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Toward Laptop Federalism

Are Naidu's policies being drafted by the World Bank in exchange for liberal fuds?

Toward Laptop Federalism
outlookindia.com
-0001-11-30T00:00:00+0553

The infotech-savvy Andhra Pradesh chief minister, Chandrababu Naidu, likes to draw up plans for his state on his laptop. But as the chief minister unravels new schemes while discarding the many populist ones initiated by his late father-in-law, N.T. Rama Rao, Naidu's detractors say he is doing no more than implementing the diktat of the World Bank. With a $175 million loan and $150 million worth of soft credit having been approved, it is alleged that his policies are literally being outlined by the World Bank.

Predictably, the Telugu Desam Party's Left partners -- the CPI and CPI(M) -- are not too happy wth Naidu for "selling out to capitalist forces". Says CPI(M) legislator Julakanti Ranga Reddy: "Naidu undoubtedly has fallen into the World Bank's trap. His government's recent decision to review some populist schemes like subsidised rice and prohibition further strengthen our suspicion that these were the World Bank's preconditions for releasing aid."

Andhra Pradesh is one of the first states to be blessed with largesse from the World Bank, whose report said it stood to gain from funding. Indeed, Andhra Pradesh is a pilot project of sorts, which will test the bank's new strategy of wooing state governments directly instead of dealing with them through the Centre.

And Naidu, a leading votary of liberalisation, has been very accomodative when it comes to the World Bank. In fact, while approving the loans, the Bank's official were all praise for the state's participatory irrigation system under which farmers are involved in the finance and management of projects. Says the Bank's task manager, Theodore Herman: "It is extraordinary and came about not because we insisted, but due to the government's own conviction."

But the loans, according to the Left and opposition parties, have come with strings attached. Naidu and his finance minister, Ashok Gajapati Raju, admit that some tough decisions had to be taken to revive the economy. Some of the recommendations of the World Bank, they feel, were very valid and had to be implemented.

Thus, sick public sector units (PSUS) has to be wound up. Says Raju: "We have had to take such harsh decisions to streamline the state finances. How can any responsible government be a silent spectator to some companies draining the state exchequer?" According to the state government, closure was the only option as restructuring the PSUs would cost the state Rs 100 crore, and the liabilities would have probably shot up to Rs 1,000 crore in the next five years.

But the Left claims that this move is anti-people and is at variance with the core ideology of the Telugu Desam. Notes CPI leader S. Sudhakar Reddy:
"We are scared that Naidu is deviating from the path his party had chosen just before the 1994 assembly polls. Some of his recent actions may prove disastrous and alienate the people."

For their part, neither the chief minister nor his finance minister is perturbed over the growing scepticism among their Left partners. In fact, they seem to be happy basking in the accolades from the World Bank and coolly brush aside any criticism. Says Raju: "We have not taken these decisions overnight. We have released white papers on various departments, including irrigation, agriculture and power. We have explained to the people the difficult financial situation that the state is facing. How can anyone blame us in either reviewing the subsidised rice scheme and total prohibition or closing down some sick PSUs?"

It is also argued that in the changing economic scenario, the government was left with no options and that all decisions were taken democratically. Says Herman: "When he (Naidu) was finance minister in 1995, he insisted on a dialogue with the public on what should be done to salvage the water usage system and land irrigation."

The Bank has so far released Rs 3,000 crore of the Rs 8,000-crore assistance sought by Naidu. This includes the balance for some ongoing irrigation projects. While making the funds available, the World Bank also set conditions and the popular perception is that Naidu has agreed to remodel the functioning of the government and management of the state's finances on the bank's advice. "We gather that the World Bank has advised the state to bring down the coverage of the subsidised rice scheme to around 22 per cent from the present 68 pr cent," notes Ranga Reddy. He also alleges that Naidu had to review the excise policy and reduce the subsidy on power for farmers at the instance of the World Bank.

That the World Bank would not only monitor but would also direct government policy became clear when bank officials visited Andhra Pradesh last month. During discussions it was suggested that an institutional mechanism be devised to follow up and implement the Subramaniam Committee recommendations for restructuring state-level public sector enterprises. It took no time for Naidu to wind up Allwyn Auto, Republic Forge and the AP Fisheries Development Corporation. There are 39 PSUS in the state, of which the government says 13 are in the red.

This has outraged the Left. "Declaring closure of PSUS is nothing short of killing one's children. Taking shelter under the Subramaniam Committee report and announcing closure of PSUs will only put the government in a difficult situation in the months to come. People will not forgive them (the Telugu Desam) and we cannot remain mute spectators to such an eventuality." Warns a senior CPI(M) leader. He adds that all trade unions, irrespective of their party affiliations, are planning to come under a single umbrella to firmly resist closure of PSUs.

The CPI(M) has been very severe in its criticism of the pro-private sector industrial policy of the Naidu government. Ranga Reddy cites the example of the Nizam Sugar Factory (NSF), three of whose seven units were chosen for proposed expansion. "Guess to whom the government preferred to hand over the expansion programme. Binny! What experience does the textile-industry group have in running a sugar industry? How can the government expect to step up the production from the 1,250 million tonners to 2,500 million tonnes?" he exclaims. Now the Andhra government has identified the NSF as one of the sick units it proposes to close down.

Also among the PSUs in the red are the State Road Transport Corporation and the Andhra Pradesh State Electricity Board (APSEB). Both are considered integral to the social commitment of the government and cannot be would up. The World Bank decision to consider a $500 million package for the APSEB, delinking if from the $500 million assistance meant for infrastructure development and administrative PSU restructuring, has come as windfall for Naidu.

Almost like Union Finance Mininster P. Chidambaram Naidu has emerged as a favourite of the World Bank, thereby ensuring a steady flow of finances for infrastructural development in the state. But Naidu's detractors say he may have to pay the price for "selling out" to the World Bank. He, however, is confident that his policies will pay off in the long run.

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