The Second Face

When the Narasimha Rao government began the liberalisation process, it quickly realised that efficiency in the power sector had to be dramatically improved for sustainable economic progress. Manmohan Singh & Co tackled the problem from the supply side: get foreign investors in to generate lots more power and hope the rest of the mess would somehow resolve itself. There was never really any hope that this would happen but in the early days of reforms, it would have been extremely difficult politically to take any steps that could be construed by workers as injurious to their interests. This, for example, was the prime reason why Singh made no move to open up insurance beyond talking about it. Remember, the Rao government, as also the Deve Gowda and Inder Kumar Gujral ones, were dependent on Left support to stay afloat.

But this government is free from that encumbrance. The Opposition is in disarray, still trying to figure out the new contours of the Indian polity in the face of the NDA, which is holding firm at least for now. Sonia Gandhi has indicated that she is not interested in slowing the reforms process.

Along comes the UP decision to trifurcate the state electricity board. This has already happened in several states and, as of now, seems the best way to get some efficiency back in the state-owned power boards. The canny Chandrababu Naidu spent nearly two years talking to SEB workers before trifurcating the board and when they went on strike anyway, had alternative arrangements ready to pipe power into Andhra homes. But the UP government dumped the decision suddenly on the workers as a fait accompli. Bad way to do it but once done, the government stuck to its guns. The Union government backed it to the hilt, even when faced with threats of strikes from other SEBs. "We can’t back down," a top bureaucrat told Outlook privately. "If we give in, the government will be held to ransom every second Monday, Wednesday and Friday." Late at night on the 11th day of the strike, even as the union leaders proclaimed some sort of victory at the end of their six-hour-long negotiations with UP power minister Naresh Agarwal, everyone, including the strikers, knew that the government had won.

What has helped the government is that nine years into reforms, striking PSU workers get little sympathy from the average Indian. The people of UP had hardly a kind word for the employees of one of the country’s most corrupt and inept electricity boards, where junior engineers are millionaires while people spend days without electricity. And some hours before the power strike was resolved in Lucknow, Arun Jaitley, newly appointed minister for disinvestment, announced, in a distinctly triumphant manner, the privatisation of Modern Foods and the beginning of the privatisation process for Indian Airlines. This will have far-reaching impact on the future of PSU employees. Consider the Modern Foods deal. The government appears to have, for all practical purposes, given the buyer, the transnational Hindustan Lever, carte blanche to sack any number of employees after a year.

In response, the Left plans a nationwide strike of all PSUS on February 2. Journalist-activist Mudit Mathur has already filed a writ petition against the upseb restructuring. "After the politicians destroy an institution, they sell it and that too amid spectacular drum-beating," he fumes. The government still has a lot of hard work ahead.

"We had two reforms. The first was paper reforms which did not bother many because it did not affect many; files moved from one ministry to another and the bureaucrats worked merrily," says Amit Mitra, secretary-general of industry association FICCI. "But now we have arrived at the second phase, which is the most difficult phase of reforms. It’s a painful and a sentimental process."

Unlike in the developed world, India has no safety net for people who lose their source of income. In plush sitting rooms we can talk of the need for an exit policy-euphemism for the right of employers to dismiss employees-but such a policy without a social security net will only cause widespread social unrest. Says Manmohan Singh: "The NDA government should have taken care of the social security net and made enough provisions in the National Renewal Fund (NRF). But that hasn’t happened and expectedly, the resentment is increasing. The present government seems to be focused on short-term targets to achieve a lower budgetary deficit rather than looking at the long-term goals." Mitra suggests that the government earmark something like Rs 1,000 crore for the NRF, which aims to retrain and provide opportunities for retrenched workers. "But even then, the system will go through its shocks anyway," he admits. "Hard reforms are always difficult to conduct, especially in a country which has one of the world’s largest excess workforces."

The Modern Foods sale has immediately attracted charges of being a scam (see box). Trade unions peg the value of just the land the firm owns at close to Rs 500 crore. Questions are also being raised on the transparency of the deal. Why, asks a trade unionist, did the government talk to only a few transnationals and that too in secret? Why didn’t it, for example, ask the NDDB, which would surely have been interested? Why didn’t it go for an open tender process? As India starts moving faster on disinvestment, such questions will be asked repeatedly. It is thus imperative that the process is truly transparent, that the valuations and negotiations are done by experts. There’s a lot of money involved here and the Indian politician is not exactly known for his ability to resist temptation.

The IA proposal has also failed to satisfy reforms enthusiasts. The government has stuck to its earlier policy of not allowing foreign airlines to pick up a stake in IA, though it has never been able to explain why someone with no previous airline experience would consider getting into this highly specialised and capital-intensive business. The domestic private airlines, Jet and Sahara, have already announced that they aren’t interested in running our troubled state-owned carrier with its grossly excess workforce and accumulated losses of Rs 550 crore. How, then, will the privatisation happen? And IA is being seen as the test case for whether India is really serious about getting rid of unnecessary state-run enterprises.

The Vajpayee government is definitely moving in the right direction, but at what pace and in what sort of vehicle? The jury will be out on that one for some more time.

On January 21, the government took full-page advertisements in the big dailies, listing its achievements in the first 100 days. It’s not all hot air. It has managed to get Parliament to pass a number of bills that have been pending for years, including the Insurance Regulatory Authority Act and the Foreign Exchange Management Act. It has tabled the Information Technology Bill. It has set up the ministry for disinvestment and the information technology ministry (though to mixed reactions from the infotech sector). It has announced the privatisation of select international airports through long lease. It is working on rapid construction of the north-south and east-west superhighways. It has (though the advertisement does not mention this) lowered the interest rate on small savings, which should bring down interest rates across the board and make money cheaper for industry, besides releasing more funds for the bourses.

Of course, the fact that Vajpayee, saddled by coalition politics logic with a record number of ministries and ministers, will always be incapable of making any serious effort to downsize government-which is the crying need of the day-is, naturally, not mentioned in the advertisements.

That’s OK, the optimist would say: there are some issues for which the political and bureaucratic establishment is not yet ready; these will come a bit later. Let’s hope the optimistic view is correct.

But both pessimists and optimists agree on one issue: the next few months will be the most crucial test the government will face on economic policy. In fact, the next 90 days could be the test for the entire liberalisation process. Says K.N. Memani, country partner, Ernst & Young: "For the first time, the government is actually getting into economic reforms. So labour will be a big problem. Reforms are best handled by governments in overwhelming majority. This government is not. So it’s obvious that the government will face socio-political pressures from allies as well as the Opposition. I think the government is fortunate the sectors it’s disinvesting in are not sensitive. Otherwise, the tensions would have been more."

But, in time, the sensitive sectors will also have to be tackled. Says S. Sen, deputy director, CII: "It had to happen. Downsizing is bound to cause pain. But the results come in the longer run and if the government backtracks due to labour-related issues, the entire purpose of reforms will be defeated. With limited opportunities, the best way to tackle it is to spend a considerable amount on retraining those rendered unemployed so that they are employable again." "You can’t afford to take on labour upfront," advises Jairam Ramesh, chief of the Congress’ economic cell. "You have to perform bypass surgery and work around labour."

Ramesh also points out that liberalisation has in fact been affecting labour throughout. Between 1993-98, he says, the number of central public sector employees came down by 1,00,000. But this job loss has been absorbed by the social system. Ramesh would rather wait for this attrition to happen naturally instead of forcing the issue. "There are 1.1 million government bank employees today," he says. "Between 2005 and 2010, the number will reduce by 25 per cent simply through retirements. So you can afford to wait for that."

Clearly, the future of the reforms process will hinge around both the resolve and the sensitivity with which the Vajpayee government tackles the labour issue. Memani, though, says that he does not buy theories which predict that economic reforms will bring loads of unemployment. "It will be nothing more than 1 to 3 per cent of the total labour force which will be affected," he feels. But the point is that that 1 to 3 per cent can generate a din disproportionate to their number. Besides, under the circumstances, the organised labour movement is looking at the next few months as make-or-break for them. Either they win, or they retire to a toothless existence (see box).

But then, trade unionists change their spots too. A senior member of this government is George Fernandes, as firebrand a labour figure as any India has produced. And Jairam Ramesh likes recounting a story from the 1980s. In 1988, he says, when he was in the Planning Commission, he wrote the first paper on privatising power distribution and suggested that it be carried out in Delhi as a test case. The proposal was withdrawn in the face of rabid opposition from the Delhi power board employees’ union. Its leader? Rangarajan Kumaramangalam, who, as minister today, is ardently pushing through power sector reforms and who maintained steadfastly that there was no question of the government bowing to the striking UP power workers.