Undoing the UPA's wrongs: BJP's sins of omission will come to haunt it

Was the unprecedented four-pronged attack on the United Progressive Alliance (UPA) government’s economic performance by the Bharatiya Janata Party (BJP) really necessary? Former finance minister Yashwant Sinha in Delhi, Subramanian Swamy in Bengaluru, Piyush Goyal in Mumbai and Smriti Irani in Ahmedabad hauled the UPA over the coals for the sorry state of the economy.

Really, is there any doubt any more that a government headed by an eminent economist who had two experienced finance ministers during his ten-year tenure has not only ruined a once-vibrant economy but also put so much sand in its wheels that any future government is going to face a Herculean task in getting it to move again?

What’s more pertinent now is how parties aspiring for power are planning to fix the humongous problem that they will be faced with. Of the four press conferences, some sense of the economic priorities and plan of action of a possible BJP-led government emerged from the one addressed by Sinha.

A BJP government’s approach, he said, would have two parts. The first part would be to undo the wrongs of the present government. The second would be to take macro measures to restore the macro-economic balance and then take sector-wise steps to address problems in specific areas like power, coal, roads and the like. The biggest attack, he said, would be on inflation in order to create space for the Reserve Bank of India to start reducing interest rates.

Inflation is, no doubt, going to be the biggest test for any government, especially a BJP-led one, given the hype it has created through its Modi aa rahen hai radio spots where a frightened sounding inflation is telling an amused Bharatwasi that she needs to leave India because Modi is coming. If only things were that easy.

Way back in 2002-03, when the National Democratic Alliance government was faced with rising inflation, Sinha contained it with a three-pronged strategy. That time too there were huge food grain stocks with the government. So the government pushed more food into the market through the public distribution system, food-for-work programmes and selling wheat and rice at subsidised rates to millers for processing into by-products. It had a salutary effect very soon.

Will that strategy work now? It will certainly help bring down food inflation, but that is on the downward path anyway. An HSBC research note points out that headline inflation has begun to soften, thanks to lower food inflation, in both the consumer price index (CPI) and the wholesale price index (WPI). However, core inflation (minus food and fuel), it pointed out, was still not in the comfort zone. While CPI core inflation had eased a mite (from 8.1 percent in January to 7.9 percent in February), WPI core inflation in February was still at elevated levels. As the note says, “the inflation print has a significant structural component due to the lingering supply-demand imbalances in the economy and the, in our assessment, minor to non-existent slack in the economy. This has added a lot of persistence to the inflation story.”

An inflation which has got entrenched and has spread to other sectors will not be easy to bring down rapidly. This was not the case in 2002-03, because the NDA had acted as soon as food inflation started rearing its head. The problem now may have been created by the Congress, but the consequences will be faced by the new government.

But what’s going to be more difficult is delivering on the promise to undo the wrongs of the UPA government. Because many of the wrongs have been in the form of bad, populist laws, in whose enactment the BJP has also been complicit.

Sinha, to be fair, conceded that this problem would arise, especially in the context of the National Food Security Act (NFSA). How deleterious would its impact be on an already extra-stressed exchequer is a complete wild card. All that food policy and public finance experts are willing to bet on is that it would cost much more than the Rs 1,15,000 crore that has been budgeted for in 2014-15.

Sinha admitted that it would be difficult to withdraw or repeal laws whose passage the BJP itself had supported. What will be needed, he said, is to work out alternative ways of implementing these laws, which will involve minimum stress on the exchequer. Cash transfers would be one such method, but Sinha avoided coming out categorically in its favour. That is the only innovation possible within the framework of the Act. Other alternatives could be to put a lid on procurement prices paid to farmers and drastically overhaul the food procurement and distribution system. But the first is politically difficult to do, and the latter administratively complicated.

There’s also the problem of dealing with the NREGA, whose deleterious effects on the economy are by now well documented. Perhaps this may lend itself to a complete revamp. One, hopefully, will see its early demise or at least paring down to a genuine distress-driven programme, which is what it was meant to be originally.

A far more intractable issue will be the land acquisition law. This article by T. N. Ninan sums up the enormous problems the law will bring in its wake. Even if the new government succeeds in bringing down inflation significantly enough for the RBI to lower interest rates, the land acquisition law is not going to improve the investment climate by a long shot.

What’s encouraging, however, is that the BJP is realising that the laws it helped pass are extremely flawed. That’s one better than the Congress, which continues to be in denial mode.

Here’s hoping that even as BJP stalwarts are busy chalking out plans to win the elections, there are others who are working in the background to find solutions to the problem the party has created for itself.

The author is a senior journalist and author