Opinion The fightback

Whichever was the reason,what we now have is the end of paralysis in government decision making. Last year,the government was afraid of making decisions. FDI in retail was mooted and then withdrawn. Diesel price hike was endlessly promised to no final conclusion. It was implicit in Pranab Mukherjee’s final Budget but not spelt out. We were being told tantalisingly by Dr Jaipal Reddy that it was coming but not immediately. This way of trying out each reform decision one by one was debilitating since it gave coalition partners multiple opportunities to grandstand.

The Presidential election was the turning point. UPA knew it had broad support and the Trinamool Congress was isolated. The Samajwadi Party has a forked tongue on FDI in retail since it says one thing in Lucknow and another in Delhi. The idea of bundling together several reform proposals—FDI in multi brand retail,FDI in aviation,diesel price increase and the simultaneous cut in petrol excise duty—together make it easier to face the doubtless populist moonshine which will be talked by the political parties within and outside the coalition. Economists call this increasing returns to scale. Better four radical measures together than one each week.

There is no doubt more to come. The Parthasarathi Shome Committee has suggested that the retrospective legislation regarding the Vodafone decision,which has upset many domestic and foreign investors and which would have no doubt dragged India into international litigation be re-examined. Rumour is that the retrospection may be rescinded by an ordinance which can then be passed in the Budget next year. Once the atmosphere of arbitrary changes in taxation is removed,investment which has dropped precipitously,can revive and then growth accelerate back to the target rate of 7 to 7.5 per cent. Chidambaram has been accelerating the divestment programmes which will also tackle the deficit by reducing the outstanding debt. A reduction in deficit would be another signal that the UPA is back in harness.

This is not a trivial matter. Whenever a subsidy is reduced,we are told about the misery of the aam admi. But no one admits that continuing the subsidy costs us all via budget deficit. The RBI Governor has refused to cut interest rates unless there is action on deficit. A cut in interest rate will bring immense relief across the board to all consumers. It will reduce inflation and restore people’s ability to save. The recent drop in savings rate from above 35 per cent to just 30 per cent has been very much due to persistent inflation and the hike in interest rate which has put up the cost of the mortgages and other monthly installments. The middle class has been bearing the brunt. Thus,while the diesel price hike causes some discomfort to those who use diesel-car drivers,tractor users,the overall balance will benefit people across the board.

It is difficult as of now to predict whether this will change the election prospect for Congress. My hunch is that it will,especially if the pace is kept up and growth improves and inflation comes down. Forecasting election results is an uncertain science but may be Congress has now begun its march upwards from 127 towards 150.