A ‘perfect storm’ ahead

When the Manmohan Singh Government announced the recent series of reform measures — beginning with the sharp reduction in the cooking subsidy on September 13 and ending (till now, that is) with the October 4 changes in the status of foreign investment in insurance and pension, among others — one interpretation that swept the country was that this was the Prime Minister’s way of countering the charge that he was weak and ineffective.

One must remember that for a substantial period of time before these announcements, the UPA-2 Government had been buffeted by charges of corruption, not just by the Anna Hazare group directly but also, by insinuation, by Constitutional authorities such as the Comptroller and Auditor General (2G spectrum, Coalgate, etc.).

Corruption is back!

The sudden tsunami of reform measures, therefore, made good sense to those who felt that the new policies were the Congress party’s way of hitting back at its detractors, who had been using the corruption stick — quite effectively one thought — to push the party into a corner, an unenviable situation to be in with the next Lok Sabha elections being not too far away. There is no way of knowing whether the tactic worked, that is, whether the corruption issue had been effectively pushed into the background with the politically “revolutionary” moves on FDI and the slashing of the cooking gas subsidy, which directly affected the average citizen’s budget.

Now, out of the blue, as it were (although the subject has been reported on in the past by some newspapers), the corruption bogey is back to haunt Singh’s Government in the shape of the business dealings of Sonia Gandhi’s son-in-law, the threat having been issued that more such “revelations” are in the offing.

It is too early to say anything on the Robert Vadra issue, but the fact is that the Congress party is once again on the defensive with public attention back on a subject of the Opposition’s choice. This in effect means that the game of one-upmanship has been resumed in earnest, the inference being that it would be in the interest of the Congress party to pursue even more doggedly the reforms course if it is to counter effectively the Opposition.

Fruitful competition

Intellectually, it will be amusing to follow the battle, the one good fallout perhaps being that, in the competitive process between the Government and the Opposition, some critical reform measures will have been taken. Whether the reforms will deliver the intended results is of course an imponderable now because much will depend on how the political baggage will be handled in the months ahead, not to say anything about the general perception among foreign investors of the ability of the Manmohan Singh Government to carry through the reforms to the stage of effective implementation.

Sadly, the political games will continue to be played, the target for both sides of the divide being attainment of the seat of power in the next Lok Sabha elections. However, the writing on the wall for the economy is there for everyone to see, which conveys an alarming message.

As the Vijay Kelkar Committee on a Roadmap for Fiscal Consolidation has said: “We cannot overemphasise the need and urgency of fiscal consolidation. Growth is faltering and inflation seems to be embedded. The external payment situation is flashing red lights. The global economy is likely to be more turbulent, making financing of the large external payment deficits very challenging. Potentially, if no action is taken, we are likely to be in a worse situation than in 1991 for several reasons. ... In other words, our economy may be encountering a ‘perfect storm.’”

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