|Reforms meet trouble|
|Wednesday, 07 March 2012 01:10|
Poll results make budget making a lot tougher’
Looking to the Uttar Pradesh elections to kickstart economic reforms was always a bit of a stretch considering it was never the Congress’s allies that were pushing the government to come up with cash-guzzlers like the Food Security Bill, to expand the scope of the MGNREGA, or even the Right to Education Bill that has the potential to shut down large numbers of unrecognised private schools. Similarly, it was not the allies that were forcing the government to get after large projects/firms like Vedanta-Cairn, Vodafone and Qualcomm, to name a few. Even so, the narrative was an appealing one: the Samajwadi Party would need the Congress’s support to form a government in Uttar Pradesh and, in return for this, it would play the obedient ally in the UPA (this was the way the narrative was supposed to play out for the DMK some years ago!). This would enable the UPA to bid adieu to the troublesome Mamata Banerjee who has been opposing everything from FDI in retail to the Land Acquisition Bill, with pension and insurance reforms thrown in between. So, the way the story went, the UPA would not be able to reduce subsidies in any big way, but it would make some important reform moves. But with the SP no longer dependent upon the Congress, some of those hopes have been dashed, taking the UPA back to the uncomfortable task of handling fractious allies. Perhaps why Goldman Sachs has been quick to say, “The results will not provide the political space for the government or the confidence to carry through unpopular reforms … We think the best that can be hoped for is muddle-through policies by the government.”
Writing off the reforms agenda, however, would also be a mistake. Certainly diesel prices will be hiked soon, the Budget is likely to make a move on introducing UIDAI-linked cash transfers in a small way, and even before the results were out, aviation minister Ajit Singh had said he was going to move a Cabinet note on allowing foreign airlines to invest in Indian carriers. BJP president Nitin Gadkari has also signalled the party is going to cooperate on the DTC; the GST is not going to come in during this budget, but were the Centre to agree to compensating states for the CST phaseout, this will gain momentum.
Since all of this has to be balanced with the Congress allies getting more restive and the potential Third Front partners more adventurous, a section of the Congress will argue for more subsidies/populism. Budget FY13 just got a lot more interesting.