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Ruling Irony

The Communists can only sulk while the Congress takes credit for these ‘socialist’ policies

The Congress has never had a coherent economic ideology. Within its ranks, varying points of view coexist. Neverthe-less, the dominant strand of economic thinking in the party has veered from the left in the 1970s to the right from the early 1990s. This viewpoint has now seen a shift back to the centre-left for two reasons.

The first reason is the global crisis that made governments of each and every nation rethink the role of the state in not just regulating but also in managing economies. The self-correcting mechanisms of the market are being questioned and the importance of government intervention in job creation and infrastructure development is no longer doubted. Stereotypical notions of what ‘public’ and ‘private’ are have been abandoned — if 60 per cent of General Motors is owned by the US state, how should its character be defined?

The second set of factors has much to do with the perception that gains made by the Congress in the 15th general elections are a direct consequence of the National Rural Employment Guarantee Act, the Rs 70,000-crore farm loan waiver, and the pre-election promise to provide 25 kg of rice or wheat every month to each family living below the poverty line at a subsidized price of Rs 3 a kg.

The decision to appoint a politician like Pranab Mukherjee as Finance Minister (FM), instead of a technocrat like M.S. Ahluwalia, is significant. Nearly a quarter century ago, the current FM had occupied the same post when Dr Manmohan Singh was the Reserve Bank of India governor. He had been elected to the Rajya Sabha no less than five times 1969 onwards, till he won a Lok Sabha seat for the first time in 2004.

No member of the Cabinet can come anywhere close to matching Mr Mukherjee’s experience. He not only knows how the bureaucracy works but also understands the country’s complex political landscape. Most importantly, he has friends everywhere — in the opposition and in the world of business (his proximity to the late Dhirubhai Ambani is hardly a secret). What is germane is that he is the FM as he represents the centrist space, in terms of economic and political ideology, within the party, the space that emerged victorious after the polls.

Reviving the economy is easier said than done. The international recession is not yet over. At home, industrial growth is sluggish, exports have fallen and jobs are being lost. He will have to balance the aspirations of the middle classes with the livelihood concerns of a quarter of the country’s 1.1 billion people.

In his interim budget speech in February, Mr Mukherjee had said the government had postponed the fulfillment of the deficit targets specified in the Fiscal Responsibility and Budget Management Act that had become an article of faith for his predecessor, P. Chidambaram. The fiscal deficit as a proportion of gross domestic product (GDP) for 2008-09 was over 6 per cent against 2.5 per cent budgeted for. This is hardly surprising since the government’s tax collections are down Rs 62,000 crore while its total expenditure has exceeded the budget estimate by over Rs 1,50,000 crore.

It appears that Mr Mukherjee will step up spending on welfare but, seek to check the deficit by raising funds through disinvestment in public sector enterprises. The Congress has cleverly hijacked the substance of the policies propounded by the Left while maintaining a semblance of support for economic ‘reforms’. The Communists can only sulk while the Congress takes credit for these ‘socialist’ policies. That’s the irony.

This article had appeared in June 2009 issue of Mutual Fund Insight