By Emmanuel Joute

When the Congress party-led United Progressive Alliance (UPA) came into power for the second term last year, there were great expectations from all quarters. Even the stock markets cheered. After the election results were announced, the Bombay Stock Exchange sensitive index, Sensex, rose 17.3 per cent and hit the upper circuit, a first in its history. The Congress and its allies had enough numbers to do away with support from the Left parties, which were seen as roadblocks to key reform initiatives during UPA-I. Further, the main opposition party, the BJP (Bhartiya Janta Party), had its own internal worries after a disappointing performance. Many people had thought that it would be a cake walk for UPA-II. But looking back at the government’s performance as it completes its first year in office this week, its report card appears to be blurry.

Almost from the start, the UPA-II stumbled. Its initiative to mend relations with Pakistan at Sharm el-Sheikh backfired. It failed to control the surging food inflation, which scaled an 11-year high on 28 November with the annual increase in food prices measured at 19.05 per cent. The rising food prices led the Congress and the NCP trading charges. Also, it could not push the Food Security Law. The exit of the junior external affairs minister, Shashi Tharoor over the IPL (India Premier League) fracas further dented the image of the coalition, and in the process created space for political adversaries. The government continues to struggle on internal security issues. Recent attacks by Naxalites highlight the UPA’s divided stand on the issue.

Maybe a year is too soon to judge a government. In time, it seems that economic reforms are on their way. The department of industrial policy and promotion (DIPP), the nodal agency for framing FDI (foreign direct investment) policies, will make public six discussion papers soon on overseas investment norms. The discussion papers would deal in liberalizing foreign ceilings in sectors such as retail, defence, pharmaceutical and agriculture. The discussion paper on defence already advocated 74 per cent foreign equity. There are reports that government is in the final stages of finalizing the policy to allow 49 per cent foreign participation in multi-brand retail.

Even though the government is no longer dependent on the crutches of Left parties’ support, it still needs considerable political maneuvering to push the envelope of economic reforms. In this regard, despite the drawbacks of being in a coalition, the government has somehow managed to pull in enough numbers when it matters. The realpolitik displayed by finance minister Pranab Mukherji at the time of surviving the cut motion is ample indication that putting together required majority for crucial reform moves in retail and pharma sectors would not be a problem. Even the BJP does not snarl at the term reforms like the Left parties. Similarly, tacit understanding can be reached with smaller parties like Samajwadi party (SP) and Bahujan Samaj party (BSP), as it happened at the time of the nuclear deal when SP bailed out the government.

As far as other economic reforms are concerned, the UPA-II has set the stage for a dramatic change in the fiscal federalism norms as defined by the 13th Finance Commission that entails economic empowerment of the third tier of government — panchayats (village councils) and urban local bodies such as municipalities. The move to a single-rate goods and services tax (GST), set to roll-out by the end of this fiscal and the direct tax code (DTC) due to be announced soon suggest that the government has moved the ball substantially with respect to economic reforms. Yet, in the recent months there has been a pause in the reform process despite 3G auctions and disinvestment of few public concerns. The economist PM of India should better take anniversary note of this to sustain growth in his second stint.

Indiabiznews, May 22, 2010