The Hindu Business Line : Key issues that will come up for re-think

VERDICT 2004 may be interpreted variously, but one thing is certain: The NDA Government had lost touch with the ground realities. Yes, India was shining but only in pockets, and the feel good factor was felt only by the creamy layer. And herein lies a lesson for any future government: Improve quickly the conditions in the rural sector on which over 60 per cent of the people depend, and tackle the problem of unemployment by, coming a full circle, improving agriculture.

Emerging the single largest party with 145 seats, the Congress is leading a coalition government at the Centre, and with the support of the Left parties from outside. What will be the nature of a government made up of a combination of diverse party alliances and what will be the content and direction of economic policies at the Centre?

It is fair to assume that the new government's policies will be left of centre, though both Ms Sonia Gandhi and the Prime Minister-designate, Dr Manmohan Sigh, the architect of reforms under Mr P. V. Narasimha Rao, have made it clear that the reforms will continue and investors need not fear any major reversal of policies. With Dr Manmohan Singh at the head, it is reasonable to assume that there will not be too much of a disconnect between the realities of globalisation and the compulsions forced by the electoral verdict. It may also be fair to assume that settled policies of economic liberalisation will not be jettisoned.

The new government has tried to allay the fears of investors and bring some stability to the stock market by reassuring that economic reforms will continue but with a human face. The draft common minimum programme emphasises greater support to agriculture and tackling the problem of unemployment. The difficult issue of labour reforms will be managed with patience and understanding so that massive layoffs are avoided. With Dr Manmohan Singh as the Prime Minister these objectives assume credibility but the new government should come up with a plan as to how it will be go about implementing them.

But what are the specifics that will be up for re-consideration? First, the Left parties, in particular, and the Congress are concerned about wholesale approach to disinvestment. World over, it has been controversial. Even the NDA government had found it difficult to tackle in spite of its committed approach. There may be justification in the government keeping profit-making public sector units such as the oil companies off the privatisation list. But given the need to build the competitive strength, even these units may need to be restructured to enhance their rates of return and their economic role in an essentially oil deficit country like India.

In the oil sector, profits are essentially price driven and there is not much transparency in operational productivity in manufacturing and distribution areas. Hence, to say that product prices must be subsidised is a fallacious argument. And who will pick up the cost of subsidy?

As regards the PSUs that make profit, what is the acceptable level of profit considering the huge investments that have been made in them? What are the standards of productivity that should be enforced? As for loss making units, the government should have no hesitation privatising them or in giving the buyer a free hand to re-structure operations to become viable. But the issue here will be: Will there be takers for such units and if not, what would be the cost of turning them around merely to preserve jobs?

There are other relevant issues also, such as the autonomy of PSU operations (whatever happened to MoUs?) and the excess manpower. One can reasonably ask: Is there need for the government to be in civil aviation sector for example, running airlines or can they not be privatised in the interest of higher productivity and economy? Should the Railways be run under a mammoth ministry or can it not be corporatised under government ownership that will make it more accountable for safety and productivity? To look at PSUs as the panacea for the unemployment problem is to miss the wood for the trees. Surely, the Navratnas need not be privatised (they should be encouraged to become Kohinoors). The real issue is of units in the non-critical sectors and how efficiently they are run in national interest. The new government should set out at the earliest its disinvestment policy.

By far the most important area deserving urgent government attention is the need to increase public investment in agriculture which has been falling in real terms or at best remaining stagnant. The point need not be laboured that in a country of India's size where agriculture (despite its falling share in GDP) still holds the central place in the economy, public investment in irrigation and modernisation of the farm sector including post-harvest operations and marketing, is crying need of the hour.

The next contentious issue is reform of labour laws. Just as much as jobless growth is not desirable, so also any strategy that leads to growthless jobs. India is in the stage of implementing the second generation reforms which will be more painful than the relatively simpler liberalisation of licensing controls and the like. New industries can choose their level and pattern of employment, but existing units have perforce to go through the painful process of restructuring. After all, when one talks about unionised employees in industry, one is essentially talking of 10-12 per cent of the total labour force. What happens to the rest in a situation of growing unemployment? And what about the trade-off between low productivity and high employment level? All parties, including the Left, need to think of this larger issue. No one can dispute that a social security network must be in place to take care of retrenched labour, but this again should cover all sections of the labour force, including rural and contract workers. The problem is indeed gargantuan.

To say this is not to negate some of the claims of Left parties but only to point to the need for holistic approach. Maybe those in employment should be charged a small levy in the form of future unemployment benefit. How can government, particularly several States, that have to borrow to pay salaries to their staff meet this contingent liability?

Finally, with all the talk of raising subsidies and lowering kerosene prices, everyone seems to have given the go by to the already intractable problem of fiscal deficit and public debt. In the very nature of things, all the demands made by the alliance partners will only worsen the deficit through higher subsidies and greater burden of administration.

India is already behind China in growth and productivity standards and it may not be long before other emerging Asians powers such as Malaysia overtake us. In today's competitive environment, whatever the economic move, it has global implications, and engenders responses that may not be desirable. By all means change where change is needed, but where bad politics goes against sound economics, beware.

(The author is a New Delhi-based management and financial consultant.)