The Hindu Business Line : Reforms unfinished

There was a time, particularly after economic reforms began, when the Finance Ministry portfolio was the most important, after Prime Minstership. With the emphasis on private sector investment in the areas vacated by the public sector, government spending became more focused, targeting social sector development; so did the management of budgetary resources. The Finance Ministry acquired a more critical role — to ensure that public funds are well spent. As the nation's treasurer, North Block must ensure reforms in the sector directly under it — the financial system — and balancing the claims made on it by ministries. Under coalition governments, the two intertwined tasks are difficult, but when the centre of that coalition appears weak, the task is onerous.

Announcing the spectacular first quarter GDP results last week, the Finance Minister, Mr P. Chidambaram, tempered the celebratory mood with words of caution aimed at detractors within the government and without. He stressed the unfinished reform agenda in the banking system and the need for "political space" to finish it. But his broadside was more sweeping. Differences with other economic ministries over public spending — the fiscal impact of the Special Economic Zones and divestment probably elicited this call for more elbowroom to the Finance Ministry to complete the reform agenda. The Prime Minister must heed this call; the spectacle of key ministries airing their own visions at odds with those of their peers does not reflect high debate so much as lack of consensus. The differences surfacing ten months after the SEZ Act and 150 approvals later, or the aplomb with which some ministers can agree to jettison commonly agreed fiscal prudence goals suggests a consensual vacuum in which political expediency rushes in. What can suggest this more vividly than the Prime Minister being called in to resolve every contentious issue, from reservations to the SEZ?

There is an air of siege among key ministries and the paralysing effects on policy changes are evident, ironically when the economy is excelling itself. The Q1 results show GDP at nearly 9 per cent bettering the record of the corresponding previous period. Manufacturing leads with 11.3 per cent against 10.7 per cent in Q1 2005-06. This should spur policy to ensure the rest of the year maintains that record. Agriculture still lags, a three per cent growth notwithstanding, and the key to its improvement is infrastructure — the road that can connect town and country, the light that can power both, and assured irrigation. Every economic ministry has a hand in planning the investment for this coordinated growth with all the initiatives at their command. Policy-makers look like a band of brilliant musicians playing their own music. The need of the hour is space for each within a consensus enforced by the conductor.