POLITICAL ECONOMY
The Reform of the ReformistsFailing to derive any gains from its Swadeshi ideology, which it has pursued
ever since it came to power, the A.B. Vajpayee Administration is now banking on reforms to
spark off an economic revival. And secure its future. Will it?
By George Skaria
 When push comes to shove, even ideology loses its sheen. For a government
that has steadfastly pursued Swadeshi economics, the last four weeks, when the A.B.
Vajpayee Administration has announced a string of reforms, are more a confirmation of the
fact that liberalisation is a given--not a choice.
Whether it is the decisive policy boost to the infotech
industry, especially software export, the delicensing of the sugar industry, or the
decision to join the Paris Convention, 1967, for the Protection of Intellectual Property
Rights, the Vajpayee Administration is, finally, speaking--and acting--unequivocally. But
much of its reformist zeal has to do with the events of May 11 and 13, 1998: the
Pokhran-II nuclear tests, which invited the global community's economic sanctions, and
dampened investor interest in India. Little wonder, then, that the Indian nuclear state is
now in an aggressive mode to attract foreign investment into the economy.
However, while the initial trigger might have been
Pokhran-II, the pace of the reforms is now being dictated by the prime minister himself.
After being the Bharatiya Janata Party's (BJP) crisis-manager for nearly 4
months--defusing coalition crises as and when they occurred with the help of his
confidante, Jaswant Singh--Vajpayee has now jumped into the economic arena. Obviously, he
realises that the BJP's political future hinges on the way it manages liberalisation, not
politics.
Therefore, Vajpayee is not only muzzling the protectionist
voices within his party, he is actually seizing the reins of reform from the Union Finance
Minister, Yashwant Sinha, 62. Indeed, the Prime Minister has already cranked up the
machinery at the policy-formulation level: while a core group of ministers and another of
economic ministers will review the reforms, the Cabinet Committees will meet more
frequently to push the pace of transformation.
To ensure that the reforms are not stonewalled in Parliament,
the Union Minister for Power, Rangarajan Kumarmangalam, 46, the Union Minister for Coal,
Dilip Ray, 45, and Sinha have been entrusted with the task of creating a climate of
political consensus. Explains a senior leader in the BJP: "The lead has come directly
from the prime minister. Evidently, lack of communication was stalling reforms in the Lok
Sabha and the Rajya Sabha."
Lack of involvement was hurting business too. But that was
taken care of when Vajpayee set up a 12-member Council On Trade & Industry and a
10-member Economic Advisory Council. Points out Tarun Das, 61, the Director-General of the
Confederation of Indian Industry: "There is a sudden sense of urgency, and the
government is urging industry to take up economic reforms as a joint challenge." The
profile of the two panels reflects the intentions of the GOI. While the CEOs of
globocorps--such as Reliance Industries' Mukesh Ambani, Sundram Fasteners' Suresh Krishna,
Ranbaxy Laboratories' Parvinder Singh, Infosys Technologies' N.R. Narayana Murthy, and the
Aditya Vikram Birla Group's Kumar Mangalam Birla--will plump for globalisation
unhesitantly, pro-reform economists--such as Montek Singh Ahluwalia, Member, Planning
Commission, and G.V. Ramakrishna, Chairman, Disinvestment Commission--are undoubtedly
bound to press the accelerator too.
Within the government, a recharged Vajpayee is banking on two
key lieutenants: the new secretary in the Prime Minister's Office, N.K. Singh, 57, and the
Union Minister for Industry, Sikander Bakht, 80. Singh, who is now the link between the
prime minister and the economic ministries, will increase co-ordination between ministries
to reduce the delays. Points out Amit Sharma, 46, the Country Manager of Motorola India:
"Greater co-ordination will draw the entire machinery of the government into the
vortex of change. It will create a sense of urgency."
For the BJP, individual initiatives will matter as well.
Echoing the prime minister's thoughts, Bakht, for instance, has played a crucial role in
resolving the Maruti-Suzuki spat, and delicensing the sugar industry. And he is
particularly keen that the banking, civil aviation, telecom, mining, housing, and real
estate sectors should be opened up for foreign investment. Slowly, but surely, the
reformists have started surfacing within the coalition government. But are these bold new
initiatives provocative enough to hasten an economic recovery?
No, since the Vajpayee Administration is still hobbled by its
inability to implement change fast. Caught in an industrial slowdown, business wants
action--not initiative. After all, sentiment is weak not only at the level of investment,
but at the point of consumption as well. Swadeshi politics, Pokhran-II, coalition tremors,
and the government's inability to respond with the only weapon at its disposal--more
reforms--have postponed a recovery. After lightening business' despair with its new
thrust, the government's next step should centre on making its reforms process work. Only
such determination can provide the Vajpayee Administration with the credibility that
economic change desperately needs.
THE BHARATIYA JANATA PARTY'S REFORMS THRUST
PSU DISINVESTMENT
PROGRESS TILL JUNE, 1998
The Core Group on Economic Matters (CGEM) decides to disinvest government
stake in GAIL, VSNL, IOC, and CONCOR in September even if the markets remain depressed.
PROGRESS TILL JULY, 1998
The Group Of Ministers (GOM) agrees that the Disinvestment Policy will continue for
1998-99. The Department of Economic Affairs (DEA) is asked to fix time-schedules.
ACTION PLAN
The DEA submits reports of inter-ministerial taskforces to the Core Group of
Secretaries (CGS). The target date for the IOC GDR issue is set for November 9.
BT ASSESSMENT
Market realities threaten to delay the disinvestment process. Already, divestment
in concor, which was scheduled for September, has been delayed.
PSU STRATEGIC SALES
PROGRESS TILL JUNE, 1998
Strategic sale of upto 74 per cent proposed in KIOCL, BALCO, BRPL, ITDC, and Modern
Foods. Initial sale of upto 51 per cent planned in Modern Foods and BALCO.
PROGRESS TILL JULY, 1998
BRPL's board is asked by the Prime Minister's Office (PMO) to pass a resolution by
the end of the month. ITDC comes out with an advertisement for the selection of a global
advisor.
ACTION PLAN
The inter-ministerial taskforce on divestment in KIOCL and BALCO submits its
report, which is approved by the Steel & Mines Ministry.
BT ASSESSMENT
With differences mounting between the Disinvestment Commission and the Finance
Ministry on the modalities of sale, the process is unlikely to start soon.
PROJECT IMPLEMENTATION
PROGRESS TILL JUNE, 1998
The Department of Programme Implementation (DPI) reviews power, coal, petroleum,
roads, ports, telecom, and civil aviation projects.
PROGRESS TILL JULY, 1998
The DPI submits 115 reviews for projects above Rs 100 crore to the Finance Ministry
and the Planning Commission. Given the large number of projects, it is decided to review
the critical ones.
ACTION PLAN
Meetings are held by the DPI with the Orissa and the Andhra Pradesh governments on
land compensation.
BT ASSESSMENT
The DPI has suggested ways to rationalise the costs and times involved in project
implementation. But it may not be able to implement its recommendations.
POWER COUNTER-GUARANTEES
PROGRESS TILL JUNE, 1998
The Finance Minister and the Planning Commission Deputy Chairman agree on the need
to clear counter-guarantees to 3 fast-track power projects: Vizag, Bhadravati, and ST-CMS.
PROGRESS TILL JULY, 1998
Problems pertaining to the coal linkages of the Hindujas' Vizag project are sorted
out, and the issue is referred to the Union Cabinet.
ACTION PLAN
All the 3 projects are issued counter-guarantees. Mangalore and Ib Valley projects
to be considered on a priority basis.
BT ASSESSMENT
The Power Ministry is not lacking in action. Yet, the GOI's target of ensuring that
all fast-track projects go on-stream by December, 1998, will not be achieved.
PRIVATE CELLULAR PROJECTS
PROGRESS TILL JUNE, 1998
The Finance Minister meets the Communications Minister to speed up projects. It is
decided to defer the payment of licence-fees by 6 months.
PROGRESS TILL JULY, 1998
The decision awaits the Law Ministry's clearance. The telecom secretary meets
private cellular operators on July 21 to get their feedback.
ACTION PLAN
Based on the reponses from the July 21 meeting, the Department of
Telecommunications (DoT) prepares a note for the approval of the Cabinet.
BT ASSESSMENT
With a revenue-sharing arrangement likely to replace the licence-fee system,
cellular firms will get temporary relief.
INFRASTRUCTURE BRIDGE-FINANCING
PROGRESS TILL JUNE, 1998
The Finance Ministry and the Reserve Bank of India (RBI) agree to put in place a
mechanism to provide bridge finance for infrastructure projects affected by economic
sanctions.
PROGRESS TILL JULY, 1998
The Finance Secretary and the RBI Governor meet to discuss the modalities. Both
feel that Financial Institutions (FIs) can step in to fund the infrastructure projects.
ACTION PLAN
The FIs argue that an indiscriminate overexposure could send wrong signals to the
international financing community.
BT ASSESSMENT
The government is yet to find a way of making bridge finance available. Unless a
decision is taken soon, sanctions could hurt new infrastructure projects.
INSURANCE BILL
PROGRESS TILL JUNE, 1998
The Finance Ministry is asked by the CGEM to place all pending insurance proposals
before the Cabinet. The ministry indicates that a lot of private players have only
indicated informal interest.
PROGRESS TILL JULY, 1998
A draft Cabinet note is prepared and sent to the Law Ministry for comments. The
Cabinet meeting of July 21, however, fails to take a decision on insurance privatisation.
ACTION PLAN
Considering the political sensitivity of the privatisation proposal, it is decided
to refer it to the GOM for consideration.
BT ASSESSMENT
The government has bought time till the next Parliamentary session in November,
1998. It is also waiting for more formal proposals from private investors.
SSI DERESERVATION
PROGRESS TILL JUNE, 1998
The Commerce Ministry suggests dereservation in sectors such as garments, toys, and
leather goods, which have been all reserved for Small-Scale Industry (SSI).
PROGRESS TILL JULY, 1998
The ministry consults the Departments of SSI and Industrial Promotion to prepare a
note for the Cabinet Committee on Foreign Trade (CCFT).
ACTION PLAN
A draft is prepared and discussed by the various ministries concerned. However,
there is no consensus on what the shape of the final policy should be.
BT ASSESSMENT
A clear political non-starter, SSI dereservation--even for the exclusive purpose of
exports--is unlikely to be cleared by the Cabinet in a short time.
DOT CORPORATISATION
PROGRESS TILL JUNE, 1998
Following moves to corporatise the dot, the Communications Ministry decides to
resolve the provident fund and pension issues as early as possible.
PROGRESS TILL JULY, 1998
The DoT holds a meeting with union representatives on July 10 and 24. The matter is
also discussed by the Finance and Communication Ministers.
ACTION PLAN
Another round of meeting is held with the unions by the dot. An alternative payment
proposal is presented to the Finance Ministry.
BT ASSESSMENT
The actual process of corporatisation is unlikely to happen soon given the
differences of opinion between the workers and the management.
INFRASTRUCTURE PROJECTS
PROGRESS TILL JUNE, 1998
The Power, Petroleum & Natural Gas, and Telecom Ministries decide to monitor
the impact of sanctions, and clear 6 new projects every 60 days.
PROGRESS TILL JULY, 1998
The Mines Ministry clears 47 proposals, the Surface Transport Ministry clears 24
projects, and the Railway Ministry negotiates fresh loans.
ACTION PLAN
Capital goods imports from Japan for 3 petroleum refineries are cleared by the
Finance Ministry. However, US imports do not get clearances.
BT ASSESSMENT
Even 3 months after the imposition of the sanctions, only a handful of ministries
have a detailed impact-analysis ready. Any counter-measures will take even longer.
FOREIGN EXCHANGE MANAGEMENT ACT
PROGRESS TILL JUNE, 1998
The DEA prepares a Bill--the FEMA, which will replace the Foreign Exchange
Regulation Act--for introduction in the Budget Session.
PROGRESS TILL JULY, 1998
The Cabinet decides to table it in Parliament along with a new Money Laundering
Bill that will be prepared by the Department of Revenue.
ACTION PLAN
A draft note is sent by the DEA to the Department of Legislative Affairs and
discussed by the Cabinet.
BT ASSESSMENT
With the drafts of the two Bills ready, the FEMA and the Anti-Laundering Bill may
become laws by early 1999.
AGRICULTURE EXPORT DECONTROLS
PROGRESS TILL JUNE, 1998
The Commerce Ministry prepares a paper on a long-term export policy for the
Cabinet's consideration. A draft note is circulated amongst the members of the Cabinet
Committee on Prices (CCP).
PROGRESS TILL JULY, 1998
Since some ministries are unable to respond in time, the Commerce Ministry
finalises the draft note without waiting for their comments.
ACTION PLAN
The draft is discussed by the CCP, but no decision is taken. The Commerce Ministry
argues that the controls should be freed as per the World Trade Organisation guidelines.
BT ASSESSMENT
This is yet another instance of the Commerce Ministry trying to pursue a reform
resisted by the other ministries. Full-scale reforms are unlikely soon.
TECHNOLOGY IMPORT LIBERALISATION
PROGRESS TILL JUNE, 1998
The Department of Industrial Promotion is asked to look into the issue of lifting
restrictions on technology imports. Views are sought from all economic ministries.
PROGRESS TILL JULY, 1998
Even as most ministries favour a status quo on technology imports, the Industry
Ministry decides to refer the matter to the cgS.
ACTION PLAN
A draft note is prepared by the ministry for reconsideration. However, a fresh
round of meeting of the various economic ministries does not reach any agreement.
BT ASSESSMENT
The issue is unlikely to be treated as urgent. An early decision is unlikely.
LABOUR LAW REVIEW
PROGRESS TILL JUNE, 1998
The Commerce Ministry prepares a draft note on changes in labour legislation in the
Export Promotion Zones for the Labour Ministry.
PROGRESS TILL JULY, 1998
There is disagreement between the two on the nature of the changes. The Labour
Ministry wants to execute changes in a phased manner.
ACTION PLAN
The Labour Ministry prepares a note for the Cabinet. However, the Cabinet is unable
to discuss the changes suggested by the ministry.
BT ASSESSMENT
Considering that no government since 1991 has been able to amend the labour laws,
the Commerce Ministry's initiative appears bold. The pmo's backing is critical.
PRIVATISATION OF RAILWAY SERVICES
PROGRESS TILL JUNE, 1998
The Railway Board is asked by the CGEM to look into the possibility of privatising,
or leasing, various services at railway stations.
PROGRESS TILL JULY, 1998
The CGEM decides to look into the privatisation of tourist services, private
ownership of coaches on important trains, and the setting up of budget hotels by private
parties.
ACTION PLAN
The Railways Ministry prepares a note for the Cabinet's consideration. It seeks
comments from the Industry and Finance Ministries.
BT ASSESSMENT
Considering that the proposal is yet to reach the Cabinet, and is still to be
assessed by the Law Ministry, no headway is likely soon.
POWER REGULATORY BODIES
PROGRESS TILL JUNE, 1998
The Power Ministry is asked by the CGEM to draft a Bill for setting up a power
tariff and a central tariff regulatory authority.
PROGRESS TILL JULY, 1998
Ordinances issued in this regard are converted into an Act, which is notified by
the Power Ministry on July 24.
ACTION PLAN
It is also decided to set up State Electricity Regulatory Commissions (SERCs).
BT ASSESSMENT
Investor-friendly states will take the lead in setting up SERCs. Already, Orissa,
and Rajasthan have initiated steps to do so.
AIRPORT INFRASTRUCTURE PRIVATISATION
PROGRESS TILL JUNE, 1998
To reduce delays in the clearance of cargo, the Civil Aviation Ministry decides to
allow private entry into warehousing and other services.
PROGRESS TILL JULY, 1998
The CGEM seeks comments from the economic ministries to help it prepare a draft
note on the privatisation of airport infrastructure.
ACTION PLAN
The Civil Aviation Ministry has meetings with the Export Promotion Board on the
privatisation issue. It is decided to reduce the cargo clearance time to just 24 hours.
BT ASSESSMENT
Although a draft note is being finalised, private investment is likely to be
allowed, initially, only through joint ventures.
AIRPORT AND PORT MODERNISATION
PROGRESS TILL JUNE, 1998
An inter-ministerial taskforce comprising the Civil Aviation, Surface Transport,
and Commerce Ministries is formed to look into modernisation.
PROGRESS TILL JULY, 1998
A time-frame for the implementation of an infotech programme is set for all
airports and ports. The taskforce also decides to monitor progress every 15 days.
ACTION PLAN
Electronic data management is introduced at Mumbai, Tuticorin, Madras, Cochin,
Calcutta, and Nhava Sheva. Computerisation of the ports' Customs offices begins.
BT ASSESSMENT
The involvement of multiple ministries is bound to stagger the modernisation
programme.
FUTURES TRADING
PROGRESS TILL JUNE, 1998
The Department of Consumer Affairs (DCA) moots a proposal to permit markets for
futures, forwards, and options in all agricultural commodities.
PROGRESS TILL JULY, 1998
Futures trading in cotton is approved by the Cabinet. The Finance Ministry
announces a World Bank loan for commodity exchange modernisation.
ACTION PLAN
The DCA prepares a note for the Cabinet on how to strengthen the Forwards Markets
Commission.
BT ASSESSMENT
With all ministries supporting the move, forward trading in edible oils and cakes,
groundnut, mustard and rapeseed etc. could be allowed in 6 months.
COAL SECTOR LIBERALISATION
PROGRESS TILL JUNE, 1998
The Coal Ministry considers introducing a proposal to amend the Coal
Nationalisation Act in the Budget Session of Parliament.
PROGRESS TILL JULY, 1998
With the concurrence of the PMO, the ministry finally decides to defer amendments
to the Coal Nationalisation Act.
ACTION PLAN
The ministry prepares a draft note to permit coal mining for non-captive purposes.
BT ASSESSMENT
Given the Coal Ministry's willingness to liberalise the industry soon, a Bill to
amend the Coal Nationalisation Act could be tabled in the next session of Parliament. |
