February 28, 2001. Wearing a sky-blue bandhgala, finance minister Yashwant Sinha was eagerly waiting to stride through the doors of high economic growth. Never mind the potential threat of heading straight into a political minefield. He seemed to have conclusively shed the tag of not being a strong enough man for the North Block hot seat. He had belled the cats of government downsizing and labour reforms. He had finally jumpstarted Reforms-Phase II. The fragrance of feelgood wafted all over.
And then came l'affaire guns, grime and videotapes. And suddenly it's difficult even to recall the cheer of March 1. As the government is forced to spend all its time and energy on damage limitation exercises, as the Opposition scents blood and moves in, as the nda allies see a chance to demand their pounds of flesh, as the hardliners of the Sangh parivar discover a window of opportunity to slam liberalisation, the question that haunts the Indian economy is: is this the end of reforms?
This is not petty scare-mongering. The fallout of the Tehelka tapes could conceivably be the biggest blow to liberalisation since the process began in 1991. Parliament is in suspended animation. The budget is yet to be passed. The Opposition is out on the streets, clamouring for heads. Any accusation of corruption today is likely to gain some credibility in the minds of the people. Here is a coalition government which has been able to keep recalcitrant allies under enough check to push through a number of measures till now. But will it be able to do the same now and push through some of the more aggressive measures that Budget 2001 outlined? Says K.M. Memani, chairman, Ernst & Young: "This is a time when the country needs all the prayers and support of its perceptive leaders in all walks of life to pull it back from the edge of the precipice. A setback to economic reforms is, otherwise, inevitable."
Consider, for instance, the labour reforms Sinha wants. They require the amendment of at least three acts by Parliament, which is supposed to be done in the current session. Even without the defencegate revelations, these amendments would have faced some heavy weather both inside the nda and outside, since they fly in the face of short-term votebank politics. But pre-Tehelka, the government would have possibly managed to push the amendments through because the allies would finally have come round to voting for them. Now, the situation could be totally different. Also, the Congress has a majority in the Rajya Sabha. It can send the acts back to the Lok Sabha unamended. Though the Lok Sabha can still amend the acts, it will be an embarrassment for the government.
Consider also the proposal that government assistance to states will now be linked with the states' power reforms. It is possible now that nda members like the Akali Dal, which is in power in Punjab and which has retrogressive power policies, will now armtwist the government to have that clause taken off.
Large-scale disinvestment is something the economy needs urgently. The trouble over the Balco sell-off has already cast a pall over the process. The Opposition will now definitely create a shindig every time a deal comes close to finalisation. The Congress' rhetoric has already turned conveniently and shrilly socialist.
The list of reform proposals that could die young could go on. So will the nda government now remain wheelchair-bound, hesitating on all bold initiatives? Will populism finally sound the death knell for economic liberalisation?
Of course, it may be premature to even attempt an answer to these questions.Says economist Suresh Tendulkar: "It's just been 10 days. So a sweeping statement is foolhardy. Obviously, the polity will now be in the driver's seat and economy will play second fiddle." But others are downbeat. "I'm afraid reforms do face an uncertain future," admits economist Kirit Parikh. "They'll be on hold for sometime. The Opposition will use any populist cause to stall reforms and the government must feel weakened after the disagreements on how to handle the situation."
Industry is trying hard to put up a brave face. Says Confederation of Indian Industry director-general Tarun Das, "The process has been definitely delayed but not derailed. True, current events will distract attention but reforms today are indispensable." Das is hopeful that the government—during Parliament's three-week recess—will initiate moves (possibly through notifications) that will bolster the economy. He also feels the reforms process will get a boost once Parliament meets after the three-week break.
FICCI president Chirayu R. Amin goes a step further and argues that reforms will be delayed for at the most a month. Clarifies ficci secretary general Amit Mitra: "Paper reforms—removal of dividend tax and surcharge, allocation of yojanas, etc—which doesn't affect the masses can easily be achieved. And if all the paper reforms can be pushed through, then the government would have made a significant achievement. What, however, comes under the scanner will be the labour laws and the disinvestment programme."
Says Greg Watson, principal, A.T. Kearney: "There can be little cause for dispute that reforms are necessary. However, the debate continues as to the priorities and magnitude of such reforms. Political parties of whatever persuasion are aware that there is little political mileage to be made from the current impasse. Clearly, it is not a grassroots issue."
Interestingly, some analysts also feel the Tehelka bombshell could actually trigger a spate of rapid reforms which the government will unleash ostensibly to divert attention from the current political snafu. "Now that the morality plank has been smashed, the government should seek a new usp. Given that the Congress has vacated the reforms platform, Vajpayee should immediately step in," says a senior economist of the Planning Commission. He, however, feels that the bigger problem is not the Opposition but the Sangh parivar. "If they adopt a strident line, then the coalition will crumble." He also feels the government should immediately jumpstart the judicial, civil service and fiscal reforms since nobody will question those moves. "If you sack inefficient bureaucrats or try to clean the judicial system, everybody will hail your efforts. And that's precisely the recipe for the nda to regain credibility."
Agrees Subhashis Gangopadhyay of the Indian Statistical Institute: "Tehelka in fact has opened new avenues for Vajpayee to carry on reforms. And the government should lap it up." Gangopadhyay feels that the people are fast realising the benefits of reforms and the fact that they do much better without the government. There is also a strong agriculture lobby that wants no subsidy and no market controls. "It's only 10 per cent of the population that benefits from inefficient governance. So if the Congress tries to stall the proceedings and cause political instability, the electorate will never forgive them," he says, adding: "People still hate Narasimha Rao for being a corrupt PM but praise him till date for having brought in Manmohan Singh, who ushered in economic reforms."
The government seems to agree. Law and shipping minister Arun Jaitley feels the Opposition doesn't have any option but to support the reforms agenda, primarily because its benefits have started seeping into the Indian psyche (see box).
The mood is evident in the Congress camp where—despite a seemingly strong unanimity in checkmating the ruling coalition inside Parliament—insiders agree that there exists a sharp difference within the top brass over whether or not to jettison the reforms process. "The Congress is not in a position to offer an alternative government because it does not have the numbers. Besides, differences over the party's economic agenda need to be ironed out," says a senior Congress Rajya Sabha member, adding: "We are not opposed to reforms but want the government to handle it in a manner which is transparent and people-centric. We are against privatisation and sale of profitable psus (willing to sell only 49 per cent stake). Those are our national assets."
In order to carry on, feel economists, the government should come out with more white papers. "Do not try to do things through the back door. Involve the people and spill the beans about the policy," says the Planning Commission official. Gangopadhyay goes a step further: "Vajpayee should boot out the inefficient people and rope in professionals. We do not need a committee of secretaries." Parikh also feels that transparency is key to any future divestment moves. "In today's scenario, the government should start offloading bits of its equity in psus through the market. That way, there will be more involvement of the people and hence, the process will be above suspicion."
But now, it will become all the more difficult to manage the coalition as the partners will be more demanding. Considering that both dmk and the tdp will now be the lynchpins, it can all come down to how well Vajpayee and Sinha can play the quid pro quo game.