Thursday, July 5, 2012

Pranab & Mamata Out, Mulayam In: Reforms on - II

All the messaging from the Prime Minister’s Office continues to point towards only one thing - reforms are on!

In my story last week (Pranab & Mamata Out, Mulayam In: Reforms on!), I pointed out how, with Mamata sidelined, Mulayam in its fold and Pranab as president, Congress has not had it so good in many years. And that meant the reforms process was now on.

In fact, I had pointed this out as far back as May 2012 (Reform Initiative: Mulayam to decide, not Mamata nor Manmohan). This was after Mulayam “pledged” support to the UPA government.

“So what does that mean now for some of the major reforms and other governance measures that have been on the backburner? Many of those measures are likely to go through … Mulayam is expected to be flexible …”

The government’s decision to postpone implementation of GAAR-related tax provisions by one year, and a promise to clarify the provisions and remove uncertainties in the minds of foreign investors, was a major sentiment booster, with equity markets going up nearly 5% over the past week.

This was followed by an interview of the prime minister with Hindustan Times yesterday, where the messaging continued. “The India growth story is intact. We will continue to work, as we have been doing for 8 years, to keep the story going,” said PM Manmohan Singh. He further said that in the short term the plan is to focus on bringing complete clarity on all tax matters, control fiscal deficit, revive mutual fund and insurance industries and provide a major push to infrastructure.

This messaging continues with reports that the government might bite the bullet on diesel subsidies, with partial decontrol of diesel prices after the presidential elections.

So why had the reforms process stalled for so long? There was a nice story in FirstPost a few days back (PM-Pranab-Sonia hiatus was key cause of policy paralysis), which captures some of the background dynamics that might have contributed to this situation. Here’s what it says:

“It seems the PM wanted to keep the finance ministry with him even in 2004 but was dissuaded from doing so by the party. So Chidambaram got the job. When Chidambaram was removed in 2008, Pranab Mukherjee got it. After UPA’s resounding victory in 2009, the PM made another bid for the job and failed.”

“What this history makes clear is that Dr. Singh was always keen on doing the finance minister’s job himself, or getting another economist whom he trusts to do the job for him.”

“The gap between the PM and his FM grew widest during the tenure of Pranab Mukherjee, when the latter subtly kept the PM out of the loop. The possible reason is ego: Pranab felt that he was Manmohan Singh’s senior in politics. (Mukherjee was FM in the 1980s, when Singh was just a bureaucrat under him.)”

All in all, after a very long gap, there seems to be some real hope that the reforms process is getting back on track.