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INDUSTRIAL ECONOMIST
Cover

The new government: The philosopher king is voted back.
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Inklings

The mandate to govern with comfort: Economics and not politics was the guiding factor in the recent polls.
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Editor's Notes

The Indian Profit League..
Enter the zoozoos...
Rich mix of sports and entertainment...
A culture shock...
Education reform needs priority...
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Banking - Analysis

Bank loans to the edu-cation sector: Growing and widening devide...
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Economy

Tasks for the new government: Stimulus and controlled deficit can't go together...
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Budget

Priorities: Competent governance, not freebies
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Comment

Elections: Congress must deliver on inclusive growth
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Elections 2009

Media moulds: From the T N Seshan era, the Election Commission has ensured more orderly conduct of polling.
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Elections

AP: Stunning victory, but rocky road ahead
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Kerala: Here anti-incum- bency works to precision
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Suggestion

Banking: Renewable energy schemes through DRI loans
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Energy

Dismantle APM: Energy subsidies - mother of all corruption
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Comment

Planning: Surely you must be joking, Mr.Ahluwalia
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Report

Insurance Sector in April: Recession hits insurance...
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Macro Economics

Savings Interest Rates: Modest impact of small savings on bank deposits
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Long term savings: New pension system could be a win-win proposition
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Financial sector reforms: Look beyond divestment of bank holdings and opening of insurance
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Analysis

DLF: Problems getting graver by the day
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Airlines sharpen focus on low cost format
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Comment

Sugar: Faulty policy, no timely action, blamed for sugar price rise
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Business Briefs

Madras HC's not for TVS twin-spart technology
Sri City gets Rs.80 crore investments from Rockworth
TN power regulator hikes tariff for bio-mass and co-gen power
Labour unrest at MRF factory
more...

Cover Story: The new government


The philosopher king is voted back

The division of functions between Sonia Gandhi and Manmohan Singh appears logical and highly beneficial with the former focusing on the affairs of the party and the later on administration and governance. This has enabled Manmohan Singh to find the time to focus on major global issues, improving contacts and relations with several national leaders and in providing undivided attention to development.

Dr. Manmohan Singh has assumed charge as the prime minister for a second full term heading a UPA government in which Congress is a much stronger constituent - with 206 seats against the 145 it had in its previous term.

The Congress Party projected Manmohan Singh as its prime minister. The much stronger vote this time is a vote of confidence essentially for Manmohan Singh and the performance of his government through 2004-09.

The situation in May 2009 is vastly different from that in 2004 when the government had to assume charge with outside support from the Leftists. Its survival was dependant on that support. Thus its actions were considerably restrained by the dictates of the coalition partners. In several instances one could witness the tail wagging the dog.

The Manmohan Singh government had an exemplary record in accelerating economic growth which, in turn, impacted on employment generation and poverty alleviation. An average growth of nine per cent for three years in a row was the result of the efforts made by the government to focus on agriculture and infrastructure and on improving the investment climate that attracted handsome foreign investments.

Welcome focus on agriculture…

The record in agriculture is gratifying. The jinx of food production stagnating in the range of 200 - 215 million tonnes was broken and the country witnessed a higher rate of growth that took food production to a level of 230 million tonnes. Understandably, this had its favourable impact on rural employment and prosperity. The handsome increases in procurement prices also helped in the Food Corporation procuring more than 50 million tonnes of rice and wheat in the current year.

Kudos for power development…

The Manmohan Singh government also deserves kudos for its focus on power: after the dismal shortfalls in additions to capacity recorded in the previous three five year plans, the Tenth Five Year Plan vastly reduced the gap between target and achievement, thanks to the focus on fast track clearances right from 2004-05 and close monitoring. The Eleventh Plan promises even better performance with most of the schemes planned decided upon even in the first year of the Plan.

The crowning achievement of the UPA government related to its ending a three decade old nuclear apartheid. It was a bold and imaginative initiative of Manmohan Singh who staked his all for successfully concluding the nuclear deal with the USA. I had the opportunity to cover the Bush-Singh meet on this in July 2005 and covered the tortuous course of this through the next four years with the deal evoking stiff opposition not just from the Leftists but the BJP as well on ideological and political considerations. The UPA government risked its very survival. Manmohan Singh’s spirited advocacy and a last minute support by the Samajwadi Party through a cleverly drafted strategy saw the sealing of the deal. This also simultaneously saw the government freed from the over-bearing Leftists.

The election results can be taken as a vote for the performance of the UPA government. The personal integrity of Manmohan Singh and the reputation of most members of the Congress Party for their clean record are also important factors.

Effective lead of Sonia and Rahul Gandhi

The campaign of the Congress was led upfront by Congress president Sonia Gandhi and general secretary, young Rahul Gandhi. Sadly, there were not many other leaders of stature who could command attention outside their constituencies/states. The timing of the elections in summer also added to the discomfiture of party leaders. The party took a bold decision not to capitulate to the dictates of cunning leaders like Lalu Prasad and Ram Vilas Paswan and opted to go on its own in major states like UP and Bihar. Rahul Gandhi had done excellent work in mobilising the youth in the northern states which returned the Congress in large numbers from Delhi, Haryana, Punjab, Rajasthan and the UP. After a long time the largest state of UP returned the Congress in good numbers. (21). The party’s performance in Andhra Pradesh, Kerala and Maharashtra was far beyond expectations; its joining hands with Trinamool Congress in West Bengal also proved extremely advantageous. Rahul Gandhi also spotted and picked up a large number of youth to contest on the Congress ticket. These educated men and women with passion and commitment have been returned with enthusiastic support from the masses. One can expect their impact on the quality of debates in the Parliament and on governance issues.

The harnessing of the youth power is a new factor that has received welcome attention at the hands of this young leader. It needs to be written large on the national scene. Rahul Gandhi should now focus on building the Congress in several other major states like Gujarat, MP, Karnataka, Orissa, Tamil Nadu… where it has lost its hold.

The quiet and well-calculated approach of Sonia Gandhi appears to have been well-rewarded. Her master stroke of selecting Manmohan Singh to head the government, so firmly declining the overwhelming demand of her partymen to lead, has no parallel. It gave the country a clear, efficient and caring leader who has helped improve the stature of India as an emerging economic power. Her spirited campaign across the country, especially in several parts of rural India and her humane approach, had won the hearts of millions. Her reserved style of not seeking to be in the limelight, especially through the garrulous television medium, seems to protect her from getting trapped in unseemly controversies.

Rich experience in administration

BJP leader L K Advani and his partymen have been critical of Manmohan Singh as a weak prime minister and for his not contesting the election to the Lok Sabha. This is not true. I have the opportunity to interact with Manmohan Singh for close to three decades in his long tenures with the government as the chief economic adviser, as a member of the Planning Commission, as Governor of Reserve Bank, as finance minister, as leader of the opposition in the Rajya Sabha and as prime minister. India did not have any other prime minister having had such a long and close involvement with administration. This I consider as a great advantage. The division of functions between Sonia Gandhi and Manmohan Singh appears logical and highly beneficial with the former focusing on the affairs of the party and the later on administration and governance. The release of energies this way has enabled Manmohan Singh to find the time to focus on major global issues, improving contacts and relations with several national leaders and in providing undivided attention to development. Mere political leaders heading the government in the past spent a lot of their attention on party affairs which distracted and diminished their role as the chief executive focussing on governance.

The firm stand took by Manmohan Singh on the nuclear issue is one good example of his strength and courage of conviction. I doubt a mere political chief executive could have risked the prime ministership on such a single important issue.

A sad aspect of the recent election campaign was the personal attacks. The electorate has not been impressed by this and rightly ignored these as irrelevant.

India’s stature improved…

NDA’s leader A B Vajpayee took the initiative to improve relations with other countries, notably with India’s neighbours. The stature, personal reputation and erudition of Manmohan Singh have enabled him to expand this approach manifold. Particularly, important was his personal rapport with leaders like George Bush, Tony Blair, Nicolas Sarkozy, Vladimir Putin… and with the leaders of Japan, Brazil, South Africa and India’s neighbours. The several visits he made abroad, unmindful of the strain involved, were a big help in expanding the influence and importance of India. His dignified bearing and lead in the UN and the G-20 meets have won wide appreciation. He has been listened to with respect for his erudition, experience and knowledge.

Manmohan Singh has been a workaholic. Within days after the major heart surgery last year, he was back at his desk, submitting himself to a familiar grueling schedule. In a rare television interview his wife Gursharan Kaur, referred to his leaving for office much ahead of schedule; and his daughter Upinder Singh mentions the last holiday the family had was some three decades ago in the 1970s!

Sonia Gandhi and Manmohan Singh understandably also seem to appreciate loyalty. This should be evident from the difference in the approach to treating allies like Mulayam Singh Yadav, Lalu Prasad, Ram Vilas Paswan on the one side and M Karunanidhi on the other. The former group had no qualms in ditching the Congress and fighting it in the recent elections. The combine offered just three out of the 40 seats in Bihar after liberally distributing these among themselves. The DMK, in contrast, was content to having its share in the cabinet and extended support to the Congress initiatives.

In 2004, the dependence of the Congress on the allies much restricted its discretion; it had to yield to the demands of a Lalu Prasad, a Karunanidhi or a Sibu Soren. Sadly, in that the stature of the prime minister suffered: one witnessed a curious spectacle of greenhorns like Dayanidhi Maran and Anbumani Ramdas offered cabinet berths with more senior and more popular leaders like Kapil Sibal and Praful Patel appointed as ministers of state (this extended to Jairam Ramesh who was inducted latter). This time around Manmohan Singh appears more determined to allot crucial ministries and those dealing with infrastructure to proven and talented MPs. If only the norms for allotment on a uniform basis were decided and intimated to the coalition partners, much of the controversy that erupted between the DMK and the Congress could have been avoided. However, it should be admitted that it was a fluid, evolving situation with no certainty of outside support in the first couple of days after results were known. Thus the level of confidence to tackle hefty demands could not have been there in the initial stages.

Pressure politics…

Now, look at the contrasting demands: Lalu Prasad appreciated that ‘Delhi worshipped power’ and with just four seats won, he reconciled to supporting the government from outside. Mamta Banerjee, keen to focus her energies on the elections to the state assembly two years hence, appears content with one cabinet berth and six MoS. NCP, shaken by the reverses in Maharashtra, has chosen to remain silent. Only the DMK was pitching its demand high. Leader M Karunanidhi is understandably keen to get berths for his clan and also for other party members who were part of the earlier ministry. Five cabinet berths and four MoS earlier demanded could have helped him meet this aspiration. But it is clearly untenable. If the strength of the cabinet is to be limited to 72 to be distributed in proportion to the 272 Lok Sabha MPs, DMK with 18 seats can aspire for just around five posts (in this the allotment of Rajya Sabha members is not taken into account; perhaps another two could be possible). Thus an allotment of two - three cabinet posts and four MoS appeared liberal. But MK has the need to accommodate three members of his family and another six the DMK held in the earlier UPA ministry; hence the demand for nine posts. Three ministers of the earlier cabinet did not contest; that necessitated providing for T R Baalu, A Raja and Palanimanikkam plus possibly three new appointments and three from his family.

Poor media relations of Baalu and Raja…

Delhi media has not been impressed with the performance of Baalu and Raja. In this Baalu has to take a portion of the blame. His abrasive style of functioning and intolerance of critical, probing questions have not earned him friends. I remember his lack of tact in dealing with critical and provocative questions. Likewise, Raja was subjected to grueling questions on the Spectrum G allotment issue. These two lacked the confidence and grasp of a subject of a Sharad Pawar or P Chidambaram or the suavity and clever repartees of a Murli Deora or Kapil Sibal. The Sethu Samudram Project was mired in controversies and legal issues and DMK’s anti-religious pronouncements have not endeared Baalu to the majority of Delhi media persons. Sadly, the major scheme of national highway development that received such wide acclaimin the initial years of its development under the NDA, appeared to be bogged down with charges of corruption and slow clearances. The DMK Supremo would do well to monitor the performance of his lieutenants, particularly their handling the powerful Delhi media. Baalu’s writing to the prime minister’s office seeking special favours for his sons in regard to gas allotment and the discretionary allotment of Spectrum-G licences lacking transparency had contributed to the discomfiture of these. The harsh criticism of Raja, even by Sun TV when Dayanidhi Maran fell out with the DMK, did have its impact.

No harm trying…

Surprisingly the shrewd strategist Karunanidhi seems to have failed to appreciate the changed arithmetic of the UPA. With the support of 322 promised by allies and the secular brigade, the Manmohan Singh government is in a position to call the shots. The Leftists, who extended support from outside, have been decimated with their strength falling to a third and there is the additional problem of the DMK government in Tamil Nadu dependant on support by the Congress for survival - it has just 96 members in an assembly of 234. The Pattali Makkal Katchi of M Ramdass moved out and became an ally of rival AIADMK and the state Congress leaders have a three year grouse over not getting representation in the state ministry.

The election results themselves appear to widen the cleavage between the two parties. The DMK election machinery succeeded in its mission to decimate strong opponents; all the contestants of PMK which crossed over to the AIADMK; Vaiko, another arch rival; the lack of effective support to several leading Congress candidates like TNCC president Thangkabalu, standing critic E V K S Elangovan, Mani Shankar Iyer and Charubala Thondaiman and uncertainty till the last minute of the success of even P Chidmabaram are contrasted with the facile return of 18 of the 22 DMK candidates.

Tasks for the new government…

The new council of ministers could be expected to be chosen with care and its performance will be closely monitored. The focus for the new government is understandably on delivery of the promises. The new found strength of Congress and the focus on delivery are welcome features.

Much is understandably is expected of the new government. The first major task is to restore the momentum lost largely due to the global meltdown. For this to happen the focus should be on:

  • Agriculture and allied services. IE has been suggesting a bold and new plan to double food production. A 10 per cent annual growth rate can take food production to around 500 million tonnes over the next eight years. This can be achieved by a careful selection of crops suited to agro-climatic conditions of the different regions, testing and correcting soil, selection of quality seeds and nursing these carefully and on total holistic management. The success of Gujarat in cotton and groundnut and of Maharashtra in horticulture could be replicated. Such a focus on agriculture can improve rural prosperity and arrest mindless migration to cities. India will shine for all and not just for the urban elites.
  • There is a welcome focus on infrastructure. Handsome outlays had been indicated. But the global meltdown appears to have adversely impacted Bharat Nirman, JNNURM and other initiatives; these need to be expanded and results delivered in quick time.
  • The National Rural Employment Guarantee Scheme (NREGS), subsidised supply of foodgrains, the focus on nutrition, child and women welfare need to be refined. Rahul Gandhi and his team of young managers should focus on ensuring the efficiency of delivery of these schemes and relate outlays to outcomes.
  • Much of the comfort of the previous five years came from surging tax revenues. In fact this single factor enabled the Centre and the states to expand massively their outlays on social welfare schemes. Mounting fiscal deficits and slowdown in economic growth are impacting tax revenues. There is need for expanding the service tax component substantially and simultaneously cut down wasteful expenditure. Services constitute around 54 per cent of the GDP but contribute only a small fraction to total revenues.
  • States like Tamil Nadu have bloated bureaucracies with poor productivity. Systemic improvements are needed to improve accountability and delivery.
  • Exports are experiencing a set back as a direct consequence of global meltdown. There is need for sharper focus on selecting sectors with potential for exports.
  • Education and public health are crucial areas where the scope for growth is enormous. For years these sectors have not received the attention they deserved. The new government should accord high priority to these.
  • Much of the action lies with the states. There is a widening divide among states. Look at the tiny town of Puduchery having eight medical colleges (and universities) offering a 1000 seats and the second largest state, Bihar, having only nine colleges offering 610 seats; or just four states of TN, AP, Kerala and Maharashtra, accounting for 54.40 per cent of total educational loans extended by banks. Planning Commission can certainly monitor and ensure more uniform development.

Like the US, the states can be encouraged to specialise in select activities maximizing their natural and local endowments. For instance, it doesn’t make economic sense for all states from J&K to Tamil Nadu, from Rajasthan to Assam to produce rice. Agriculture is a state subject; but the Centre can persuade the states, lending its very considerable expertise, to choose crops with maximum advantage. The same could extend to the selection of manufacturing and services sector activities.

 
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