A difficult agenda...

A difficult agenda...

The second United Progressive Alliance (UPA) government’s first Economic Survey for the year 2008-09 is like a list of things the Congress party, the main constituent of UPA, would like to do in the next five years.

Unshackled from the reform-averse left parties’ clutches the new UPA — through the survey, has made it clear that the government is ready for radical reforms. But, a realistic assessment will quickly reveal that the reform measures listed in the survey are more of an expression of intent — as political and social compulsions will not allow many of them to be carried through.

Running into 281 pages, the Economic Survey was prepared by the Chief Economic Advisor Arvind Viramani and his team of economists and was presented in the Parliament by the finance ministry.

The survey, lists out a whole gamut of new policy prescriptions for the economy and advocates many radical changes in the present ones. Since most of the suggestions, though ideal in nature, are impractical in terms of implementation, economists have already described the survey as a ‘technocrats’ wish list’ that can not be put to practice by any government in India in the present context.
Touching upon the subject of labour reform, the Survey, for example, suggested the removal of the clause ‘prior permission needed from the government’ before retrenching people by an employer. If this change is made in the Industrial Dispute Act, this will empower an employer to closedown facilities without government intervention. Though this has been as long-pending demand of the industry bodies, no political party will dare to take such a step fearing backlash from huge job losses.

However, the survey’s recommendation to increase working week to 60 hours from the present 48 hours in factories may not face vehement resistance.

Difficult to implement
The Survey suggested that the government subsidy on fertiliser should be shifted from companies into the hands of the farmers based on the proof of purchases. It is true that this scheme will target subsidy only to the poor and needy farmers and thereby, to some extent, lower the huge fertiliser subsidy burden — estimated to be Rs 90,000 crore in the current financial year. But the implementation of the policy will be a major issue.
Knowing fully well, that, it is easy to create and acquire bogus purchase documents, the fertiliser subsidy meant for farmers will be pocketed by unscrupulous people. Under the present system it is easier to monitor the production and dispatches of fertiliser from the manufacturing plants and the distribution through dealers.
Slippery oil
On the issue of subsidy and pricing of oil products, it made some suggestions that can be implemented. It said that by taking advantage of the current low inflation in the country and lower crude oil prices, the government should decontrol prices of petrol and diesel. If consumers are made to buy oil products at market price, they will be aware of the opportunity cost of oil imports and would contribute to economising the consumption of refinery products, the Survey said. Price decontrol certainly is a much needed move.
The survey, however, suggested a ‘measured policy response system and a financial buffer’ to insulate farmers and truck operators from abnormal rise in diesel prices if the price of crude oil in the international market crosses $80 a barrel.

Such dual pricing system, one for the cars and the other for trucks, will be very difficult to implement as truckers and farmers can easily sell their discounted-diesel to car owners for a gain.

This is precisely the reason why bulk of the subsidised kerosene meant for BPL families gets diverted to open market where price is more. Similarly, the survey’s suggestion to limit subsidised LPG to 6-8 cylinders in a year is also difficult to monitor and implement

PSU disinvestment
The Survey recommended that the government should sell at least 10 per cent equity stake in every profit making public sector undertaking (PSU), auction all loss making PSUs that cannot be revived and aim to raise Rs 25,000 crore every year through divestment.
Once again these suggestions are idealistic but impractical to implement. It is true that by selling 10 per cent stake PSUs will get listed in the stock markets, their performance will be under public monitoring and, as a result, management will try to deliver the best. Sounds good in theory, but as long as PSUs are run by the government and as long as government policies affect their operations, they cannot be run efficiently.

Huge losses suffered by the oil marketing companies like BPCL, HPCL, IOL due to under-recovery from selling petrol, diesel, kerosene and LPG at subsidised prices is a good example of how government policies affect performance of PSUs.

Unions will protest
The target of raising Rs 25,000 crore annually from PSU stake sale is not desired either because PSU shares must be sold at a time when it is possible to get the best value. Similarly, the fear of job losses makes it politically difficult to sell loss-making PSUs.
The survey has pushed for de-nationalisation of coal industry by allowing entry of private players. It wants the government to transfer management of two sick subsidiaries of Coal India — Eastern Coalfields Ltd and Bharat Coking Coal Ltd - to private players by selling 49 per cent stake to them.

Privatisation will surely bring in much-needed efficiency in the coal industry, but very strong labour unions, backed by political parties, will fight against it with all their might.
Among all recommendations in the survey, the one which is likely to materialise soon is raising FDI limit in insurance companies to 49 per cent. There is already a bill to this effect introduced in the previous parliament. But the suggestion to fully open up India’s retail market to foreign investors to drive economic growth is unlikely to happen as many parties in the UPA are opposed to it. The fear that large number of small retailers will lose business to big players has held back this policy initiative mooted a few years ago.

Economic Survey’s reform agenda
*Remove need for prior government permission to retrench workers.
*Limit LPG subsidy to 6-8 cylinders in a year per household.
*Lower Kerosene subsidy by ensuring rural homes turn to solar power.
*Shift fertiliser subsidy to the farmers from manufacturers.
*Auction 3 G mobile spectrum and allow it to be freely traded.
*Sell 10% stake in profit making PSUs
*Raise Rs 25,000 crore annually from PSU disinvestment.
*Two tier price decontrol for oil products.
*Raise FDI limit in insurance.
*Allow FDI in retail trade.
*De-nationalise coal sector and allow private players.
*All financial markets should be under the regulation of Sebi.
*Allow foreign firms to explore oil.

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