Vajpayee's Pep Pill

LAST week, Prime Minister Atal Behari Vajpayee finally shook off the economic lethargy that seemed to have gripped the new government to announce an exhaustive set of proposals to recharge the reform process.

The new agenda covers a wide spectrum—from public sector and state electricity boards, to legal reforms, labour law changes, insurance and pension funds. More significantly, it goes a step ahead of the BJP's national agenda in most of these areas. So far, it has been a lot of talk on the famed 'kick-start'; now, Vajpayee has spelt out the follow-up action.

The occasion couldn't have been better. The inauguration of a well-attended Confederation of Indian Industry's (CII) annual conference in the capital's Vigyan Bhawan. And the time-frame for the action plan: between 30 and 90 days. Even if Vajpayee were to keep a third of all the promises he made before the prominent industrialists, he would have taken the reforms process miles ahead.

In fact, he may have promised too much. While industrialists were certainly impressed by his economic agenda, they were also quick to express doubts about its quick implementation. Commented a cynical Rahul Bajaj: "The PM doesn't know the extent of the crisis. Commissions and task forces are okay, but the problems of infrastructure and labour policy cannot be solved in 90 days." Congress leader and former finance minister Manmohan Singh was, understandably, more severe. "Where will you get the money for the investments unless you allow the fiscal deficit to shoot up to 9-9.5 per cent of the GDP?" he asked. "You have to set realistic targets."

 Vajpayee had the answer to that. "I have inherited a weak, deficit-ridden economy. The liberalisation process suffered from inadequate attention to the eradication of unemployment and to many critical issues in the social sector. It also failed to give a momentum to infrastructure development, which is now choking growth," he said. The key to the PM's prescription: changing the mindset about growth. "Let the common patriotic mantra for one and all be: growth, more growth and still more growth. The target of 7-8 per cent is not great. But even with this, India has to wait for over half a century to catch up with the developed world. Can we afford to be slower than this?" he asked.How exactly does the PM plan a rejuvenation of growth? Broadly through:

Schemes to tap savings (black money)

The government will announce a series of schemes to mobilise investable funds from idle resources in the country unavailable to the exchequer. In other words, the BJP government may go the Chidambaram way to tap surplus money with citizens, other than trying to redirect savings from lying virtually unused in ordinary bank accounts to more profitable ventures. It will reduce the untenable level of non-performing assets (NPAs) of banks and financial institutions and take up measures to tap new and unconventional sources of funding. For instance, for infrastructure projects, the government will explore debt market instruments and pension and insurance funds.

Structural liberalisation

In the long term, the government will withdraw from the economic production sectors, and adopt the role of legislator, facilitator and regulator and sometimes protector in respect to trade. The structural change will be carried out downwards—to state and local administrative levels.

Legal Reforms

Carrying the task of the Gujral government further, the BJP regime will set up a commission to review all the administrative laws and other regulations governing industry and trade. Laws that have outlived their utility will be scrapped or radically simplified. Companies Act to be drastically overhauled, FERA to be replaced with a new law consistent with current needs. The Urban Land Ceiling Act will also be amended in tandem with the new needs. A National Housing Policy will come in the next 60 days, along with more government housing projects.

Infrastructure projects

While reiterating the promises of government investment in infrastructure and of encouraging and helping private sector projects, Vajpayee announced one significant change, presumably for the fast-track projects: from now on, his office will monitor the progress of all projects costing Rs 100 crore and above so that time and cost overruns are cut. Praising the initiative of states like Andhra Pradesh and Orissa in initiating bold reforms in the power sector, he said all electricity boards will be restructured.

Foreign investment

In terms of FDI, the BJP government has already climbed down a lot. But with a promise of a firm yes or no to each FDI proposal within 60 days of its receipt by the Foreign Investment Promotion Board, over and above a "transparent, non-discriminatory and non-discretionary policy governing FDI," Vajpayee seems to have won over a number of potential foreign investors.

Public sector reforms

For the public sector, Vajpayee promised immediate steps running the entire gamut of imaginative restructuring, disinvestment and reduction in losses.

Information Technology

Vajpayee also promised full support for development and export of software. Plus the establishment of a national information technology task force within the next 30 days which will have the job of formulating a national informatics policy.

For agriculture, small-scale and bhagidari sector, the government seems to have nothing new beyond its broad manifesto goals of more investment in rural development and irrigation, and new policy priorities. Even in trade, where WTO commitments have tied the government's hands, he re-emphasised the need for working out a time-bound goal up to 2005 for promoting exports.

Can Vajpayee do it? Sceptics do abound, often with small variations on the same theme. According to CPI(M)Politburo member Sitaram Yechuri, the government's economic focus is misplaced. It should shift from creating an export-led economy to broadening the domestic market. Adds CPI general secretary, A.B. Bardhan: "Most of the plans and policies are by economists, of economists and for economists. Only the elite can benefit from it, the common man cannot derive anything."

 Echoed Congress leader Sharad Pawar: "We need foreign investment in all areas to achieve overall growth and development.For this, we need a transparent policy and an attractive set of incentives for foreign investors. Closing our doors to them will not work." And, of course, Manmohan Singh, who found nothing productive in the Vajpayee Plan. In his view, any policy to kick-start the economy at the cost of even a marginal increase in fiscal deficit and inflation rate is a recipe for disaster. Stung by Vajpayee's criticism of the liberalisation process, of which he is the architect, he warned: "You cannot reform the economy through promises and cosmetic changes. Pump-priming and amnesty schemes cannot get back the momentum of growth. This will not only be counter-productive, but will also lead to stagflation and a disequilibrium in the balance of payments situation. "

Even industry seemed to take Vajpayee with a large pinch of salt. "It is a tall order and the time given too short. If done, it will be an achievement," said outgoing CII president N. Kumar. And the conservative credit policy announced on April 29, which kept the cash-reserve ratio with banks at the same level (thus not releasing more cash for banks to lend) and cut the bank rate by only one percentage point to 9 per cent, was no boost to their low spirits. Carped Bajaj:

"Concern with inflation is good. But you have to strike a balance between the demand and supply of credit." "Broad money growth was 17 per cent last year compared to 16 per cent in the previous, yet inflation remained at 5 per cent. So why so much concern about infl-ation at the cost of growth?" asked Kumar.

 By unfurling his bold plan, Vajpayee has shown a clear political will for change. And if will is translated into action, most of his proposals may see the light of the day in his government's maiden budget on June 1. Finance minister Yashwant Sinha has hinted that the budget will have to go far beyond some primary fiscal jugglery. "The government's first test will be the budget which will tell us whether it can carry out its agenda," said Rajive Kaul, CMD, Nicco Group and former CII president. Will Vajpayee accept the challenge?