How do you reconcile that with food and land Bills?
Finance minister P Chidambaram hit the nail on the head when he told Parliament that what India needed was more reforms, not less, that what the economy needed was less restrictions and not more, that it needed a more open economy and not a closed economy. This is especially important at a time when there is greater clamour, including from the ministry Chidambaram himself heads, to put higher import duties to curb imports; or to keep high export tariffs to restrict, for instance, the export of iron ore on grounds the domestic steel industry will benefit from this. The rupee has already paid a heavy price as investors felt the government and RBI were, together, going to impose capital controls—the finance minister has repeatedly pointed out that India has never imposed capital controls on repatriation of profits for instance, and it was not going to start now. Given that the import of coal comprises over a fourth of India’s current account deficit, the FM has done well to draw Parliament’s attention to the need to fix this. While the budget had talked of bringing in private mining in collaboration with Coal India—to get over the need to change the Coal Nationalisation Act—the move has gone nowhere over the past 6 months. Similarly, Chidambaram spoke of the need to end the iron ore impasse, the result of illegal mining to which the courts reacted with blanket bans. While it is the government’s job to now convince the courts it will ensure the mining is done in an environment-friendly manner, ore exports are down by around $5 billion from their peak as a result, and metal scrap imports are up around $8 billion from 5 years ago.
The problem with the arguments being made by the finance minister, however, is that it is not clear how he plans to fulfil them, some even run contrary to actions being taken by the government. If the coal impasse is to be broken, the government needs to take on Coal India’s unions, not back down because the unions are objecting to the sale of 10% of Coal India shares as part of the disinvestment plan. Nor has there been any urgency shown in bringing in private miners so far. If oil imports are to be curtailed—the medium-term expenditure statement laid in Parliament on Tuesday sees oil subsidies falling to a third in two years—we need to see very sharp hikes in diesel/LPG prices. And if investors are to believe the government is serious about growth when it tries to clear projects worth R1.8 lakh crore—that’s what the CCI did on Monday—or to believe the finance minister is clear the fiscal deficit red line will not be breached, how is this to be reconciled with the just-passed food security Bill? And do investors believe the Bill will cost R2.6 lakh crore over FY15 and FY16 as the finance ministry put out on Tuesday or should they go by the more credible R6 lakh crore over 3-year estimates put out by CACP chief Ashok Gulati? Being pro-reforms one minute and populist another doesn’t sit well with investors.