| Roads to new investment
When last I attempted to consider whether the communists had a case for their opposition to many government policies, I suggested that they were in a deep conspiracy to destabilize the existing order. Opposition by the communists to almost any government policy evokes sharp reactions from some of us. We witnessed this when they opposed airport privatization; raising of retail prices of petroleum products after crude prices sharply increased, lifting of the foreign direct investment cap on insurance and telecommunications and retail, privatization and disinvestment of some public enterprises, and many other issues. An immediate response is that the communists are exercising 'power without responsibility', by not joining the government.
Undoubtedly, the communists are trying to have their cake and eat it too. By not holding any office in government, they can wash their hands of any policy that their ideology and following do not agree with. They can mount public agitations against a government that they support. They can participate in detailed discussion on policies but not take any responsibility for them. Most people find this hypocritical. But there is no alternative to this present political order until there are fresh elections.
Is our reaction to the communist point of view on many issues knee-jerk opposition' Their note to the United Progressive Alliance government on 12 areas of concern helps us evaluate their position on some of the issues.
There is no doubt that the Manmohan Singh book of reforms in his term as finance minister, and of the others who followed him, was focussed narrowly on giving an impression of responsible macroeconomic management by cutting the fiscal deficit and doing everything possible to open the economy for foreign investment, increased domestic private investment and more international trade. In this it was on the whole successful, but at the cost of declining public investment, especially in agriculture and infrastructure.
The Vajpayee government changed the focus by increasing public investment in infrastructure, especially in roads, and along with private investment, in ports. It did not worry too much about reducing deficits. It did not address other shortcomings. The communists have added a strong dose of social concern by pushing for substantial programmes like the rural employment guarantee scheme, increased expenditures on education and health and unwillingness to raise costs for the poor that would result from raised fuel and lighting prices.
Higher social expenditures will certainly stimulate the economy. What the communists are clueless about is the administrative and managerial revolution needed in government for getting these social expenditures to reach the targeted beneficiaries and not leak out as they pass down the administrative chain. In none of the communist demands is there any hint of desirable administrative reforms. The prime minister has one of his many committees studying the issue. Past experience says the bureaucracy will find ways to stall their effective implementation. And this government is not strong enough to resist.
The communist resistance to passing on crude oil price increases through higher retail prices seemed first to be a populist demand. But it was soon realized that almost half of retail prices are accounted for by Central and state taxes, revenues from which keep rising with higher prices. It is not as if petroleum products are not taxed heavily in other countries. But these taxes are particularly onerous in India. So the communists have a good point in demanding that the taxes, especially at the Centre, should be reduced first before passing on the burden of higher prices to consumers. The economy is robust enough to absorb these huge subsidies for a while. Nobody has so far tried to estimate the flexibility available to us because of the size of the economy, its growth rates and inflow of foreign exchange to reserves. However, we must simultaneously develop alternate revenues to replace the loss on reduced petroleum product taxes. We also have to move quickly in developing other energy sources, significantly improve energy efficiencies and build capability in local authorities so that we can decentralize and allow local communities to manage energy subsidies. None of this is happening. When the crude increases are ultimately passed on, inflationary pressures are inevitable. The communists look only at one side of the problem, namely that immediate higher retail fuel prices will spur inflation, not at the long-term solution.
Airport privatization became necessary because the IAAI, the government-owned enterprise, was slow in implementing new projects, and allowed the flying safety to deteriorate by not developing and recruiting enough skilled staff. It shows profits because of high landing rates charged to airlines, unrelated to the quality of service. For the users of airports, ownership does not matter as does the quality of the airport services. Obviously even the Communist Party of India (Marxist) chief minister of Bengal understands this and it looks as if ideologues in the party are getting better educated on this matter.
The new flexibility on labour laws applicable to the information technology sector in Bengal is a change in approach. So is the lack of resistance to disinvestment in non-navaratna but profitable state-owned companies. Privatization would not be necessary if the bureaucracy and politicians were prevented from meddling in most decisions in public enterprises.
The purely political areas of communist concern that they have pointed out to the UPA government are unexceptionable. Gender equality, ending caste discrimination, protecting rights of minorities, adopting the communal violence bill, are issues that have been before earlier Congress and other governments, with no actions being taken. But merely passing legislation is not enough, they have to be enforced. Even the gender bill has not been passed, mainly due to the Rashtriya Janata Dal which is among the closest allies of the communists. To achieve gender equality in other sections of daily life than the legislatures calls for propaganda and education of which there are no signs. Ending caste discrimination is not just a question of more reservations, but best tackled by more opportunity and economic growth. A bill to control communal violence is of little value when police forces are highly politicized.
Other areas of concern for the communists require substantial funds and changes in administrative structures, procedures and methods. As they say: 'After the passage of two years of the UPA government, the people are yet to realize that their material conditions are changing for the better. Price rise, agrarian crisis, unemployment, lack of access to education, health and basic services are problems, which need urgent attention... All this has to be accomplished within the framework of development and economic growth which promises equity and is people-oriented.'
Price rises in food grains and vegetables were concealed by our tendency to look only at the wholesale price index. The government has at last realized that the aam admi is suffering, something the communists have been saying but not forcefully enough. The agrarian crisis is going to worsen with the failure of the monsoon. Past sins of neglect of agriculture by the Narasimha Rao and subsequent governments are haunting this one and we can expect a major crisis in coming months. The employment guarantee scheme and the booming manufacturing and services sectors will improve the employment scene. Social infrastructure is getting more money under this government (thanks to the communists) but efficiencies in spending are poor.
If the communists were to moderate rhetoric with an understanding of making government work better, they would not generate knee-jerk negative reactions from the business, policy-making and media communities.