Policy Watch: Pass, But Without Honours

At the end of one year in office, the government scores high on policy but fares poorly on implementation.

At the offices of the Press Information Bureau in Delhi, the government's spin doctors are in a spin. In one week, the third Atal Bihari Vajpayee government completes a year in office and it's time to tot up its pluses and minuses.

But Vajpayee himself has already started looking ahead. Going by what he said in the US, the government will, among other things, push through banking sector reforms, further open up the aviation and telecom sectors, and free industry from the maze of procedures (See Agenda For Year 2). The Prime Minister's Economic Advisory Council is drawing up a common approach paper covering reforms in railways, agriculture, banking, and labour, which will be placed before chief ministers.

The Agenda for Year 2

Ť Committee set up to review rules and procedures and eliminate inspector raj.
Ť Amendment in Bank Nationalisation Act, 1972, to reduce government stake in banks to 33 per cent, to be ready for winter session.
Ť Disinvestment in oil and telecom companies, state-run airlines, and hotels.
Ť Communications Bill dealing with Convergence Bill to be tabled in winter session.
Ť Law on insolvency and competition to be finalised.
Ť New Electricity Bill to institutionalise power sector reforms.
Ť New civil aviation policy, which will set up a regulator.

Sounds good, and it's just what industry wants to hear. But will the government deliver? For it hasn't quite lived up to several promises it made in October 1999-faster disinvestment, cutting subsidies, slashing government expenditure, and a big housing and employment push.

Bharti Enterprises Chairman and Managing Director, Sunil Mittal, may certify the government's performance as ''excellent'' but quickly adds a rider. Says Mittal, 43: ''The implementation needs to be stepped up.'' Former Finance Minister P. Chidambaram, 55, is harsher: ''The government's performance is marked by good intentions, but incompetent implementation.'' South Block takes it well. Admits Sudheendra Kulkarni, 43, Director, Prime Minister's Office (PMO): ''Our policy intent has been in the right direction, but we need to perform better in implementation.'' Rationalises Amit Mitra, 52, Secretary-General of the Federation of Indian Chambers of Commerce and Industry: ''The hardest phase of reforms has fallen into the government's lap.''

Certainly, this government, buoyed by a stable political scenario, has focused closely on the economy. Claims Kulkarni: ''We have sent out a message that here is a government that wants to take India on the path of rapid all-round development.''

Team Vajpayee certainly set a scorching pace in its first three months. It got the country moving towards Value Added Tax (vat), set up a separate Department of Disinvestment, which concluded the country's first-ever privatisation, and reduced interest rates on small savings. For Corporate India, the good news came in the form of FDI in all but four categories of industries being put on the automatic route, and making it easier for companies to access external commercial borrowings and tap global markets. Attests Saumitra Chaudhuri, 47, Senior Economist, Investment Credit and Rating Agency: ''The first few things they did strengthened expectations.''

But a populist Railway Budget and a high-deficit Union Budget took the fizz out. The stockmarkets reacted by turning bearish and industry cried foul. A reformist export-import policy didn't help very much. And though the economy continued to be on the frontburner, the flame was on 'SIM'. Most of the big-ticket reforms since then have concentrated largely on the telecom and infotech sectors, with little attention paid to several important areas.

Public finances, for example. Last year, the fiscal deficit had been budgeted at 5.6 per cent. With the Kargil war and the General Elections adding a burden of Rs 3,269 crore, the deficit inched up to 5.9 per cent. The interest burden on government borrowings soared to Rs 88,000 crore. For India Inc. that was bad news. Says a leading corporate economist: ''Large government borrowings keep interest rates high.'' Asserts Rakesh Mohan, 52, Executive Vice-President of the Infrastructure Development Finance Corporation (IDFC): ''The fisc is in a very serious problem. It should be engaging the government's attention day in and day out.'' That, however, is not happening.

Take expenditure control. Sure, Budget:2000 reduced food and fertiliser subsidy by Rs 1,700 crore and an Expenditure Reforms Committee (ERC) has been set up. But there's precious little beyond that. There's been no action on the two reports that the ERC has submitted on food and fertiliser subsidies and downsizing some ministries. Points out Chidambaram: ''There should be certain automaticity involved.'' Finance Minister Yashwant Sinha promised to table a Fiscal Responsibility Bill in the monsoon session of Parliament. A presentation by the drafting team outlined tough fiscal consolidation measures. That was the last that was heard of it.

Giving it company on the backburner is a proposal on restructuring government, which suggests reducing the number of ministries to 26, corporatising the Central Public Works Department and the government presses, and replacing the Central Government Health Scheme (CGHS) with a medical insurance scheme for government employees.

Disappointing, too, has been the government's record in privatisation. Sinha had expected to raise Rs 10,000 crore through privatisation and use this money to retire public debt. But the government has sold only one PSU-bakery major Modern Foods. Privatisation of 19 other PSUs is proceeding at snail's pace. Says S.S. Bhandare, 59, Economic Advisor, Tata Services: ''As a result, neither fiscal consolidation nor restructuring of PSUs is gaining any momentum.''

Conceding the point, Kulkarni points out : "The important point is that we are not stuck.'' Indeed, the government has managed to largely overcome resistance to privatisation. As Information and Broadcasting Minister Arun Jaitley, 47, who also held the disinvestment portfolio for seven months, points out: ''We created a favourable opinion for privatisation at a time when it was a bad word.'' But that's not enough for industry. Disinvestment figures high in the list of five things Mittal and Vice-Chairman RPG Enterprises, Sanjeev Goenka wants the government to focus on.

The government's ardent wooing of foreign investors hasn't set off an FDI flood. Despite putting most FDI applications on the automatic route and scrapping dividend-balancing requirements, FDI inflows in January-August, 2000, have been a measly $2.9 billion, far short of the targeted $10 billion. Rues a senior industry ministry official: ''India is on the radar-screen of investors, but investments are not flowing in.'' The Industry Ministry has been pushing for allowing FDI into hitherto prohibited areas like plantations and retailing, but has been blocked by various lobbies.

But the real issue, he admits, is that India is not an easy place to do business. Points out Bhandare: ''The time spent by a typical medium and large manufacturing unit in seeking various approvals and compliances is so burdensome, it can damage the entire growth momentum.'' Concurs Ross Stobie, 49, Chief Executive Officer of British Gas India: ''Though the Centre is keenly pursuing its agenda of reforms, this has yet to percolate to the states.''

Industry is also hassled by the poor state of infrastructure, though Mohan, the author of the India Infrastructure Report, is largely satisfied with the government's record.

Progress on the power front has been Corporate India's biggest letdown, though S.L. Rao, 64, Chairman of the Central Electricity Regulatory Commission, insists the country is better off than it was 10 years ago. Late Rangarajan Kumaramangalam, the Power Minister, had been pushing states to set up regulatory authorities and unbundle the state electricity boards (SEBs), facilitating private investment in both generation as well as transmission and distribution, trying to address the problem of revenue risks for Independent Power Producers (IPPs).

But he had little to show for all that. Says Rao: ''At every point came the difficulty of SEBs being unable to pay their bills.'' In the end, Kumaramangalam had only limited success in getting power sector reforms to percolate to the states. Industry is also disappointed with the regulators, which are filled with people from the judiciary or bureaucracy. Says Harry Dhaul, 47, Director-General of the Independent Power Producers of India: 'The quality of orders has suffered.'' With so many irritants, no private investment has come into the transmission sector and four transnationals have pulled out of private power projects since December. The government shrugs it off, riding high on three power agreements signed during Vajpayee's US visit. Says N.K. Singh, 59, Secretary, PMO: ''Some will exit, some will come in.''

There has, however, been some progress on roads. Work on the 13,252-km National Highway Development Programme, has begun. Model concession agreements have been worked out for large and small projects. What's dampening interest is the lack of a dedicated road fund out of which private entrepreneurs will be paid. Says Mohan: ''The appropriate allocations have been made. Action on the ground hasn't suffered.''

Where it has suffered is in the case of ports where turnaround time is a shameful 5.9 days. The government plans to corporatise major ports and has amended the Major Ports Trust Act to facilitate private sector participation. But there's little happening on the ground, though private ports have been set up in some states.

The only infrastructure area where the government can claim resounding success is telecom. Basic services have been opened up to unlimited competition, state monopolies in national and international long distance ended, the Telecom Regulatory Authority of India strengthened and cellular telephony will be completely deregulated. Beams Singh: ''The agenda for telecom reforms are more or less completed.'' Endorses Mittal: ''They have done all that they have promised.''

The devil, however, lies in the detail. The migration from fixed licence fee to revenue sharing has not been completed. National long distance telephony has been opened up but there's no word on the procedures to apply. Also, there's little clarity on how existing basic telephony licence holders will be treated. The Telecom Disputes Settlement and Appellate Tribunal hasn't started functioning. Says Senior Director, CII, Dilip Chenoy, 41: ''The time between announcements and implementation is too long.''

Priorities are, however, are a bit skewed in another glamour area-infotech-with software grabbing all the attention and incentives. The report on hardware by the National Task Force on it has been ignored. The report wanted customs check on hardware imports done away with, something the Finance Ministry has refused to consider. Argues Vinnie Mehta, 32, Director, Manufacturers Association of Information Technology: ''A well-developed software industry has to be based on a strong hardware industry.''

Several areas are left untouched. Labour law reform is one of them as is freeing agricultural trade.

The disappointment over the lack of ground-level reforms and a deterioration in macro-economic indicators has affected business confidence. Industrial production has slipped to 5.4 per cent, inflation has been hovering around 6 per cent, the rupee has fallen against the dollar by 5.5 per cent since April 1, and the fluctuations in global oil prices have cast a pall of gloom. Says Chidambaram: ''There is no joie de vivre in business circles.''

But the government isn't unduly worried. Asserts Singh: ''The macro fundamentals are healthy." Agrees S. Bhide, Principal Economist, National Council of Applied Economic Research : ''The economy is not significantly worse than it was an year back.'' More importantly, foreign banks are also optimistic about the future. American Express Bank Economist Arjun B. Mittal insists the bank is bullish on India. ''The feel-good factor may have dissipated, but it could well come back if things stabilise,'' he says.

For now, India Inc. would like the government to concentrate on disinvestment, reducing subsidies, labour law reforms, increasing capital spending, and wooing FDI. Is the PMO listening?