Political Economy: The CEO's Guide to Bharatiya Janata Policies, Pg 2

The BJP's Economic Doctrinaires

MURLI MANOHAR JOSHI
Perhaps the most learned of all senior party leaders on economic issues, Joshi is articulate, intelligent, and, at times, aggressive. A swadeshi by conviction rather than by compulsion, he is convinced that the costs attached to foreign investment exceed its benefits--at least in the short run.

JASWANT SINGH
But for Singh's shock defeat in the Lok Sabha elections, his would have been the most realistic--and rightist--voice in the BJP government, urging quick de-bureaucratisation. Despite his unpopularity among the party's traditional ideologues his influence is strong.

YASHWANT SINHA
A former Indian Administrative Service officer, Sinha has seen his importance grow--especially within the party--after his rousing victory in the last Lok Sabha elections. A centrist in his leanings, Sinha wants to free economic policy-making from all ideological trappings.

LAL KRISHAN ADVANI
His approach is both tactical and practical. Advani's adaptability to change was proved when his fierce opposition to Enron's power project in 1995 changed into tacit consent in 1996. His excellent administrative skills will compensate for any ideological bent in belief.

S. GURUMURTHY
Best known for his campaigns against Reliance Industries and Enron's Dabhol power project, Gurumurthy--the convenor of the Swadeshi Jagran Manch--is probably the most influential and radical non-member economic ideologue of the BJP. The depth of his knowledge makes him important.

For a section of the BJP, the WTO--the World Trade Organisation--actually stands for the West's Trickery Organisation. While that symbolises the party's dissent with--or mockery of--the agreements that previous governments have signed with the world's apex trading body, most BJP leaders have reconciled to the fact that the withdrawal of membership is a not an option. Renegotiation, however, is. Points out Joshi: "The commitments made to the WTO are not carved in stone. We will go back to renegotiate some agreements. I have enough faith in the ability of India's bureaucrats and technocrats to strike a fine balance between honouring commitments and protecting national interests."

Nobody knows yet what the renegotiations will be all about. Says Gurumurthy: "India must first decide what it wants. Unless we do adequate homework, we cannot talk of negotiations or renegotiations." He blames the previous governments for entering into commitments on behalf of industry and farmers without apprising them of the consequences. The party aims to create a two-tier consensus before approaching the WTO: internal consensus among corporates, the government, and the people; and external consensus among all developing countries dissatisfied with the trade agreement. Says the 63-year-old R. Ramakrishna, a member of the BJP's economic cell: "Our aim is to stay within the ambit of the WTO. But our negotiations will be rigorous."

BT Interpretation: Withdrawal from the WTO is ruled out. Even renegotiation on existing commitments will depend on the extent of support for flogging dead horses that the country can garner among other developing countries. But the party's strong views will ensure that all subsequent international trade agreements are more widely discussed, better argued, and, probably, better negotiated.

Since Independence, the BJP has opposed nationalisation even as it has supported economic nationalism. Even the BJP hardliners--leaders affiliated to the Rashtriya Swayamsevak Sangh and the SJM--admit that the profit motive ensures business efficiency. The party, therefore, seeks dilution in government stakes in public sector units (PSUs), hoping to retire a large proportion of the public debt, and boost the capital market, in the process.

But the BJP refuses to spell out a programme for complete privatisation. Says the 60-year-old Yashwant Sinha, a BJP MP: "We desire to end the monopoly of PSUs as fast as possible. But, in most cases, full-scale privatisation will require a national consensus." Also, the SJM opposes the sale of equity stake in psus to foreign companies--or even foreign institutional investors (FIIs).

BT Interpretation: Expect faster divestment--and, probably, an outright sale--of PSUs producing consumer goods. However, by making consensus a precondition for privatisation, the BJP has jettisoned its promise of relinquishing government control in PSUs.

The good news: the BJP intends to use an expansionary expenditure policy to reverse the economic downswing. The bad news: the party is silent on the feasibility of doing so. Says Joshi: "The fiscal deficit target, of below 5 per cent of GDP, is inimical to growth in a country like India. The deficit must go on to hike Plan expenditure, which will create a virtuous cycle of income, employment, and growth." The party is keen on containing government consumption. What it intends to eliminate is the revenue deficit, even as it maintains a high fiscal deficit.

On subsidies, the BJP hopes to target the needy. The SJM, for instance, proposes the abolition of all subsidies to farmers, replacing them with direct cash assistance. There are equally radical proposals in taxation. A growing minority within the party advocates the abolition of personal income tax. Says the 73-year-old Amitav Ghosh, a BJP functionary: "The abolition of income tax will solve the problem of black money, and release funds for productive uses." His views are endorsed by the SJM.

BT Interpretation: Greater tolerance for inflationary financing of growth runs contrary to the policy objectives propagated and pursued by North Block and the Reserve Bank of India (RBI) in the past five years. Given the fact that past attempts to rein in the fiscal deficit have met with more failures than successes, the BJP's stand on the deficit is realistic. At least one year's freeze on tax rationalisation is likely.

This is one area where the BJP lacks consistency. Just six months after having opposed the Insurance Regulatory Authority (IRA) Bill in the Lok Sabha, the party is now willing to allow private Indian players into the preserve of state-owned corporations in the sector. Says Sinha: "It will not only improve service, but also channel funds into infrastructure." Wise words, but why this belated wisdom? Sinha attributes the opposition to the Bill--and the turnaround in the party's position--to the fact that the Bill was not clear on whether the IRA would have the powers to permit the entry of foreign insurance companies, which the BJP opposes.

On banking, the party underscores the need for mergers to create large institutions--a view propagated by Chidambaram. Explains Kumaramangalam: "We favour mergers because they will strengthen the financial system and improve the institutions' ability to withstand economic reversals." The party's stand on them is not clear: while Shah does not expect any new restrictions to be imposed on the FIIs, Joshi, Dubashi, and Jagdish Shettigar--a member of the BJP's economic cell--support a lock-in period for FIi investment.

BT Interpretation: Domestic private sector entry to the insurance sector is only a matter of time. Unless, of course, the opposition tries to exact revenge by stalling the Bill to that effect. Banking reforms will sail smoothly if the BJP lives up to its promise of ensuring more autonomy to the RBI. Restrictions on the FIIs is unlikely, given the repercussions on foreign exchange and capital markets.

With the BJP's special emphasis being on administrative reforms, a lot is expected from the new government. But without experience in administration, can the BJP hope to achieve what it says it wants to? Affirms the 49-year-old Rakesh Mohan, the director-general of the National Council of Applied Economic Research: "The party's agenda is important, desirable, and doable." There are two distinct components to this agenda: a reduction in the number of central ministries; and specially-appointed bureaucrats for the economic, the scientific, and the social ministries. To institutionalise such a relationship, the BJP has proposed creating an autonomous body modelled on the Japanese Ministry of International Trade & Industry, a.k.a. MITI.

The party is committed to amending the Industrial Development & Regulation Act, 1956, and the Indian Telegraph Act, 1886. It also promises to change labour laws to facilitate worker participation in management. And all industrial laws and bylaws that breed dilatory discrimination will be amended or eliminated. Says the BJP's Jaswant Singh, 59: "There is a need for a bonfire of old, archaic, and obsolete rules and regulations." But the BJP is silent on the creation of new laws, be it an exit policy or a safety net for workers.

BT interpretation: High hopes of de-bureaucratisation will be laid low by lack of grit once the party forms the government. Don't forget that the BJP has, virtually, no experience in governance at the Centre. However, greater co-operation and consultation with industry is certain. And legal reforms will trundle along, but not significantly faster.

It is the most consistent feature of the BJP's programme. The party promises to put eight projects on stream by 1998. It also plans to form a national power trading corporation and to convert major ports into companies and permit privatisation of small ports. Moreover, it seeks to constitute a national highway development corporation, and modernise the four national highways. And it wants to corporatise the telecom department and empower the regulator. In every sector of physical infrastructure, the commitment is definitive. Says Shah: "Infrastructure is the engine of growth. The BJP will do everything to get the engine started and chugging.

By contrast, the lack of specific proposals on social infrastructure is disconcerting. Both Sinha and Kumaramangalam talk of increasing expenditure on health and education and public investment in physical infrastructure in the same breath. But neither of them provides any clue to the sources of funds.

BT interpretation: A drive to speed up investment in the economic infrastructure will be attempted and, to some extent, attained. But given the key role of the states in infrastructure development, success in terms of actual addition to existing capacities will be limited. That goes for social infrastructure too.

In sum, although it looks like pragmatism, what the BJP really wants to manage the economy with is idealism. It is the party's ability to translate belief into policy that will determine the real shape of corporate India's playing field. And indicate whether BJPnomics really means (Indian) business.

--Additional reporting by Sunit Arora, Avijit Ghosal, Nanda Majumdar, Ranju Sarkar, George Skaria, & R. Sridharan