Something for Everybody…

Money may not be able to buy love. But the UPA government appears convinced that it can buy enough votes to propel the precariously perched present regime into a second term at the Centre. A few days after the bomb blasts in Mumbai shook the nation, the Union Cabinet announced the formation of a Sixth Pay Commission for central government employees. This will inevitably lead to a hike in salaries; and analysts estimate that the wage bill of the government could go up by as much as Rs.200 billion every year. But of course, this is one rare decision of the government that the omnipresent Left has welcomed with open arms. Says Atul Kumar Anjan, Politburo member of CPI, “We welcome the 6th Pay Commission report.

It is a long pending demand of workers and employees.” When asked to comment on the reaction of businessmen and industry bodies like the CII and FICCI that this move could trigger inflationary pressures, Anjan is contemptuously dismissive. “It’s their practice to oppose any benefit to wage workers or government employees. The Left parties are hopeful that inflation will be under control,” he adds. If vain hopes and misguided socialism were enough, India would have eliminated poverty, illiteracy and unemployment by now; farmers would not be committing suicide by the hundreds and many states of India would not report infant mortality rates worse than those in Sub-Saharan Africa. And now, analysts are worried that the current government is displaying alarming signs of going back to the bad old days of a peculiar mixture of misguided socialism and crony capitalism.

In fact, the Sixth Pay Commission is just another example of how the UPA government appears determined to wear the robes of Santa Claus and dole out goodies, freebies and subsidies as if there were no tomorrow. Simultaneously, the government seems to be veering towards the bad old days of paternalistic and somewhat authoritarian ways, where the rulers were simply not held accountable by the public for their decisions and still had the powers to decide what is good and bad for Indian citizens. This is not just a display of bad democracy, it is also terrible economics.

Consider the following decisions of the government:

• It has launched the most ambitious National Rural Employment Guarantee Scheme that promises to provide guaranteed employment to at least one member of a poor rural family in India. Conservative estimates put the annual cost of this scheme at about Rs.400 billion. The problem is that corruption has guaranteed in the past that an overwhelmingly large chunk of these funds never have reached the people they were intended for. Though Prime Minister Manmohan Singh periodically makes announcements to improve governance and reduce corruption, there has been not a single concrete step taken at the ground level in the last two years to that effect. Virtually every economist is convinced that without dramatic improvements in delivery mechanisms and governance, most of the Rs.400 billion spent every year will go down the Black Hole of corruption.
• This government has virtually ensured that the one Indian law and policy that could have checked corruption and made bureaucrats accountable has been sabotaged and crippled to the point of virtual ineffectiveness. A recent decision by the cabinet, again just a few days after the Mumbai bomb blasts, made it clear that noting made on official files by bureaucrats will not be under the purview of the Right to Information Act. That means no consumer or citizen activist will be able to access files that could reveal bureaucratic and political corruption. This not only kills the spirit of Right to Information, but also smacks of the bad old days of policy makers being above the law.
• The Union HRD Minister Arjun Singh suddenly announces that all institutions of higher education will henceforth have 27% of their seats reserved for other backward classes. When this triggered a storm of violent protests, the powers that be magnanimously announced that the quota for the backward castes would be met by increasing the number of seats in all educational institutions. Various analysts estimate that this could cost the government anywhere up to Rs.200 billion. Once again, the cavalier manner in which this was announced would imply that the government is literally floating on money and not on oceans of debt & fiscal deficits, as reality starkly suggests.
• The Union Finance Minister P. Chidambaram is so convinced about the efficiency of the state run primary education system in India that he ends up announcing that Rs.100 billion a year will be spent on what is called the Sarva Shikshya Abhiyan or total literacy movement. Once again, not only is there the old arrogance of the State knowing the best, there is no comment even on the pathetic state of State run primary schools where teachers & classrooms are usually absent and mid-day meal schemes are another way for contractors and bureaucrats to make money on the side.
• The Union Commerce Minister Kamal Nath unveils a spectacular Special Economic Zones policy, where Indian companies and multinationals will enjoy tax breaks that could amount to more than Rs.500 billion a year. This will be Santa Claus doling out gift s not to the poor and the needy, but to the fat governing cats.
• Prime Minister Manmohan Singh flies down to the Vidharbha region in Maharashtra where farmers are routinely committing suicide and announces a Rs.50 billion debt relief package for the hapless farmers (It is a different matter that dozens of more farmers commit suicide within days of the Prime Ministerial visit). There is hardly a mention anywhere of the fertilizer subsidy that now costs the government about Rs.150 billion a year.
• The Union Petroleum Minister pleads endlessly for a hike in the prices of petroleum products. Yet, afraid of middle class angst, there is just a token increase in the price of petroleum products like petrol and diesel. And analysts estimate that the petroleum subsidy bill (whether it is paid by state run oil companies or directly by the government) could well reach Rs.400 billion in the current year.

Add up all those new billions being committed by this government and even a student can do the math and ask: Where will all this money come from? The government has just taxes to fall back upon, apart from now forbidden things like disinvestment. In 2005, it was Finance Minister P. Chidambaram who had to swallow his humiliation and accept the Left demand not to disinvest even a minority stake in BHEL. This year, it was the turn of Prime Minister Manmohan Singh to be humiliated when a threat from the Tamil Nadu ally DMK forced him to cancel not just the disinvestment of Neyveli Lignite Corporation, but also suspend all disinvestment programs. The Left was of course ecstatic at this victory! Congress leaders are hopeful that the UPA government can somehow convince the Left to become less implacably hostile to disinvestments.

Says AICC General Secretary Manish Tiwari, “The UPA government should thrash out the problem of disinvestment – how to generate revenue for infrastructure for social sector – with the Left parties and try to convince them by (a) listing the amount where the money obtained is going (b) by selling the equity of only loss-making PSUs.” But the Left brigade, led by ideologues like Prakash Karat, seems determined to stall any effort at disinvestment – even of loss making public sector units. Elementary economics shows that additional expenditure of hundreds of billions of rupees without a corresponding increase in revenue will have a disastrous impact on the fiscal scenario in the country.

After years of threatening to go out of control, the fiscal deficit has been barely pegged at about 4% of GDP in recent times and the Finance Minister has confidently claimed that the revenue deficit will come down to almost 0% of GDP by 2009. However, with the massive outlays for the various populist schemes being unleashed by the government and without any chance of a magical rise in tax collections to finance these new expenditures, there is little doubt that P. Chidambaram’s publicly stated goals about fiscal and revenue deficits will remain unfulfilled. This will inevitably lead to inflationary pressures in the economy. And again, elementary economics shows that inflation hurts the poorer classes the most – the class the UPA government is publicly pledging o nurture through its unique policy of ‘inclusive growth’.

There are people within the ruling coalition who appear a little disturbed by the sudden decision to appoint a Sixth Pay Commission without simultaneously pushing hard for administrative reforms and for improving the quality of governance. While all pay hike recommendations of the Fifth Pay Commission were implemented blindly, not a single recommendation made by it to improve administrative efficiency, quality of governance and reduce the size of the government was adopted by any government – central or state. There is a danger of something similar happening now with the UPA government announcing a massive pay hike for government employees before its term comes to an end in 2009.

It is not just the Central government that is busy doling out largesse in an indiscriminate manner. Take a look at what the DMK-led government is doing in Tamil Nadu. Apart from subsidised rice and other goodies to people living below the poverty line, the government led by the ageing M. Karunanidhi has created a new record of sorts by promising free colour TV sets to every family below the poverty line in the state. While analysts are worried at the impact it will have on the state’s finances, they are also amused at where the poor families of Tamil Nadu will get the electricity required to watch their colour televisions!

Indeed, electricity is another example of how Santa Claus economics is completely derailing reforms and threatening to scuttle growth prospects. The crucial amendments included in the Electricity Act, 2003, to reform the state electricity boards are lying in a limbo because many state governments are refusing to honour their commitments to reform their power sectors. Chief Minister Amarinder Singh is a classic example of continuing populism, even while staring at fiscal disaster. He has consistently refused to stop supplying free electricity to ‘farmers’ despite the state government hovering on the edge of bankruptcy. All this attention to doling out largesse comes at a time when the Planning Commission is talking about dramatic reform steps required to sustain a GDP growth rate of 8% to 10% that is required to eliminate poverty in the long run.

The textile sector and labour reforms are a classic example of misguided populism. The Indian textile industry has a golden opportunity to catch up with China in the post quota regime and become a massive generator of export dollars as well as jobs in the country. Yet, the Left will simply not allow the labour policy reforms, desperately required to make the Indian textile sector more globally competitive. Pleads S. P Oswal, Chairman of the National Textiles Committee of CII, “In an industry like textiles, which is very much seasonal demand oriented, the government must give certain flexibility to labour laws, like what China and Bangladesh have. I am not talking about hire and fire, but there should be freedom to work.”

Odds are, please of people like Oswal from the textile industry would go in vain since the Left is unwaveringly opposed to labour policy reforms of any sort. Asser Assertively comments former Union Minister Rajiv Pratap Rudy: “This government clearly seems to be forgetting a fundamental truth: You can have economic development without social justice. But you cannot have social justice without economic development!” Such profligate spending and a thorough blind refusal to accept economic realities of a rapidly globalising world are enough cause for concern. What raises more alarming signals is the tendency of this government to go back to the bad old days of bureaucrats deciding what is ‘public interest’ and what is good and bad for citizens of the country.

The virtual sabotage of the Right to Information Act discussed above is just one instance of how unaccountable bureaucrats are determined to persist in their self image of being public masters rather than public servants. There is another more dangerous move. The government plans to table a new Bill in the Parliament that will allow a District Magistrate to shut down the operations of any television news channel. Most analysts had hoped that this kind of intolerant, paternalistic, authoritarian and mai baap government was surely history. Or is history repeating itself with a once upon a time champion of reforms Manmohan Singh being forced to become a reluctant Santa Claus?