UPA – Politics of Populism
“In a moment of decision, the best thing you can do is the right thing to do, the next best thing is the wrong thing, and the worst thing you can do is nothing.” – Theodore Roosevelt
As Finance Minister P Chidambaram rolled out ‘Vote-On-Account’ budget for financial year 2014-15, I silently prayed this would be his last budget speech ever. Expectedly, there were no surprises, other than some downward adjustment in excise duty rates – a much needed relief the Auto industry was lobbying for. Over the next few days, as I went through the details, the accountant’s instincts in me, honed by years of training and experience told me something was not quite right. Members of my fraternity would be aware of what is popularly called ‘Window Dressing’ of balance Sheet. This essentially involves understating some liabilities or over stating some assets against the norms generally followed by the company. Did the Finance Ministry resort to Window dressing of the government’s Balance Sheet for FY 2013-14? There have been reports that several ministries pushed back expenditure to show lower Fiscal deficit. Under recoveries in oil marketing companies are reported to have gone up way past the provision made in 2013-14 budget. These rolled-over under recoveries will have to be funded next year. Another huge welfare scheme – Food security Bill, will prove to be a big drag on next government’s finances as the full impact will be felt only when it is rolled out completely in year 2014-15. Direct tax collection targets have not been achieved as a result of which large tax refund claims are even slower. Against an estimated Rs 40,000 crores from disinvestment, government could garner only about Rs 16,000 crores. So, government added nearly Rs 20,000 Crores by way of special interim dividends from some large PSUs like Coal India, NTPC and banks. The list is endless and only when the next government takes over and unravels the ‘Window Dressing’ its implications will be known.
If what is explained above for FY2013-14 intrigues the reader, I wonder how s/he would react when a statement of affairs for the entire 10 year tenure is prepared and similar stories unfold. UPA’s claims that its tenure was more successful than its predecessor NDA do not stand up to scrutiny. High growth rate achieved during UPA-1 was largely due to economic reforms carried out by NDA (which took 3 to 5 years for the benefits to kick-in) and global economic boom witnessed in the period 2002-07. When challenges came in the wake of global meltdown in 2008, UPA failed to show any resolve to contain the losses and as a result, growth rate nosedived and inflation remained uncomfortably high. So, has Congress led UPA squandered a great opportunity of continuing to build on the legacy left behind by BJP led NDA?
In May 2004 Congress formed a United Progressive Alliance (UPA) & appointed Dr. Manmohan Singh as Prime Minister. Sonia Gandhi, who wanted to ride on Dr Singh’s ‘Reformist Halo’ and rule India without any accountability, made her intentions clear by setting up a National Advisory Council(NAC), giving it wide powers and making it a ‘Parallel government’ which was dubbed by opposition parties as unconstitutional. What followed was introduction of populist measures like Mahatma Gandhi National Rural Employment Act (MNREGA), Loan waiver to farmers, Food Security Bill and several other welfare schemes costing the exchequer a whopping Rs.3 Lac Crores annually, resulting in higher fiscal deficit and kept inflation & interest rates high. While, Sonia Gandhi kept pushing welfare schemes to empower weaker sections of the society, Dr. Singh’s government did not have the wherewithal to finance these. As UPA completed its first term and returned to power with a better than expected mandate, economy got sucked into the vortex of global recession and Dr. Singh’s government slipped into a deep stupor. In the middle of all this, UPA – 2 found itself facing a barrage of scams – 2G, Coal blocks, Commonwealth Games, Adarsh Society, mining and several others. Details provided by an active Comptroller & Auditor general (CAG) revealed that the scale and spread of corruption scams was so astounding that Mammohan Singh government lost whatever credibility it had. Judicial activism, media and civil society were in no mood to relent and continued to exert the pressure. The implications were only to be expected with a government unable to contain the drift and the entire machinery came to a grinding halt. Governance took a back seat and firefighting became the order of the day.
Despite the efforts of Reserve Bank of India (RBI), inflation remained stubbornly high and continued to make a big hole in the pocket of Aam Admi, fiscal and current account deficit remained high and more importantly, reform process was put on the back-burner. Two sectors that suffered most were power & road network, both of which were key to the success of government’s ambitious infrastructure plan. Not only was power shortage affecting industries, delay in power reforms was beginning to hurt banks’ liquidity as many of them had invested heavily (upwards of Rs. 3 trillion according to some estimates) in power companies. As Coal scam hit the headlines, government was forced to stop any further allocation of coal blocks and companies setting up power plant suffered due to lack of coal linkages. Even in highways, government’s performance was far from satisfactory. Against a target to construct highways at 20 KMs per day, it could achieve only 11 KMs per day. Ministry of Environment headed by an over-enthusiastic minister, stalled many projects and bureaucracy became reluctant to participate in decision making process. In Feb 2012, Pranab Mukherjee as Finance Minister disappointed the international investor community by amending Income Tax Act with retrospective effect to bring Vodaphone PLC under tax net after Supreme Court passed a judgment in favour of Vodafone, saying that the Indian Income tax department had “no jurisdiction” to levy tax on overseas transaction between companies incorporated outside India. This move by Finance Minister was criticized internationally & Foreign Direct Investment (FDI) declined in following months putting further pressure on Rupee. In June 2013, Planning Commission proudly announced that over 140 million citizens had been brought above the poverty line in 9 years since 2004-05. On closer scrutiny, however, Planning Commission the NSSO & claims sounded hollow and the government made a hasty retreat to avoid opening a can of worms.
By the end of 2013, Dr. Singh was widely seen as a reluctant politician who could never get out of his bureaucratic skin and mocked at as a failed Prime Minister. Murmurs of dissent were beginning to be heard within his cabinet party, culminating in an angry reaction from party Vice President Rahul Gandhi who tore up in a press conference, an ordinance signed by the Prime Minister, which caused severe embarrassment to Dr. Singh. Despite being an economist of international repute and universally considered a pioneer in economic reforms Dr. Singh could not put India firmly on reform process during his 10 year term to keep the growth engine running. Admittedly, Dr. Singh and his boss Mrs. Sonia Gandhi were moulded in diametrically opposite ideologies; while the former is a firm believer in free market economy, the latter has faith in welfare economy dominated by redistribution and fiscal populism. Dr. Singh completely failed in resisting the demands of Mrs. Gandhi’s extra constitutional NAC and most of the important economic decisions were lost somewhere between 10 Janpath and 7 Race Course Road. As he prepares to leave office in a couple of days time, the economic gloom has deepened leaving behind empty coffers & a heap of fiscal problems for the next government to handle. For a dejected Dr. Singh, his second term can best be summed up in Murphy’s extended law: ‘If a series of events can go wrong, it will do so in the worst possible sequence’
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Good analysis of UPA’s smart tricks.
Optimism alone let’s a nation elect NaMo with a thumping majority to enable a turn of events, for the better. Together, we shall arise . Despondency to no avail. Well said . Jai hind!
Yes,I liked it and admired it.
Sir!Hope now we are over and done with oversmartness of UPA.I don’t understand much about budget and deficit but now we are going build new India.