New Delhi, July 8: Behind the cool front, finance minister Palaniappan Chidambaram is perhaps the most tense man in the United Progressive Alliance cabinet today.
He has in a calculated manner decided to test his government’s Left supporters with three teasers: divestment, higher foreign investment in telecom, aviation and insurance and freezing the provident fund interest rate at 9.5 instead of raising it, as demanded.
The tension over the possible fallout is palpable. “Why do you want to concentrate on divestment' Let’s talk of the positives like the investment commission,” the finance minister said in reply to a query on divestment plans from The Telegraph.
The decisions announced today bear the signature of Chidambaram’s known liberalisation stance which he had displayed earlier in his short but well-remembered tenure as finance minister in the United Front government in 1996-97.
Yet the Left has been taken by surprise. None of the Left leaders ranging from A.B. Bardhan of the CPI to Sitaram Yechury of the CPM to Abani Roy of the RSP had expected the teasers to come so soon.
Perhaps, the battle lines have already been drawn on the hike in the ceiling on foreign investment, particularly in insurance to 49 per cent from 26 per cent.
“We won’t allow them to implement it,” vowed Nilotpal Basu, the CPM leader in the Rajya Sabha. “We will be forced to vote against amendments to the IRDA (Insurance Regulatory Development) Act to allow higher foreign stakes which they will have to bring before Parliament.”
Chidambaram maintains an unruffled demeanour, much like his smooth and crisp veshti, saying he has the Prime Minister’s go-ahead on it and “will now take it through the cabinet”.
Not only the Left but many in the Opposition NDA, which had earlier this year proposed much the same in a cabinet note, are dead set against the move. Trinamul Congress’ Dinesh Trivedi called it “a major, major mistake by my friend”.
Both the Left and Opposition see the higher foreign investment limits in telecom and aviation as security threats and, in insurance, as a bid to hand over control to foreigners.
When there was a move to throw open the insurance sector a few years ago, BJP members had joined the Left in voicing their resentment against raising the foreign holding limit.
Similarly, trade unions, particularly those affiliated to the Left, have been demanding that the interest rate on employees’ provident fund (EPF) be raised to 12 per cent. But Chidambaram has decided to retain the interest rate on the government’s special deposit scheme at 8 per cent. It is in this scheme that nearly 80 per cent of the EPF’s over Rs 112,000-crore corpus in invested. With no increase in the interest paid on this scheme, EPF trustees will find it hard to retain their own interest at 9.5 per cent, let alone raise it.
“We will maintain our interest rate at 8 per cent.... I am not changing anything... it is now for the EPF board to decide what they can afford,” Chidambaram said.
CPI and CPM leaders made it clear that this position is unacceptable to them. “We will oppose this,” said Basu, while his colleague from the CPI, Gurudas Dasgupta, threatened to take the matter to “the streets, if necessary”.
Chidambaram said the modest Rs 4,000-crore divestment target he had set would include earnings from selling not only a small stake in the National Thermal Power Corporation but also the “residual 49 per cent the government holds in Balco”.
The Left will oppose this, too. Its leaders have already met Manmohan Singh seeking to review the first sale of Balco equity to the private sector which they consider controversial. Basu said the Left has “decided to bring a call attention motion to focus on irregularities in the sale of public sector assets”.
The minister was unambiguous in keeping open the option of either strategic or market sale of public sector equity through a new and powerful Board for Reconstruction of Public Sector Enterprises he proposed today. “The board will advise on both reconstruction and divestment,” he said.