Every new crisis, the old wily fox P V Narasimha Rao believed, is an opportunity to solve the previous one. Through the first half of his term and even later, Narasimha Rao deployed the cyclical force of crises — whether it was the BoP crisis of 1991, the Securities Scam of 1992 or the demolition at Ayodhya — to consolidate his power and ensure the political credibility of the regime.
Unfortunately, despite the five-year-long internship with Narasimha Rao, Manmohan Singh has not found it worth investing his faith in the old master’s thesis. It is never too late though. The confluence of sliding political credibility and crashing confidence in the economy offers an experimental crucible. To prove that it is politically relevant, the UPA must ensure the economy does not crash.
Never before in the past 25 years has a regime seemed so lame duck as this one. Those in the party accuse those in the Government of attempting to convert tenancy into ownership, while those in Government blame incessant shareholder activism for the paralysis. Citizen India though is not interested in the cause of the paralysis, as much as it is in the restoration of governance.
The crisis in the economy affords the UPA a great political opportunity to find itself. The two principle issues wrecking the economy are a rising trade deficit and a mind-boggling fiscal deficit. The trade deficit is burgeoning, thanks to rising oil and fertiliser import bills and falling foreign investment. With policy in paralysis, foreign investors have stayed home and those at home are investing abroad. The consequence of trade deficit is apparent in the falling value of the rupee. In 12 months, it has dropped from Rs 43 to Rs 54 per dollar. The joke doing the rounds of Mumbai is about the release of the next horror movie titled “Ab Tak Chappan” starring the Rupee and the Dollar.
The fiscal deficit is essentially a home-made disaster designed by the Congress’ definition of governance as a proxy for electioneering. Banking on high growth, the Government initiated schemes that account for an annual spend of Rs 5 lakh crore in the Centre and the states. The expenditure on social sector is a good idea but fundamentals of economics demand that spenders must be earners. Obviously, the Government doesn’t earn enough but is politically profligate and ambitious, so it borrows. This has triggered a cascade of inflationary impulses pushing inflation to double digits, slowing down GDP growth to perhaps sub-7 per cent.
There is little the Government can do — not in the immediate short run for sure — to manage the trade deficit. Notwithstanding the seat at the high table, it can’t resolve the crisis in the eurozone. But it surely can do something to address the bankruptcy in its own budgeting, bring down the borrowings to cut debt and deficit. Given the magnitude of fiscal deficit, it is time for the Government to hawk some family silver. Companies do it, households do it and there is no explanation as to why the Government is shirking from it.
The approach here must be two big bang disinvestments that promise a grand sum in realisation. There is no point in scoring singles in the slog overs when faced with defeat. The target should at least be Rs 1 lakh crore. And there are assets to hawk. Take for instance the Life Insurance Corporation. The market estimates its worth at over $80 billion. A 25 per cent divestment would raise at least Rs 1 lakh crore. There are others like the NHPC which produces the cheapest power in India. At 25 per cent, ownership doesn’t change. Offer it only to Indian citizens and entities. Given the state of the Sensex, investors will only gain.
Yes, there will be political resistance, but the magnitude of the crisis and the momentum of fear should smother the derivative traders in the UPA — the DMK, the TMC and other single-digit investors. Look at the optics of the trade-off. You are fighting a fire, but will be hailed as reformists. Trailing this wake must be a commitment to introspect on subsidies and profligacy. Over Rs 25 lakh crore has been spent since 2004 on social sector schemes without a socio-economic audit. Till the Government can illustrate impact of outlays, it is imperative that new electoral cash cows like the food security bill are tethered.
Fiscal muscle, the UPA must know, can do wonders for political confidence. Cash in the kitty will enable the Government to curb borrowings and cut deficit. A lower deficit signals lower inflation and allows the RBI to bring down rates and kickstart the virtuous cycle of growth. If nothing, the effort will inject optimism. Right now the political economy is defined by the psychosis of defeatism. It is only a start. Every journey calls for the first step, quest for redemption dictates sinners walk the first step.
There is no denying that every crisis comes embedded with an opportunity. Fact is from the ’50s, every regime when faced with a failure of articulation or when they are unable to get past Dissent Street has used crisis as the clinching argument to push through tough measures. When Indira Gandhi was questioned after she devalued the rupee by 57 per cent in 1966, all she said was “if we don’t devalue, we will not get aid”, and it shut up the Syndicate.
The logic is simple. It is imperative to be seen acting, doing something. You don’t have to succeed. If the gambit succeeds, the UPA gets revived. If it doesn’t, it must simply seek a new mandate. There is a sell-by-date to Pranab Mukherjee’s famous logic “we didn’t want to force mid-term polls”. When faced with polls “tried and failed” is an infinitely better poll plank than “paralysed”.
Rigor mortis, remember, is sufficient evidence for declaration of death.
The opinions expressed in this column are the author’s own
Shankkar Aiyar is a senior journalist who specialises in the politics of economics