These are troubled times. Communal violence in Gujarat continues. Kashmir is on the boil after the assassination of Abdul Ghani Lone and the killing of relatives of Indian soldiers by militants.. Vajpayee is threatening war, Musharraf is threatening to retaliate against any Indian strike, and the troops of both sides have massed on the border.
According to conventional wisdom, such political turmoil is not the climate in which we can expect much economic decision-making, let alone purposive reform. The good news is that the conventional wisdom is wrong. Economic decision-making is moving ahead at least as fast as it did before the current political turmoil began.
The Godhra massacre occurred the day before budget. The usual post-budget economic debates were totally eclipsed by Gujarat. Various partners of the BJP-led National Democratic Alliance condemned the role of Gujarat Chief Minister Modi in what came close to being a pogrom, and many demanded his head on a platter. For a time it seemed that the government might be defeated in a Parliamentary vote on Gujarat. Ultimately it won, only to be plunged into a new turmoil in Kashmir.
Yet these troubled months have been full of purposive economic decisions. Consider the main highlights.
Administered pricing for oil was scrapped on April 1, a month after violence exploded in Gujarat. This is a major reform. When a scheme for phasing out administered pricing over six years was first proposed by the then Petroleum Secretary, Vijay Kelkar, I told him he was wasting his time. The price of petrol, diesel, kerosene and coking gas were so political, I told him, that politicians would postpone decontrol till the very end of the reform process. I am happy to have been proved wrong. The incident should help readers appreciate what a radical step has been taken in the midst of political turmoil.
True, the decontrol of prices is less than absolute. All oil distribution is still done by public sector entities, who are not exactly free from political control. An independent regulator has yet not been appointed. Still, politics is finally exiting from petroleum pricing, and that is a big advance.
In April, public sector employees went on a strike to protest against the privatization process. Pessimists feared that trade union opposition in conjunction with political turmoil would slow down privatization. process. Not so. The privatization of Maruti Udyog was long considered politically very difficult because it was one of the crown jewels of the public sector. Yet this company has now been privatised, with control passing to Suzuki. The government will reap over Rs 3,000 crore when it makes a public issue since Suzuki has underwritten the sale price. This is so obviously a good deal that the Opposition has not kicked up the usual fuss.
Another controversial privatization, of Indian Petro Chemicals Ltd (IPCL) has also been achieved. Not so long ago, powerful politicians in and outside the Cabinet wanted IPCL to be taken over by Indian Oil Corporation. This was supposed to prevent Reliance from gaining a dominant position in the petrochemicals market, but was actually aimed at keeping this company in the public sector fold. However, Disinvestment Minister Arun Shourie persuaded the cabinet that competition from imports would thwart any monopolistic pricing by Reliance, and so the privatization finally went through. Here again, the high sale price of Rs 231, four times the market price prevailing some months ago, has silenced the usual criticism that the family silver has been sold for a song.
The privatization of Engineers India, Shipping Corporation of India and Hindustan Copper are going full steam ahead. Further ahead lie the privatization of National Fertilizers, Rashtriya Chemicals and Fertilizers, Dredging Corporation of India, and many others.
Although the Disinvestment Commission and a Paliamentary Committee have said there is no need to privatise Hindustan Petroleum and Bharat Petroleum, the government has reiterated its determination to privatise both later this year. These have the potential to fetch Rs 5,000 crore each. For the first time, it seems that the government’s disinvestment target for the year will not only be met but exceeded.
Indeed, action on the privatisation front has been so strong that the stock market price of public sector companies has skyrocketed, even while the market as a whole has been dragged down by fears of war. Never before in history have public sector shares outperformed private sector blue chips so dramatically. So, I am not the only one who believes that economic decision-making remains strong during political turmoil. The market believes so too.
Nobody can say that the violence in Gujarat has not affected decision-making at all. It was one reason for the Prime Minister to force the Finance Minister to partially roll back some unpopular budgetary proposals like the hike in cooking gas price, service tax on insurance, and abolition of some tax breaks for the middle class. The BJP does not command a majority in the Rajya Sabha and so needs the co-operation of the Congress to get legislation through both Houses of Parliament. After Gujarat, such co-operation will be more difficult to obtain. And so some radical measures, like labour reform, will remain on the back burner.
Yet Congress-BJP co-operation is not dead. The two got together to pass the Patents Bill, an important reform landmark. Legislation has just been introduced on judicial reform, which is essential to speed up verdicts. A bill has also been introduced to enable banks to more easily recover their debts from borrowers, an overdue reform without which financial reforms as a whole will be hobbled.
At the end of it all, purists may complain that the pace of reform is not fast enough. But the pace of reform was pretty slow in the last decade too, sometimes glacial. The good news is that, despite political turmoil, reforms have not slowed down.