Common And Minimum

It was born out of a zeal to justify the first word of the Common Minimum Programme (CMP), which of course is the very reason for its conception. But the United Progressive Alliance, UPA, has somehow lived up to its middle name—minimum—by trying to assuage the fears of the minority middle class, a feat it has, unfortunately, achieved admirably. Well, it seems that reforms will be on course, some sort of disinvestment might happen, foreign investment will be encouraged, and that should make the stockmarket happy. In fact, as a document of policy and intent, there is little one can hold against it. However, it's more in the nature of 'what to', rather than 'how to' that prompted an eminent New Delhi-based economist to dub it as "not practicable".

The good news first. It's a document which—if implemented "in letter and spirit", as UPA chairperson Sonia Gandhi promises it would be—will ensure that this government of assorted political entities will last a full five-year term. Apart from addressing the considerations of the major coalition partners in the arenas of politics (repeal of POTA) and international policy (a homeland for the Palestinian people), it also soothes the nerves of various factions on the economic fronts—be it labour, public sector, employment, agriculture, education, or health. "It's a well thought out, balanced, and well-rounded document covering all aspects—political, economic, and societal," says cii's director-general designate N.N. Srinivasan.

However, how the funds needed to bridge the gap between the intent and execution will be raised is unclear. No one is willing to hazard a guess about the total amount needed. However, as an indication, Federation of Indian Chambers of Commerce & Industry (FICCI) president Y.K. Modi says the government should sell loss-making public sector units and shares in profitable ones to raise at least Rs 25,000 crore a year, all of which should be channelled towards rural development. And rural development is just one high-spending area that's mentioned in the CMP. All in all, the UPA's CMP may have fallen into the age-old trap of many such documents: high on intent but short on strategy.

"It doesn't have a programme or strategic concept regarding how they will achieve what they want to achieve. There is a disconnect between the objectives and the means," says Subir Gokarn, chief economist, Crisil Centre for Economic Research. While intentions like the introduction of the value-added tax at the earliest will help augment revenue, the only direct fund-raising method worth noting in the document is a proposed cess on all central taxes, whose proceeds will "finance the commitment to universalise access to quality basic education".

A cess is merely a further flogging of the old horse. While it will create some furore in the urban segment, it is neither intended to nor will be able to take care of all the funds needed to finance the various pro-poor, welfare schemes. In fact, by itself, this cess will fall well short of stepping up the expenditure on education to the targeted 6 per cent of the gross domestic product. Then, there is the commitment to the Fiscal Responsibility Act, putting an obligation on the government to contain the revenue deficit. And the CMP promises to eliminate the central revenue deficit by 2009.

The commitment to retaining profit-making PSUs within the public fold and privatising only the loss-making ones will pinch here. The resolve to make every effort to "modernise and restructure sick public sector companies and revive sick industry" is indeed noble, as is the one to sell or close "chronically loss-making companies...after all workers have got their legitimate dues and compensation".

But there are a few catches. There will not be too many takers for the loss-making companies, unless they are sold piecemeal.Then someone can pick up the machinery while someone else buys the real estate. Secondly, if they are turned around and got into the black, they will have to be taken off the privatisation list under the policy of not selling profit-making PSUs. And third, winding up of companies after paying all due compensation will again see the monster of 'funds problem' raising its ugly head.

The critics are ready with the knives. "It (the CMP) can at best be called a political strategy, not one that will solve the burning economic issues. When it comes to the nuts and bolts, it is a backward march to the pre-1980 days of socialism. They (the Congress) are just trying to please everyone," says Jagadish Shettigar, a member of the BJP's economic think-tank.

Shettigar's statement may reek of bias. However, the point is that this government cannot follow the 'pleasing everyone' blueprint for too long. For instance, it may have a tough time tackling the long-pending issue of user charges. Any asset, physical or otherwise, that are built through public investments must generate revenue from operations to keep them going, say, through tolls on roads or user charges on water or electricity. If they don't, the government will have to pay for the costs incurred on their maintenance as well as the salary expenses of those employed out of the revenue budget.

In this respect, the intention to review the Electricity Act introduced by the previous government doesn't augur well. The government will have to be at its gingerly best as it goes about tinkering with such policies. It is all very well to try and bring private parties into the power sector, but they wouldn't be interested unless they can have some say in crucial matters like fixing the tariffs. And we haven't even started talking about one of the planks on which Andhra Pradesh chief minister Y.S. Rajasekhara Reddy brought the Congress back to power after nine years: free electricity to farmers.

Thus, all eyes and hopes will now turn to the first budget of the most formidable combine in the short history of India's economic liberalisation—Manmohan Singh and P. Chidambaram. The process of the budget will be set in motion in the first week of June. "The funding strategy will get indicated in the Union budget," says Srinivasan. Gokarn believes that "widening of the tax base will be critical". Modi would like the government to encourage private participation in education. "They should privatise higher education completely. The resources thus freed should be put into primary and secondary education," he says.

The widening of the tax net would be the most obvious guess one can take while forecasting the budget. Vijay Kelkar, who was the head of the committee that made sweeping recommendations to lower the tax rates and do away with most of the exemptions, is an old comrade-in-arms of the finance minister. As you read this, his report may well be undergoing some much-needed dusting and scrubbing. However, the recommendations will not show results overnight. They make take up to three years to show tangible returns. Well, it's time for the MMS-PC combine to live up to its billing and quench the thirst of all those asking: "How to?"