be a mere figurehead, quietly rubber-stamping the Sonianomics brand of populism and turning a blind eye to corruption, the country would not have been in the mess it is in and the public would not have been so angry as it is today. As prime minister he could have put his foot down on several issues. He did not.
So what do the next few months hold for the country? Any Congress strategy for 2014 cannot revolve around revamping the party machinery alone. Since the Congress is the main party in the UPA coalition, the Central government’s actions or non-actions will also be part of this. The Congress could play it two ways. It could, for one, decide to get the UPA to do a course correction so as to recover some of the lost ground. What can a lame duck government do will remain a question, but the prime minister’s former press advisor Sanjaya Baru has argued in this piece that quite a bit is possible. 
Inflation—the one issue on which people unforgiving—will obviously top the list. The Congress is now claiming a conspiracy is behind the onion price hike. Perhaps, but let’s not forget that food inflation has remained at elevated levels for over a year. The reasons for these are structural and as Finance Minister P Chidambaram himself admitted recently, there is no easy or quick solution to the problem. "I am afraid it will take some time to contain this inflation. We are paying a political price for that and I acknowledge that, but those are the facts," he said on 15 November.
When the country’s finance minister is throwing in the towel, there is no scope at all for taming the inflation dragon within the next five months.
Reviving an ailing economy should be another priority. Here, too, the scope of easy and early successes is doubtful. There are several reform-oriented legislations that need to be passed but that seems unlikely, with an aggressive opposition and uncooperative allies.
Baru has suggested that the government can address issues like uncertainty over tax policy which could alleviate concerns of investors. While that could help the stock markets, quell the fears of foreign investors and arrest a possible flight of capital, it is hardly likely to bring in electoral gains.
The government could shake off the policy paralysis it is caught in and get into action mode, clearing pending projects, ironing out policy glitches and the like. Plan expenditure is only 43 percent of what is budgeted for the year (of which capital expenditure is only 40 percent of what is scheduled) and it could decide to step this up. All this will revive sentiment and businesses may perhaps not put off their investment plans till after the elections. But it takes several months for investment plans to make their effect felt on the economy. So the benefits are not going to come within five months.
Realising that these steps may not reap the expected gains and that it will face certain defeat in May, the Congress could opt for another strategy – to lay booby-traps for the next government. It will then get a stick to constantly beat that government with. Fortunately, the government won’t be able to push bad legislation like the proposed National Right to Homestead Bill through Parliament (though some good legislation will get hit as well) but that will not stop it from taking decisions that are clearly populist and which will leave an enormous fiscal burden for the next government. Some of that has already started. The June decision on pricing of natural gas (read Firstpost editor-in-chief R Jagannathan's criticism of this) and the early announcement of the Seventh Pay Commission are cases in point.
Using the fact that the fiscal deficit is already at 85 percent of the full year’s target, the government could put a lid on spending on the grounds of wanting to stick to the target of 4.8 percent of GDP. That will leave a lot of the spending for the next government. Already, tax refunds are being delayed and oil companies are not being reimbursed for subsidies in time.
The government could also go on a populist announcements spree. Already, news reports say, Chidambaram is under fire for hard decisions and there is a call for rolling back fuel subsidy cuts. Rural Development Minister Jairam Ramesh, for example, wants to hike old age pensions paid under social welfare schemes, when there is evidence that much of this is not reaching the intended beneficiaries.
The assembly elections did not give a clear picture on how voters respond to welfare schemes. Welfarism didn't appear to work in Rajasthan and Delhi but seemed to work in Madhya Pradesh and Chhattisgarh. So, what is there to stop the Congress from announcing schemes? If it brings in the votes, that’s great (and the fiscal bridge will be crossed when it comes); if it doesn't, well, the next government will have to deal with the economic consequences. The only thing that might stop the UPA from doing this will be the fact that many welfare schemes are implemented by the state governments and non-Congress governments may just walk off with the credit.
The first path will put the economy back on the rails, but the gains for the Congress will be uncertain. The second could swing things in favour of the Congress, but will spell ruin for India. It is now up to Singh to choose between the two. As prime minister, he can still has veto power (though some of his ministers may slip things through). 
Dear Manmohan Singh, for the sake of the country, please opt for the former. You have nothing to lose but your reputation as a doormat.

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