Customers shop inside a HyperCity supermarket in Mumbai. Reuters
How did “Sonia’s poodle,” an “Underachiever” in UPA-2, and who looked likely to become a “tragic figure” in Indian politics, suddenly metamorphose into Tiger Manmohan on Big Bang Friday – the day the UPA government opened the sluice gates to major reforms?
There are currently more questions than answers. Is this Manmohan Singh’s N-deal moment in UPA-2? Have Sonia and Rahul suddenly come on board on the need for reform? Is the Congress suddenly ready to call its allies’ bluff, or even face the electorate? How did the Union cabinet suddenly discover it had a spine?
Was Big Bang Friday a sign of the UPA’s political savvy or political desperation?
There may be no single answer, but the political reasons could include a mix of personal and political answers. Among them: the foreign media’s criticism has begun to bite (Indian politicians are more sensitive to a Washington Post article than a Caravan analysis that originally painted Manmohan Singh as a “tragic figure”); The Sonia-Rahul dynastic duo may also have realised that if they allowed Manmohan to sink, their fortunes may also go down with it, thanks to the myriad scams surrounding UPA-2. (But the old deniability on unpopular decisions remains: Rahul Gandhi had no reaction to the diesel price hike).
Moreover, with Parliament adjourned and two state assembly elections coming up in November (Gujarat and Himachal), there could also have been the political calculation that none of the UPA allies may be willing to rock the boat till the winter session. By then who knows what the political situation would be? UPA thus used the small window of opportunity to get some things done in its own interest.
Was Big Bang Friday a sign of the UPA’s political savvy or political desperation? Reuters
There is also the possibility that the initial muted response to the diesel price hike – both by Mulayam Singh and Mamata Banerjee – gave Congress a chance to roll the dice further and go the whole hog, opening up foreign direct investment (FDI) in multi-brand retail, aviation, broadcasting services, and power exchanges, apart from disinvestment.
We will never know the real answers to political questions, since these are generally not discussed in public, but the decisions themselves offer clues to what the thinking could have been – and why some of them are actually indicative of political self-interest and crony capitalism at work rather than merely a desire to take reforms to the next level.
In all probability, these are defensive reforms, not reforms really intended to change the way business is done here and genuinely revive the India Growth Story. The timing indicates why these were done now rather than earlier or later.
Here’s how one should read the underlying reasons for Big Bang Friday’s reforms.
FDI in aviation: This is the clearest pointer to crony capitalism. The sad state of Kingfisher Airlines is the obvious justification, but who will buy a sinking airline with over Rs 7,000 crore in debt and an equal amount in accumulated losses? Kingfisher could have been saved if FDI had come last year.
FDI in aviation was not something any UPA ally would have opposed – at least not enough to pull the plug on the government. However, the reason why it did not happen earlier and has happened now is obvious: if FDI had been allowed last year, Kingfisher could have survived, and its rivals would have been unable to raise fares and become viable. Much behind-the-scenes lobbying must have happened to delay the inevitable so that Kingfisher was not saved.
Now that FDI is allowed and Kingfisher won’t benefit much, the real beneficiaries will be the recently revived SpiceJet and GoAir, not to speak of Jet Airways.
Sure, FDI in aviation is reform. And much needed. But it was deliberately delayed for no reason at all.
The diesel price hike: On the face of it, the diesel price revision was long overdue – and probably the only one dictated by pure economics and not politics. The obvious reason is the huge subsidy bill, that could have crossed Rs 2,00,000 crore in 2012-13 and busted the Union budget. However, there are wheels within wheels here, too.
First, the diesel hike was impossible to avoid since the alternative was to tax diesel cars. The lobby against this was simply overwhelming, and includes almost all the biggies – from the Tatas to the Mahindras to many foreign carmakers, all diesel kings (barring Maruti).
Secondly, the diesel price hike is not Rs 5 a litre, but only Rs 3.50 a litre – the balance is an additional tax on diesel, which goes back to the government. And this tax is intended to compensate for the Rs 5.30 per litre cut in petrol duties. This is where the political intent in clear. The last time the UPA allowed petrol prices to rise, Mamata Banerjee threatened mayhem. This time the government has quietly tried to balance the diesel red rag for Mamata with the petrol palliative. Whether this works is another matter altogether. Maybe the Lady is not for turning.
