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For the first time in decades four policy statements followed one another in quick succession last week: the Railway Budget on Wednesday (March 14), Reserve Bank of India's mid-quarter review and the Finance Ministry's Economic Survey the next day to be topped by the mother of all policy statements, the Union Budget on Friday (March 16).
State elections in February may have dictated a postponement of the two Budgets, but in retrospect the bunching of so many policy makers provided the UPA government with a unique opportunity for a strong and consensual vision of a more universalised prosperity.
As it turns out, the four policy statements do not do that so much as provide contesting world views — contests that end up leaving the nation unclear as to how the government intends not just to manage the rest of its term, but govern reasonably well enough to appear before an increasingly fractured nation as its most representative choice.
Railway budget's mindshift
When Mr Dinesh Trivedi rose to present his speech, no one in the public domain could have imagined he would do what he did; most experts on the subject expected him to toe his party line, which in any case also segues into the general tradition of railway ministers to bow to what they think the public expects.
When he broke the 10-year-old tradition and announced hikes in passenger fares across the board, his logic was reasonably clear and greeted in many quarters with approving nods. As he declared in the speech, someone had to “bite the bullet” and he did for which he has paid the price.
As Prime Minister, Mr Manmohan Singh did the right thing in endorsing a coalition colleague's actions but the approval expressed something more when viewed in the light of subsequent policies: it mirrored the Railway Minister's internal inconsistencies of vision, a desire to match rational economics premised on optimising efficiency and increasing revenue with the desire to meet welfare objectives.
The fact that Mr Trivedi provided generously for new lines and trains at a time when the operating ratio had slipped to 95 per cent reflected a new conflict within the Indian Railway administration of how the mammoth undertaking was to be run.
For most Railway ministers cutting across party lines, the ideological vision was clear enough: the network had to service the poor, and better still the poor in one's own constituency.
For the first time in a decade, passenger fares were being viewed as an important source for augmenting revenues and internal accruals.
That the non-A/C fares' hikes will be rolled back does not resolve the “conflict” — it only postpones it.
Mid-quarter review
The RBI's mid-quarter review of monetary policy did not surprise by its preference for the status quo on the repo rates.
Operating within the narrow objectives of price stability, its actions were predictable, if disappointing, for those in the organised economy who hold rising interest rates responsible for a decline in investor sentiments. So do some policymakers. But what cannot be forgotten is that a tight money policy has checked one of the drivers of growth, real-estate, from overheating the economy.
For the RBI, inflation still haunts the economy, a view that other policy players share reluctantly, eager as they are to show that their fiscal and legislative initiatives have worked to pull back its relentless climb.
The Economic Survey
The Finance Ministry's Economic Survey offers the clearest expression of the emerging vision premised on the virtues of market-based optimisation of services even for the poor.
The vision rests on an endorsement of the structural shift in the economy with Services becoming the main driver of growth. Glancing over sixty-year data, the Survey notes the share of agriculture in GDP has declined since 1950-51 from 53.1 per cent to 13.9 per cent in 2011-12, its deceleration picking up speed after 1981 in particular.
The authors of the Survey, however, mark the rise of Services to pre-eminence, the sector's share doubling from 30 per cent in 1950-81 to the present; its conclusion: “…the entire decline in the share of agriculture has been balanced by the increase in the share of the services sector.”
From the RBI's point of view this may not be a desirable state of affairs: monetary policies aimed at curbing secondary inflation have not affected the Services sector and its potential for overheating. That would explain its reluctance to reduce key rates, though in an ironical twist, spikes in interest rates have dampened pricing power in manufacturing.
The Survey's rosy predictions of GDP at 7.5 per cent next year flow from the sustained robustness of the Services sector that has been the biggest beneficiary of the reforms so far. Which Services, one might ask?
The Survey informs us that “trade, hotels, restaurants” are the largest contributor within the Services sector to GDP at 16.9 per cent, followed by “Financing insurance real-estate business services” at 16.3 per cent of GDP.
Its policy prescriptions are typical of the nostrums routinely peddled by Bretton Woods agencies: flexible labour laws, gradual removal of fuel subsidies and reliance on market prices. The government, says the Survey, should play the “enabler” which would mean, simply leaving drug prices well alone, for instance.
And the budget
Mr Pranab Mukherjee's Budget stayed away from the clear-headedness of the Survey's market-oriented perspectives, opting for a shot of the Railway Budget's risky but pragmatic compromises.
Appearing to have read the Survey's portrait of Services as the main driver, Mr Mukherjee surprised and disappointed the “market” by shifting the focus for revenue generation on indirect taxes, in a move reminiscent of earlier “populist budgets” taxing manufactures and more Services.
His half-hearted attempts at trimming subsidies was a bow to the Survey's discourse but he tiptoed round the bit about fiscal consolidation that the Survey listed as one urgent reform; in a run-up to general elections in two years Mr Mukherjee, a consummate politician, would rather follow his instincts than policy advisors trained in supposedly value-free economics.
In the meantime, the UPA government still remains less than the sum of its parts.
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