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Economy Sep 14, 2012

Economic reforms: Allies get a stinging slap from Congress

By Akshaya Mishra

Desperate situations call for desperate measures. The UPA's decision to hike diesel price and put a cap on use of subsidised LPG cylinders on Thursday and the flurry of big ticket decisions on Friday, including clearance to the contentious FDI in multi-brand retail, are fraught with great political risk but the government, hemmed in by trouble from all corners, simply had to bite the bullet. These are desperate times for the government.

It was left with no other options.

Obviously, it would have anticipated the magnitude of the political opposition to its massive reformist move.

Most of the parties, including the UPA allies, are out on the streets on the diesel price hike issue. Friday's decisions are likely to make the opposition more intense. The government seems to have braced itself for the political consequences of its move.

It wants to ensure that if at all it has to go out it must go out with a bang, not a whimper. And let's not forget, it wants to distract the public attention from the coal allocation controversy too.

Here's why the government had go for the high stakes move. First, it had to dispel the growing impression that it had lost the appetite for taking hard decisions; second, it had to get the good headlines back - they have been missing for quite some time; third, it wants to goad the RBI to cut policy rates by showing that it is serious about getting the economy back in order.

The move on diesel and LPG was aimed at fiscal consolidation and as a confidence-booster shot to the oil marketing companies bleeding heavily due to subsidies on petroleum products and needed a confidence-booster.

Stuck in policy paralysis ever since late 2010, when the 2G spectrum scandal stormed into public consciousness, the government is acutely aware that the opposition has been setting the agenda for it since the last two years.

Under relentless attack over several scams, including the latest, the irregularities in coal block allocations, the government has gone on the defensive, refusing to take tough decisions on the economy and other areas and spending most of its time fending off allegations from the opposition.

The pressure from obstinate allies has not helped its cause either. It was a political necessity for the UPA to break free of the mould and get moving.

Pic used for representational purposes only.

The diesel price hike, the cap on subsidised cylinders and FDI in retail would provide ammunition to the opposition in a year of crucial elections. FDI in retail, in particular, had aggressive opposition across the political spectrum. But political rivals are only a minor part of the problems before the government. It is rapidly losing faith among the domestic and global business classes and investors.

It had to lift the sense of gloom and bring back good headlines back in the media. The present move would at least draw applause from the experts. The Congress which initiated the reforms process in the country does not want to be seen to have abandoned it.

However, the political import of the decision goes deeper. The Congress has decided that it would not be held hostage to the compulsions of alliance politics any more. Heading an alliance government with a wafer thin majority in the house, it has suffered more humiliation at the hands of its allies than the opposition.

The Trinamool Congress, which offers crucial support to the government with its 19 members, has managed to stall all important reforms through its intransigence. Mamata Banerjee's party has been opposed to all reforms the government set rolling today and yesterday and has been resorting to open blackmailing to stall these over the last couple of years.

The Congress seems to have realised that survival in power is coming at a great cost to the party. In the final analysis, it's ending up losing credibility and constituencies in all segments. Moreover, both the allies and the opposition are strengthening their own popular following by branding the government villain on all issues.

It had allowed matters to drift for a long time, now it is out to undo the damage. With the present set of decisions it has ensured that it gets back the support of the people who believe in the reforms process.

Politically, the Congress, beset as it is with ideological and leadership issues, seems to have given up on the election of 2014. But it does not want to go down as a party without any achievement during its tenure. It still needs to go to the voters with something concrete in terms of achievement. The reforms will be a good talking point. It also wants to show that it is confident enough to take on the combined opposition of the allies and the opposition, led by the BJP.

The range of decisions would serve as an image-booster for Prime Minister Manmohan Singh. This could well be his answer to the critics in India and outside who have made it a habit of calling him incompetent and as someone who has sacrificed his reformist zeal for political survival. It would also bring a stop to the unending speculation that Congress president Sonia Gandhi's populist agenda is putting the spanners in the reformist agenda of the prime minister.

For a change, the Congress seems to have done something right. It has been a long wait though.

by Akshaya Mishra

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