The Hindu Business Line : The other Bharat's backlash

By voting out the Vajpayee Government, the electorate, especially the rural voter, has only demanded parity. One good monsoon last year hid the fissures for the NDA Government to come up with its logo, India Shining. About 70 per cent of the population in the rural and semi-urban areas could not relate to it as their lives were hurtingly humdrum. In placing the farm sector as the first item on the agenda, economic reforms will not be hurt, says P. Devarajan, looking at the options before the new government.

ECONOMIC reforms do not permit the luxury of laziness. Nor can they be choosy. Reforms have generally been an urban phenomenon packed in hard disks for the computer savvy with the rural sector left out.

The Vajpayee Government took reforms a bit casually or rather could not seriously attend to economic issues with too many trying to trip them. Today, by voting out the Vajpayee Government, the electorate (especially the rural voters) has only demanded parity.

They want sadak, bijli and pani for farming and allied activities to provide a sustainable way of living. Every report of the Reserve Bank of India over the last five years has detailed the serious drop in public and private sector capital investments in agriculture.

One good monsoon last year hid the fissures for the National Democratic Alliance Government to come up with its logo: India Shining. Some 70-80 per cent of the population in the rural and semi-urban areas could not relate to it as their lives were hurtingly humdrum.

Just one instance: Mumbai, the financial capital, is islanded from any power break-downs. Take a drive out to Pune, Nashik or Amaravati, and power cuts are as common as poverty.

In Uttar Pradesh and Bihar, the public does not have the good luck of having even a few cities with uninterrupted power. A poor farmer has common sense enough not to blame a politician or a government for the absence of rains. He is cut up when the banking system or the government refuses to move to reduce the impact of crop losses, which in States such as Andhra Pradesh, Maharashtra and Karnataka have been severe.

Banks in the metros chase clients offering retail loans to buy cars and homes at 8 per cent while the same financial system offers crop loans at 9 per cent. It may not be an exaggeration to say that the bankers and the banking system, including the RBI, have let down farmers and the Vajpayee Government.

Banks have excess liquidity but refuse to lend to farmers (leave aside Punjab and Haryana) without collateral when the only collateral they have is themselves. Surprisingly, the same rule does not apply to funding corporates. How many banks have touched the 18 per cent norm for funding agriculture?

The last RBI Annual Report says: "If India is to approach the growth target of the Tenth Plan, it is essential to step up the growth of agriculture significantly... A key challenge will be the financing of rural infrastructure." In placing the farm sector as the first item on the agenda, economic reforms will not be hurt. Nor will the Left Front oppose it.

Going by some of the statements of the West Bengal Chief Minister, Mr Buddhadeb Bhattacharya, the Left realises the need for economic reforms.

But will it back the move to scrap free supply of electricity to the farming community? Will it support a move to price water or hike road fares to make state transport corporations viable? Will the Congress Government, headed by, all indications by, Ms Sonia Gandhi, initiate any such measure?

If power has to be given free, the losses of the State electricity boards will have to be serviced by subsidies; money for subsidies can only come from higher taxation which, in turn, can only hurt growth.

After creating a strong and vocal middle-class, one cannot stub them out. Sure, the American economy picks up the farm bill but then its economy can take on the strain. Is the Indian economy so well-placed?

On financial sector reforms, the RBI, under Dr Y. V. Reddy, has written the script. Foreign banks will not have a run. They have been given three options:

continue to be a foreign bank;

set up a subsidiary to own an Indian private bank; or

just own an Indian private bank.

They can choose only one of three options. Again, the 10 per cent cap on voting rights could stay for a long time. On this issue, the Congress and the Left are unlikely to give way.

Seemingly, the Congress party and the RBI Governor will prefer to treat the banking industry as a case apart from the rest of the economy. "Banking is not like any other industry," said a top official in the Finance Ministry to this writer.

There could be little change in labour laws and one need not be overly upset. Most industries (the best and the cruellest example is the textile industry in Mumbai) have been shedding labour and they do not care to take legislative sanction for shutdowns. The unorganised labour in the hinterland never had any legal protection in the first place.

Market players, for their own selfish reasons, are quite happy with the result as it promises political stability and fair returns on investments. Even as the political parties were fighting for the voting fingers of the public, none had thought of India 50 years hence, as the politicians were sure they would not last that long.

The new government under Ms Sonia Gandhi cannot afford to miss out on this show. And if she fluffs her lines, she will not only be breaking a promise but driving the country over the edge as reforms, like the Vedic Fire God, has a nasty habit of consuming the players. That fear alone could be driving reforms, sometimes at a soft pace, sometimes at a furious pace, but never a standstill.