The Hindu Business Line : Sobering realities

Understandably, the UPA government’s victory in Parliament on Tuesday evoked a euphoric mood in the ruling party, manifest in the enthusiasm with which Dr Manmohan Singh and Mr P. Chidambaram promised to speed up pending economic reforms. The sentiment in Mumbai, the country’s financial capital, was equally buoyant with the prospect of the much-touted changes in the insurance and banking sectors, hitherto blocked by obdurate allies. But euphoria is short-lived, and the government will now have to reckon with the sobering reality of high inflation and poor quarterly performance. Infrastructure sector output in May more than halved from the average of 10 per cent last year, with numbers for the power sector even more dismal. Against this gloomy backdrop the government will have to pilot critical legislation in the delayed monsoon session.

The most important question for New Delhi is not what it should do but what it can do under the circumstances of a fragile majority in Parliament. The numbers that got it the trust vote may not be available when it comes to raising the ceiling on foreign participation in insurance, much less reducing its own stake in the State Bank of India to 51 per cent. At first glance, steering the amended Mining Act permitting private investments appears easy; but that too has been delayed just as the amended Land Acquisition Act has been on hold despite the obvious necessity of such legislation to get the Special Economic Zones up and running. So what can the government really do that would fetch it more brownie points with the voters than its success with the nuclear deal? Certainly, victory over prices, now raging at a 13-year high. But, so far, its policy options have had little success, though the RBI will once again reach for the interest rate switch on July 29 if inflation stays around 12 per cent or climbs.

Mr Chidambaram will certainly hope that the recent drop in oil prices from the $150 a barrel level continues that downward trend since imported fuel inflation has contributed significantly to overall price spikes. With the drop in oil prices, other commodity prices globally are softening, although the farm economy is still waiting for the truant monsoon to resume its normal colours. In other words, the government has a lot to hope for. Besides keeping its fingers crossed, what else can it do? Be adventurous and bold: at the risk of failing, the government must pilot all those pieces of legislation that will enable the next round of industrial and financial growth, relying on judicious lobbying and self-confidence in its purpose. Those qualities got it the trust vote; they may just get it the goodwill of the people.

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