Given how the government notified the FDI in multi-brand retail norms the day before Mamata Banerjee’s final deadline was to expire—her ministers submitted their resignations at around 4:30 pm yesterday—it was always obvious the government’s mind was made up, the token R125 cut in prices of the non-subsidised LPG cylinders notwithstanding. With Mamata out of the way and Mulayam Singh reaffirming his support but still not willing to formally step into the UPA, the question is what now? Given the furore over the R5 hike in diesel prices—the subsidy on this is still R13.86 a litre—and the way oil prices are likely to rise with QE3, it could be just a matter of time before we’re back to where we were on overall oil under-recoveries, currently at around R1,80,000 crore on an annualised basis. Since it took 27 months since the last hike to raise prices, another hike soon looks impossible. Direct tax collections weren’t that good even till July—they were 3.54% of GDP as compared to 5.66% in FY12, 5.85% in FY11 and 5.89% in FY10. Indirect tax collections were 4% of GDP as compared to 4.5% in FY12. In August, however, there was a huge slump and April-August direct taxes grew just 6.51% as compared to the budgeted 13.9% target.
All of which means it’s not going to be easy to meet the deficit targets. And while the government is doing a good job of trying to give a (very belated) push to reforms, and that might even increase post-Mamata, there is a natural limit to what can be done in terms of new laws—on increasing FDI limits in insurance for instance—since there is no certainty if the Opposition will allow Parliament to function. The good news, though, is that there is a lot that the government can do even without legislative approval. Apart from the R2 lakh crore of projects that are supposedly stuck between various ministries for clearance—clearing this is topmost on the finance ministry’s agenda—there are other issues that can be easily fixed. The telecom ministry, for instance, has unfairly got after telcos offering 3G intra-circle roaming though it clearly said this was legal at the time of the bids in 2010; Qualcomm got 18 months lopped off from its BWA licence for no fault; public sector financial institutions haven’t allowed a chief for UTI to be appointed for 18 months, ONGC’s chief’s job was vacant for 406 days in 2007 and 245 days in 2011 and its offshore director wasn’t appointed for 242 days in 2012 … It can be no one’s case this happened because of political pressure from various alliance partners or even the Opposition. In which case, fixing this is easy for a determined government. Whether coalition pressures will allow the government to keep its focus is, of course, another matter.