Thursday, September 13, 2012

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

Ever since Mamata and Pranab were sidelined and Mulayam joined the government, the government’s messaging around reforms has been clear and consistent.

Whether it be the Vodafone tax issue, the taxation of foreign institutional investors (FII), the petrol price hike, the diesel price hike or noises around foreign direct investment (FDI) in retail, the government is slowly but surely pushing ahead the reforms agenda. And the timing could not be better. With elections just two years away, the government has enough elbow room to push ahead major initiatives and to start to see the fruits of its efforts.

In my stories a few months back (Pranab & Mamata Out, Mulayam In: Reforms on!, Pranab & Mamata Out, Mulayam In: Reforms on – II), I consistently pointed out that with the new political equations in place, India is all set for the next set of reforms.

Here are some key excerpts from my previous stories accompanied with the latest updates.

Excerpt: 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 …

Update: As expected, Mulayam is being very flexible.

Excerpt: 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.

Update: There is far more clarity around the controversial tax issues and attempts are being made to revive the mutual fund sector. However, not much movement has happened around the fiscal deficit and infrastructure. But I believe those will also start to pick up pace in the coming months.

Excerpt: 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.

Update: Diesel price hiked as projected. Besides, decontrol is a sham, since the oil companies continue to make petrol price decisions only with the approval of the Finance Ministry in spite of petrol having been decontrolled.

Excerpt: 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.)

Update : A great insight from FirstPost. Chidambaram, after taking over a finance minister recently, lost no time in setting the reforms ball in motion, and in a direction different that that set by Pranab.


In the 1990s, Manmohan did magic with PVR’s support. Is he on his way to another round of magic, with Sonia’s support? I tend to believe so. Time magazine called Manmohan Singh an “underachiever” and he has also been badly bruised in the Indian media. I will continue to keep track of this story to see how it plays out over the next few years.