Tough tasks ahead

Although he arrives in North Block labelled as Atal Behari Vajpayee8217;s second best choice, Yashwant Sinha can take heart from the generally positive corporate and stock market reaction to his appointment as Finance Minister. It is as clear a signal as business and industry could hope for from the new Prime Minister of his intention not to allow the hardline swadeshi lobby free play in the economy. Some changes can be expected but, reassuringly, no dramatic departures from the broad reformist direction of previous government policy. Second, Sinha8217;s administrative experience, including a short stint in Finance in the Chandra Shekhar Government, should be an advantage not least because the government does not have the luxury of time. There are barely eight or ten weeks in which to get to grips with the job and present a Union budget which will boost the flagging economy in practical and psychological ways. That task is not made any easier by the perceived need to make the BJP8217;s 8220;historic8221; first budget memorableand still keep it workable.

The most useful asset Sinha can bring to his job will be the sense of realism he displayed in his chequered career in politics with his readiness to jettison uncomfortable ideological baggage. Management of the economy in its present state demands the kind of realism the BJP8217;s political managers were required to bow to in putting together a Parliamentary majority and Cabinet. The economy is in much better shape than in 1991 when Sinha had to pledge the country8217;s gold reserves to meet external payment obligations. Nevertheless, there are many serious problems and even to begin to resolve them makes it essential for the BJP quickly to distance itself from some of its election campaign rhetoric. It would do itself a favour by buttoning up some of the loose talkers in the Sangh Parivar. As things stand today, exports are doing very poorly, the weaker rupee is not enough to improve prospects and competition from East Asia a lot fiercer than before. The reality is that it will beseveral years before the export sector can turn itself around and make its expected strong contribution to the country8217;s foreign exchange reserves. In this situation it is but prudent to avoid putting unnecessary constraints on foreign investment.

Pump-priming is the right diagnosis just now for economic sluggishness but not an easy one to act on after the fall in revenue collection and the rise in the fiscal deficit. Higher public and private sector spending which Sinha mentioned at his first Press conference will depend on the government8217;s ability to raise new resources at home and abroad. Tax-and-spend could be one way but for the political obstacles it would present to a precariously placed coalition. Ditto for cutting down wasteful expenditure. The BJP8217;s admirable manifesto goal of raising the domestic savings rate to 30 per cent will materialise, if at all, in the longer term. That leaves immediately the very options the United Front balked at: public sector disinvestment, opening up the insurancesector and drastic changes in approval procedures for investment in infrastructure projects. Realism demands action here.