The question favoured by Marxists but one they won’t ask this time

And for obvious reasons. Ministries don’t want to give up their empires. On the other side, the states want control over the schemes but they know that, if the schemes are transferred to them, they will have to shell out money from their own resources. So, they too don’t want them.

And in a sense, proposals of this kind are non-proposals — they do not deal with the real problem at all. The problem with these schemes, for instance, is not that they are with the Centre when they should be with the states – several of the states are such bottomless pits, the condition of several of the schemes that are already with the states is so bizarre that transferring more schemes to the latter is the surest way to compound the squandering of public money. The problem is their number – when the Planning Commission asked a District Collector — of Kanpur — how many schemes he was administering, it took him a long while to discover how many they were: they turned out to be 148! The problem is that the basic design of many of the schemes is misconceived. The problem is that agencies of government — whether of the Centre or the states — have become palsied and are not able to implement the best of schemes efficiently…. Which of these problems does the Chidambaram-like announcement address? And yet, the thumping! The same goes for any proposal that is made in the name of “small industries”. It is invariably taken as proof of fidelity! This time too we have been treated to a proposal of that kind. Chidambaram has announced two modifications in the ‘‘credit-linked capital subsidy’’ scheme for small industries. The credit limit has been raised from ‘‘up to Rs 40 lakhs’’ to Rs. 1 crore, and the subsidy has been increased from 12.5% to 15%. Details about the working of the scheme make interesting reading by themselves. Just find out how many of the 3.4 lakh small units in the country, have been able to avail of benefits under the scheme, and you will have enough of an answer. I would put announcements — even dramatically higher allocations — for many an item in the same category.

Education: Much purple prose is expended on it. And since he got the Nobel Prize there is the mandatory genuflection to Amartya Sen. But the dramatic increases — and citations from the CMP — mean little. A Finance Minister announces, “I double the allocation to the Sarva Shiksha Abhiyan.” Everyone thumps her or his desk, ‘‘Government committed to education,’’ the editorialists proclaim. But the fact is that of the Rs 8,300 crore set aside for the programme last year, only Rs 3,600 crore were utilized. And for the simplest of reasons. The states have to contribute 25 per cent of the scheme. They don’t have the money to do so. The larger you make the scheme, the more money they have to find for it from their own coffers, therefore, the less they want the scheme. And yet the headlines, ‘‘Agiculture, social sectors get highest priority’’. The same goes for the brave announcements on sectors like power. Six power projects have attained financial closure, financial closure of another 12 is imminent, Chidambaram says in his Budget. I am inclined to believe what the head of one of the leading banks — and one of the leading prospective financiers of these power projects – tells me: that in recent weeks, several of them have adopted a ‘‘wait and watch’’ policy. And for good reason. Announcements of free power, the inability as much as the lack of inclination to push ahead with unbundling — all this will push power projects even deeper into the laps of state electricity boards. Who would want to mortgage his future to organizations that are running losses of Rs 25,000 crore a year? And yet, ‘‘financial closure achieved for six, imminent for 12….’’

Have they been gracious enough?

One can extend the list of such vacuous announcements. But I will turn to two of Chidambaram’s proposals that struck me as ones on which it would be delicious to get his clarifications.

The first, of course, is foreign direct investment. Chidambaram has proposed to raise the cap on FDI in insurance, civil aviation, and telecom. The CPI(M) gave him two weeks to roll these back or else…. Many look forward – some with much hope — to the course that the open threat of the Left will take. But I would wager that nothing will come of it. Neither the Left nor the Congress believes in anything. The Left will make a noise, the Congress will make some verbal concessions, the Left will proclaim victory. Or, being the plasticine that it is, the Congress will abandon the position it had staked, and its apologists will lay the ‘‘revisitation’’ to ‘‘the compulsions of coalition politics’’. So, I am on a different point — and that is about the proposed hike on the cap on FDI in telecom. When I proposed this hike from the Ministry of Communications, the Intelligence Bureau expressed a series of concerns. It has been my first principle in such matters that the concerns of our Defence Forces and our intelligence agencies must take over-riding precedence. Therefore, meetings were held with the intelligence officials. The safeguards they thought necessary were built into the proposal. When the proposal was submitted again some months later, they, at the penultimate moment, expressed concerns again. And they objected to both — any hike in direct foreign investment, as well as, to any hike in foreign investment through allowing Foreign Institutional Investors to stake a higher position. The question, therefore, is: Have the Intelligence agencies under the new Government been persuaded to withdraw their objections to higher foreign investment, indirect as well as direct? In the alternate, have they been gracious enough to somersault suo moto, as the phrase goes?

The question Marxists used to ask, but won’t

The second proposal that caught my eye is about civil aviation. Ever since I entered Parliament six years ago, I have noticed that, while a lot of tears are shed for Air India and Indian Airlines, whenever any proposal comes up it is invariably crafted to benefit private scheduled airlines, in particular Jet Airways, at the expense of the two government-owned airlines. Chidambaram has announced that he is withdrawing the exemption from tax of any expenditure on leasing aircraft or aircraft engines. This will entail an additional cost of 41.82% on leasing aircraft or engines — Corporate Tax of 40%; Surcharge of 2.5%; and the new Education Cess of 2%.

For reasons that are well-known, Indian Airlines and Air India have not been able to, or, if you prefer, allowed to purchase aircraft for almost a decade. Today to keep up, in fact to just survive, they have no option but to take aircraft on lease. Indian Airlines is planning to take six A320s for the forthcoming winter schedule. In addition, it plans to take eleven A319s to replace its aged B737s. Air India too has to urgently lease a number of aircraft. Aviation circles say that Chidambaram’s proposal will hit Indian Airlines to the extent of Rs 90 crore a year, and Air India to the extent of Rs 100 crore a year. By contrast, the established private airlines — Jet, Sahara — are free to purchase aircraft. And they have already leased an adequate number. In fact, they have been complaining of excess capacity.

Not only will Chidambaram’s proposal put Indian Airlines and Air India at a disadvantage vis a vis Jet and Sahara, it will also hobble the proposed new low-cost airlines — that is, the proposal will make it more difficult for other airlines to come up that may provide competition to Jet and Sahara. According to aviation circles, Air Deccan had been set to lease 5 aircraft by December 2004, and 5 later; Vijay Mallya’s Kingfisher was also set to lease 10. Therefore, the question to which it would be good to get an answer is the one Marxists used to ask a lot: for whom? In a word, what is the relative incidence of Chidambaram’s proposal on the different airlines?

What was required?

The report of the Rakesh Mohan Committee on the finances of Railways, widely acknowledged to be one of the most thorough reports prepared in the last few years, had shown conclusively that the Railways were close to ‘‘a debt crisis’’. It warned of the consequences that will befall the Railways, and therefore the economy as a whole, if remedial steps were delayed. It listed in detail what needed to be done — as of yesterday. The Economic Survey that Chidambaram tabled notes that there was ‘‘a significant effort at tariff rebalancing and rationalization of fare and tariff structures’’ last year. All that has been completely thrown into the khullar by Laloo Yadav. And yet his non-budget, a document that pushes those imperative changes another year back, that has been welcomed for its ‘‘common touch’’. Do you see any prospect that those decisions will be taken any time in the near future by this Government? Here is a weathervane to look at. The Planning Commission used to organize presentations for successive Railway Ministers on the steps that needed to be taken urgently. Look out for the day when the new Commission holds that sort of a presentation for Laloo Yadav!

Upon alighting — the Marxists would have insisted, but won’t now, that we add ‘‘straight from the IMF’’ — the new head of the Planning Commission Montek Singh declared that ‘‘hard decisions’’ are required. In what element of the Budget or recent announcements do you see even a trace of that determination? * In the continuation of subsidies at the level of Rs 44,000 crore? Chidambaram, as he reminds us, had himself circulated a paper on them seven years ago. He says now that he is going to get another study done — not to do something, but to prepare a blueprint to do something! z In the free power that the new Government has announced in Andhra, followed by Tamil Nadu, and is now being promised in Maharashtra? z In deferment of VAT implementation by yet another year? z In the complete abandonment of even the thought of downsizing the Government? z In the fact that capital expenditure as a per cent of total expenditure continues to slide — from 20% in 1995/96 to 18% in 2004/05? The Economic Survey presented by Chidambaram lists — and it does so twice — five things that we need to do to hold our own beside China. The first is fiscal consolidation. And it says that as the economy is doing well, adjustments to eliminate the Revenue Deficit should be ‘‘frontloaded’’. But Chidambaram has postponed even the merest reform on the assertion that it would not be wise to attempt tax reform either in a hurry or piecemeal. This, incidentally, is one of the features that strike one — for everything he wants to do, or just has to do, he puts in the form of some grave norm of fiscal prudence!

Yashwant Sinha quoted an example from the Budget Speech that Chidambaram had delivered seven years ago. He had declared that to tax financial intermediation was against the canons of sound taxation. The exact thing he has done this time! In obedience to some other canon, no doubt. Second, the Economic Survey declares, Government must urgently institute a ‘‘rethink’’ on the Minimum Price Support system and open-ended food procurement. The costs that the present system is imposing on the economy and the country have been listed often and underlie the Economic Survey’s prescription: z The excessive accumulation of foodgrain stocks with the Government. The disincentive this system constitutes to diversification into crops that our people need for more balanced nutrition and which will also fetch higher value for farmers. z The high state levies on procurement. z The high borrowing cost of the Food Corporation of India. Therefore, says the Survey, decentralize procurement to states; improve the managerial efficiency of FCI; ‘‘realign’’ issue prices in the Public Distribution System. Not the slightest indication that any of this is anywhere on the horizon.

Third, says the Survey, we need flexible labour laws.

Any chance?

(To be concluded)

PART I

PART III