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Jaswant will have to race against time

BS Economy Bureau

Jaswant Singh will be a man in a hurry. The Prime Minister's first choice for the post of finance minister had to wait for four years, and the time to put the economy back on rails is running short as his party has to face the electorate in just about two years from now.

While inflation is at an all time low of 2 per cent, the worrying points are a very modest gross domestic product growth rate of 5.4 per cent, a stagnating industrial growth of 2.9 per cent, and a slew of economic Bills pending in a divided Parliament.

Most importantly, Singh has to contend with the serious credibility problem the finance ministry is facing after years of missed targets.

Singh has to face industrialists who are sore with an additional surcharge on the corporate tax and changes in the dividend tax norms, a middle-class irritated with taxation of perks and reduction of benefits on savings and stock markets unhappy with the government's inability to handle repeated scams.

The biggest complaint that the Singh will have to handle is the perception that the finance ministry is good at making announcements but weak on implementation. But more than industry, Singh will have his hands full in the financial sector.

The biggest problem is preventing the Unit Trust of India from bleeding the Centre on account of the monthly income plans and the US-64.

The issue of a huge financial restructuring of IFCI and IDBI will also keep him busy.

The setting up of an asset restructuring company is just the first step in addressing the problem of huge non-performing assets.

Only the banking sector is bleeding with NPAs worth Rs 560 billion. The cooperative sector is still beset with evils of dual control and the demutualisation of stock exchanges is far from over.

The outgoing finance minister, Yashwant Sinha, had recently announced that financial institutions would be participating in about Rs 500 billion worth of infrastructure projects and to get critical investment, the government would adopt the special purpose vehicle route.

But this is yet to be made operational. This also includes the budget announcement for an Infrastructure Equity Fund under the Infrastructure Development and Finance Company.

The new finance minister will also have to pay special attention to repeated failures of the tax machinery to either increase its base or reach its budget target. In the past four fiscals, the tax targets have had to be cut every time. This year, the revenue department has projected a 20 per cent increase in collections.

Besides, the introduction of the value-added tax, phasing out food subsidies, raising user charges with reorganising the power sector are all issues that need to be tackled. Sinha had had little luck on these issues with states.

Top on Singh's agenda will be picking a new team, including a finance secretary, unless he decides to continue with the present formula of three departmental secretaries. In addition, he also has to select a chief economic adviser.

Singh will have to decide if he would like to continue with the tradition his predecessors had set, of having a new budget team every year.

The other set of priorities is to get a number of economic Bills passed by Parliament.

The situation is so difficult that the government had to pass an Ordinance on June 21, to set up asset reconstruction companies to take over NPAs of banks and FIs.

The huge number of pending Bills include the Sebi Bill, the Fiscal Responsibility Bill and the Banking Bill to reduce the government equity in public sector banks to 33 per cent.

Because the uncertainty about Sinha had started just after he had presented his budget, most of the budget promises are also pending. This includes resolving the turf war with labour on getting pension reforms going in and outside government. Some of them have spilled over from the last two budgets.

External Affairs

Border tension has to be defused: That the government should have a Cabinet reshuffle when the defence forces are deployed in a virtually eyeball-to-eyeball confrontation on the border, is indicative of the fact that the tension between India and Pakistan, something that concerns the ministry of external affairs the most at present, has come down.

In a sense, with the taking over of Kanwal Sibal, the new foreign secretary, the ministry is on autopilot. No dramatic initiatives need to be taken for at least another six months, which will give the new minister, Yashwant Sinha, time to settle down and absorb the work.

Under Jaswant Singh, the ministry was engaged on a number of fronts. The Pokharan explosion and its aftermath brought an otherwise quiet ministry to the centrestage. Kargil kept it there and the recalibration of India's relation with the US, leading up to President Clinton's visit, propelled it forward.

Now, what appears necessary is a holding and consolidating operation. Sinha will bring significant economic inputs to a ministry that has so far had diplomacy and disarmament as its main propulsion points.

Although new departments on economic diplomacy and the one dealing with the Indian diaspora were created by Jaswant Singh, who also tried to integrate issues of defence and disarmament closely, these initiatives have to be followed up.

Sinha will have to get ready immediately for the PM's visit to the United Nations at the end of August, and his official visit to China in November. He will also have to assess, after October's Kashmir elections, what line should be taken on Pakistan. India's primary task is to stave off Western pressure for talks with Pakistan till then, and also take India's line on Kashmir forward so that talks with Pakistan are held, but at a time of India's choosing.

Labour

Reforms need commitment: The pending agenda of the labour ministry has become a cause of concern for the government, which has committed to carry out major reforms in the sector.

The government faced serious problems when former labour minister Sharad Yadav opposed the reforms proposed by it. The proposed amendment in the Industrial Disputes Act, allowing the closure of units with 1,000 employees without government approval, could not go through.

Similarly, proposed amendments in the Contract Labour Act did not fructify because of the reluctance of Yadav, who was in favour of a political consensus before taking a final decision on such a sensitive issue.

The re-allocation of the labour portfolio, therefore, did not come as a surprise. Sahib Singh Verma, the new labour minister, is expected to push the reform agenda aggressively, and carry out the reforms proposed by the Centre.

The finance ministry's proposal, allowing the management of provident fund trusts by private companies, is also pending because of Yadav's reluctance. Verma is expected to resolve these issues immediately. Verma's shift to the labour ministry also assumes significance in view of the fact that the National Labour Commission has suggested sweeping reforms in labour laws, which have to be carried out to attract foreign investment.

However, all these reforms will evoke strong reactions from the Sangh Parivar.

Heavy Industry

Losing its relevance: After the Maruti divestment, the heavy industry ministry is in danger of running out of agenda. Out of the 48 departmental public sector undertakings under it, about 40 are making losses and the ministry is hard-pressed to find a way out for them.

Some are meant for closure. Even HMT and BHEL, once blue-chip companies, are not in the pink of health. Suresh Prabhu, in his brief tenure as the minister, made a case for fresh autonomy standards for the PSUs, viz maharatna which would be a step ahead of navaratna.

For the ministry, however, there are critical issues that need immediate solution, including formulation of the much-delayed auto policy, and retraining fund for retrenched workers.

Besides, the closure of unviable units will kill a huge job market. The problems in many cases are quite like those in the cooperative sector over which Vikhe Patil presided till Sunday.

On the auto policy, the draft is not clear as to the level of excise duty reductions as well as the extent of indigenisation required. The ministry is also struggling with the draft of Industries Act that has been revised many times over. The ministry is hard-pressed to find funds required to revive the PSUs.

There is also the question of the relevance of many of their products in an industrial scene that has changed drastically from the time they were set up.

Law

Pressure on courts must ease: One of the top tasks on the agenda of any law minister will be to speed up the disposal of the huge backlog of pending cases in various courts.

According to the law ministry's recent data, at the end of 2001, there were 3.46 million cases pending in 18 high courts, with nearly 15 per cent of these being over 10 years old.

The new law minister, Jana Krishnamurthy, will have to devise ways to reduce the burden on courts and develop mechanisms to speed up the settlement of cases.

Appointment of judges could play a key role in speeding up the disposal process because a large number of posts in various high courts and even the Supreme Court are lying vacant.

Specialised courts, including family courts, were also proposed to ease the pressure. The government has already moved a Bill to amend the Legal Services Authority, 1987, so that disputes related to essential services can be resolved faster.

In recent months, the government has also taken upon itself the task of repealing old and obsolete laws. Through the Repealing and Amending Act, 2001, the government has wholly repealed 305 laws and partially repealed and amended another 52, since the law came into force in September 2001.

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