Subir Roy: Brace for slow incremental change

After the heat and dust of electioneering and euphoria among the winners over the clear electoral verdict, the reality of getting down to business is taking over. The scenario that is emerging is not a dramatic charting of a new course that turns on its head key earlier policies, but something as undramatic as continuity and incremental change.

The most telling is what the new finance minister, Arun Jaitley, has to say on the fiscal path ahead. Noting the evolution from "celebration to challenge", he has highlighted the goals of reviving growth, containing inflation and creating jobs. In the short run, this is an impossible trinity. You have to go slow on growth (demand expansion) in order to restore fiscal discipline so that durable foundations for low and stable prices can be laid. "Short-term discipline" is needed for "long-term benefits".

So the expectations of business, which has solidly backed the leadership of Narendra Modi, of a clear rise in top and bottomlines will have to wait. The best case scenario is of the unclogging of pipelines and quicker clearing of large infrastructure projects which will revive the climate for investment. Once that happens, it will take the growth rate forward. But sequentially, the effects of fiscal consolidation, so necessary to curb inflation, the number one priority, will come before a boom in business and return of good times. Only a government with a solid mandate can ask people to bear with belt-tightening for a little while and this is what the government is signalling. In equity prices, this translates into consolidation and even a little bit of correction and not a continuing bull run.

Business expectation of quick clearing of projects and support for Mr Modi has been riding on the hope that the BJP in power will undo some of the excesses of the populist Congress-led United Progressive Alliance. High on the list has been the Land Acquisition Act. However, the late Gopinath Munde had declared unequivocally - he had been appointed to the relevant ministry, the rural development ministry - that it is a very good piece of legislation which has been supported by the BJP in Parliament.

It is possible that the Act will still be changed to simplify procedures and lower the price business will have to pay for land; but amending the act, even at the margin, will take time. And what will happen if the Congress and the powerful regional parties, which have a majority in the Rajya Sabha, defeat such an amendment bill? Go for a joint session of Parliament? How often can you do that? We come back to the reality that change will be slow to come.

Now take the case of the rural employment guarantee programme. It has been seen by many as a populist measure that bore a hole through fiscal discipline by essentially paying money for digging ditches and raising the wage rate that has hit both farming and industry alike. Again, the impression arose that it would not be banished wholesale, but reformed, so that rural assets could be created with it. District level perspective development plans for this will be prepared and sent up and central disbursement will follow.

This is indeed what should happen so that, say, check dams for rain water harvesting can be quickly constructed. These can hike productivity in a single crop season by delivering more water in rain fed areas. Why has this not happened earlier? Many states don't like this discipline. Mr Modi has correctly highlighted the need to interact with the states, respond to their requests promptly, pursue them through the bureaucratic labyrinth. But for this, as also to qualify for funds under a redesigned urban renewal programme so that municipal reforms actually happen, many states will have to change the way they work. Not that it cannot be done, but such culture change takes time to unfold.

Closely related to spending well on the NREGA is what should really be the number-one priority for the government - breaking the back of food inflation. For that you need a dynamic and powerful agriculture minister. The ministry is currently headed by Radha Mohan Singh, who has been rewarded for delivering Bihar to the BJP. On the other hand the food and public distribution minister, Ramvilas Paswan, is a veteran of the national political scene. The oft repeated point that agriculture, food and public distribution should all come under a single umbrella may well happen when the ministry is expanded but who will head this super-ministry? Mr Paswan? Has anything good ever come out of a ministry he heads?

subirkroy@gmail.com