Manmohanics is Back

Manmohan Singh is back as `Salman Khan' aka `Tiger' !*

 

Manmohanics is finally back. On Friday night, a cabinet headed by prime minister Manmohan Singh, the original reforms man, decided to allow foreign direct investment into India's $ 600 billion retail market, albeit with riders and limited to willing states,.

It also agreed to let power exchanges sell stake to foreign owners, allow foreign airlines to buy into Indian carriers, hike FDI levels in non-news broadcast services and disinvest in 4 blue-chip public sector firms which could rake in about $ 2.5 billion.

Hit by charges of sleeping on the job and of ushering in an era of policy paralysis, Singh’s cabinet, which earlier this week cut subsidy on diesel, by hiking price of the auto-fuel and reduced supply of subsidised coking gas, decided to gamble that a wave of reforms would be too many for recalcitrant allies to take on.

The prime minster, who is credited with having introduced the first big burst of economic reforms in the early 1990s ( an early burst of import-export reforms in the early 1980s by then finance minister Pranab Mukherjee is believed to have helped build the stage for his big leap), is believed to have been keen these decisions should be passed and passed in one shot to dispel notions that his government did not have the belly to take hard-nosed decisions and to kick-in an economic climate where Indian and foreign investors would be enticed to invest.

Especially as India’s GDP growth had slowed down from over 9 per cent a few years ago to just over 5 per cent in the last quarter and a threat from global rating agencies of marking India out by giving it the dubious distinction of having its credit rating downgraded to that of junk bonds.

While the Trinamool Congress which boycotted the reform agenda cabinet meet, was busy sending a 72 hour ultimatum for a roll back of diesel prices, the Congress led coalition decided to risk her and another key ally Samajwadi party’s ire by going ahead with FDI in retail.

The idea seems to be that the government will bow down later to Mamata and roll back diesel price hike by 20-25 per cent or increase the number of subsidised cooking gas cylinders allowed per family, letting her claim victory, while going ahead with the bouquet of reforms. ** 

Friday, September 14’s decision will allow foreign retailers like Walmart, Carrefour and Tesco to take up to 51 per cent stake in large format departmental stores, which Indian officials have dubbed multi-brand retail, but will be limited to states which have agreed to allow them. As yet some 11 states and union territories including Delhi, Maharashtra, Assam, Haryana, Andhra Pradesh, Uttarakhand, Rajasthan, Manipur and Jammu and Kashmir.

"The series of policy decisions announced by the Government today signal that India is on the move (and) they send out a clear message to the global investor community that the Government is committed to taking forward next generation economic reforms,”  said an exuberant Sunil Bharti Mittal, who has a tie-up with US giant retailer Wal-Mart.

However, the reform burst did not come just because of a desire to attract investments and check a slowdown in the economy. Many analysts saw this as an attempt to cash in on a period when elections were not on the anvil. The next round of state elections are in Gujarat in November-December. Nearer to that date, the Congress led government will have to go back to being populist and not reformist.

Earlier suggested rules of limiting foreign owned retailers to cities with 1 million plus population have been junked, allowing state governments to decide which cities to allow retailers entry into. However, new terms which ask retailers to invest 50 per cent of funds in back-end infrastructure such as cold chains and processing plants in rural areas have been brought in, making the retail proposition attractive to any state with large agricultural production.

West Bengal does happen to be the largest producer of rice, vegetables, fish and pineapples and second largest producer of potatoes in the country and accounts for about 10 per cent of edible oil produced in the country. However, potatoes often sell at as low as Rs 2 a kg at farm market in the state, while they retail at over Rs 20 a kg in most metropolitan cities and at Rs 10 a kg in Calcutta.

Farmers in West Bengal as in other parts of the country rarely benefit from their huge surpluses the way they would have if middlemen could be eliminated from the supply chain and retailers buy directly from farmers. Commerce Ministry officials hope that big states like West Bengal, Tamil Nadu and Uttar Pradesh will be forced to change tack on foreign retailers once they see the direct benefit to their large farmer communities. 

The reforms burst, is expected to be followed by a cut in interest policy rates or a cut in the cash reserve ratio, the amount banks have to keep with the Reserve Bank, despite inflation still ranging at over 7.5 per cent. The RBI it is believed will be told that the government is making sincere efforts to cut subsidies and hence borrowings and this should give the central banker room to manoeuvre on interest rates. ^

But in all this flurry of grand reforms – one little economic logic does not seem to be working out. New jobs and thence fresh demand needs to be generated to make the old economy to jump to new rates of growth.

* The picture taken from The Telegraph newspaper, is a spoof based on the Bollywood Movie `Ek tha Tiger' (Once there was a tiger) where actor Salman Khan plays the role of a Bond-style super-agent, nicknamed `Tiger'. Here Dr Singh is shown as the new `Tiger'.
** At the end of a week after this was written, a `deal' on partial roll-back did not happen after both sides hardened stands and Mamata hit out accusing the Congress of trying to cover up scams such as Coalgate and of tapping her cell-phone. This seemed to be proverbial Rubicon and the Congress decided to call her bluff and let go of her and her party from the coalition in favour of more pliable allies such as Mayawati's BSP.
^ Three days after the article was written - The RBI stuck to its stand on not lowering interest rates, but it did cut the CRR, pumping in some Rs 170 billion or $ 320 billion into the marketplace, thereby encouraging banks to lower lending rates. 

HatTrick Mamata

Pandemonium in the Rajya Sabha over Lokpal Bill

Bengal’s mercurial chief minister Mamata Bannerjee has scored a hat trick of sorts – she has stalled three major measures which her senior ally - the Congress had sought to bring in this year.

But this time round, it may be Congress which may be cheering the self goal she scored through her lieutenants in Delhi by stalling the Lokpal legislation in the upper house of Parliament.

First, was the Teesta pact with Bangladesh, which she scuttled by disagreeing with a very basic and simple sharing of river waters in order, so say Congress leaders, to arm twist the centre into giving more funds to her cash strapped state government.

Her brash and extremely un-diplomatic act at the penultimate hour, left Prime Minister Manmohan Singh and India as a whole, red faced on the Prime Minister’s maiden visit to Dhaka.

The Teesta river which starts out as a mountain rivulet in Sikim flows down as a broad river through North Bengal to enter Bangladesh as a tributary feeding into the mighty Brahmaputra.

The deal promised water sharing on an equitable 50:50 basis at Gajoldoba barrage near Siliguri in West Bengal. With the deal falling through, despite Singh’s other gifts for Bangladesh – duty free garment exports, border enclave swaps which gave Bangladesh large tracts of Indian land etc. - India was painted a fickle friend.

Her second, was to force the ruling alliance to place in cold storage Commerce Minister Anand Sharma’s move to bring foreign direct investment in retail. She left a loophole in her protest against the move, by uttering something about doing what was good for farmers. Again a signal, Congress Mandarins say, that she wanted more funds.

In a sense, the Congress was not really unhappy with her tantrums that time as it gave them an opportunity to cold store a necessary but unpopular move which would have hit millions of mom and pop stores ahead of  key assembly elections to Uttar Pradesh state, India’s most populous province.

The move to open up to the Walmarts and Tescos of the world would surely have been used by opposition parties such as the pro-trader Bharatiya Janata Party and regional outfit Bahujan Samaj Party to accuse the ruling alliance of selling out to transnationals and turning the issue into an election trump card.

The Congress rather cleverly used this stalling as a chance to tell farmer-voters of how mindless opposition had nixed a chance to bring a legislation which could have helped them sell produce at better prices.

This time round Mamata’s party, after making noises of unhappiness with the Lokpal bill ended up supporting it in the Lok Sabha or the lower house of India’s Parliament by not seeking divisions on amendments moved by it.

Later, on her express instructions, Trinamool Congress MPs in the Upper house or Rajya Sabha made it clear that they would seek a vote on their key amendment to the bill which seeks to set up an independent Ombudsman.

The bill suffers many defects, but as one Central Minister said at least it was being enacted and later Parliaments would have the luxury of improving upon it. Trinamool’s amendment in the name of defending federalism, sought to keep out a clause which would have allowed states to set up their own Ombudsmen to be called Lokayuktas.

Trinamool’s stand, encouraged a clutch of parties such as Mulayam Singh Yadav’s Samajwadi Party and Rashtriya Janata Dal, which had earlier in the week walked out in the Lok Sabha or lower house making it easy for the ruling alliance to pass the bill, to decide to stay and vote against the bill.

This meant the ruling coalition did not have the numbers to pass the bill, forcing the Congress to stall for time and take the cover of an ensuing chaos in the house to put everything on the backburner and prepare for another day.

Congress did not specifically blame its ally but rather pleaded helplessness as  some 189 ammendments had been brought by lawmakers from among opposition and allied parties which needed study nd scrutiny.

India's Parliamentary affairs minister Pawan Bansal said he needed more time to respond, arguing “If we want to be true to the cause we need more time to go through the (opposition proposed) ammendments."

But the Congressman on the street is already whispering `Mamata does not want any oversight body to look into the affairs of her government.’ Till now, they had little ammunition to attack her. Her popularity seemed teflon coated and every little thing they said against her seemed petulance on the part of an ignored partner in a stale marriage.

Mamata’s honeymoon period after her landslide victory earlier this year will soon be over. People at large and newspapers in particular will soon start asking more critical questions. Who slept over lack of safety measures at AMRI hospital? Why are farmers unable to get announced support price for their grain?

At the same time, repeated bids to trash the Congress while asking for more money, may see the Congress coming up with more procedural wrangles which reduces the flow of mullah through the federal pipeline.

Turning an uneasy ally into a hidden enemy may not exactly be a great strategy for Trinamool in the long run.  The Communist Party of India (Marxist) learnt that the hard way in the last elections.

See Also:  Anna Checkmated