UPA's Communist allies are throwing a spanner in the works of economic reforms and the liberalisation regime

The UPA Government was all waiting for self-congratulation in the Budget when rising inflation burst the bubble of nine per cent growth. In the process, the Government's cleft foot has been exposed. Near seven per cent inflation in wholesale prices with over 10 per cent inflation in several parts of the country mocks at the claim that for two successive years of the UPA regime, growth has been nine per cent plus with a double-digit growth aimed for the coming financial year.

Since November 2006, the UPA Government has been on a fire-fighting mode with many classical anti-inflationary steps. The Reserve Bank has been raising its interest rate so much that it is now almost 7.5 per cent. The central bank has also raised the CRR and has mandated several other steps. But the inflation rate has moved up from four per cent to 6.58 per cent. It has been steadily climbing despite these steps to douse the demand flame and reduce money supply.

The origin of this runaway inflation is not in the bloating money supply or demand push. If it were so, the bank rate increase would have taken care of it. Prime Minister Manmohan Singh being an economist should have known that with so many populous policies that his Government has launched after coming to power in 2004, there would be an inflation if the process of economic reforms were not pursued to its logical end.

For instance, the Government could have easily mopped up funds from the market through speedy disinvestment process of PSUs. But the Congress's allies did not allow even partial disinvestment or sale of the five to 10 per cent of equities it held in these PSUs. Not a single PSU - not even a loss-making one - was sold. The Left forced Mr Manmohan Singh to withhold the partial disinvestment in PSUs like BHEL, which he had announced. Another ally, the DMK, threatened to quit the Government when the Prime Minister announced the partial sale of holding in Neyveli lignite mines and related power stations. The bank unions, with Left support, have stymied the Government proposals for raising funds through partial sale of equities in PSU banks.

Several newspapers have quoted official sources as expressing concern on revenue deficit in the next fiscal mainly due to plan expenditures that are "populist, susceptible to political pressures and sweeping in terms of the claims of potential benefits to millions of people". This again adds to the mismanagement of the economy. One telling instance is that the Planning Commission wants to restrict further expansion of the NREG programme to only 50 districts, while the Rural Development Ministry wants it to extend to 200 districts.

In other words, the Planning Commission is saying that the projected benefits from NREG - billed as the Congress president's pet scheme - are more imaginary than real. The plan expenditure is expected to be 15 per cent higher in the coming financial year, most of it on the so-called social schemes. The education cess is going to be raised by one per cent mainly because of the haste shown in extending reservations to OBCs and religious groups, thanks to the UPA's vote-bank politics. This is like shooting one's own foot as the inflationary impact would decelerate growth.

At every step the UPA Government has to succumb to the undue demands made by the Communist allies. Even within the Congress, backbiting has been going on for long. What other explanation could be there for the Congress president to write that four-line letter to the Prime Minister on the issue of special economic zones after over 40 of these were sanctioned and over 240 were waiting for sanction?

Our economist Prime Minister knows that there is no escape from massive expansion of the infrastructure if Indian corporates are to remain ahead in today's globalised scenario. However, some allies of the UPA Government are vehemently blocking its major economic decisions; the Left, for example, is opposing the Centre's SEZ policy. Ironically, in the Left-ruled West Bengal, the Indonesian Salem group has been allowed to build an SEZ at Nandigram against local opposition to land acquisition.

No wonder the investments already made in the infrastructure are not giving the desired result. Instead they are adding to the inflationary pressures, pushing up the price line. For instance, the progress on the Golden Quadrilateral and related projects planned by the previous NDA Government are crawling for the lack of funds. Worse, even the roads already built are not being utilised in full. At the other end, the reforms in insurance, banking and pensions are held up preventing needed support for the expansion of trade and industry. It is ironical to see the Left first driving the Government in the wrong direction and then threatening with street demonstrations against its "wrong" economic policies.

The UPA Government was gloating over its "pro-farmer" policy. Now it has to admit that in the last 12 months, agricultural production has declined, especially in foodgrains, pulses and edible oils. It is going to increase the import of agricultural products to make up for the deficit. This decline means the inflation rate in rural areas is higher at around 10 per cent. And though the Government made a big show about curbing the suicide of the farmers by publicly granting cheques to the dead farmers' families, the tragedy continues to evade a solution.

One can only commiserate with Finance Minister P Chidambaram as he is forced to ride two horses at the same time. As he prepares to present the Budget, his promise at all meetings of chambers to pursue the reforms appears to be a mirage. His Government, after all, is reined in by the Left parties on the one hand and by the subtle manoeuvres of his own party president on the other. In any other country, after the ruling party president snubs the Prime Minister in a four-line letter that is duly leaked, the latter would quit rather than suffer such humiliation - more so when the head of the Government has to take some tough decisions to improve the economy.

The net result of this entire muddle would be a Budget that would neither promote growth nor curb inflation. In any case, if the Budget is based on the assumption of four per cent inflation, as is being reported, then the Finance Minister is clearly taking us for a ride.

Courtesy: www.dailypioneer.com, February 23, 2007