Finance, An Island Of Sense And Continuity

Mr Chidambaram does not personally think his greatest frustration was the way the Left tied his hands behind his back and prevented him from getting ahead with his agenda. His greatest regret, for loves labour lost, is the futility of all the effort that he put in to draft six major bills company law, income tax, Fema, money laundering, sick industrial companies and insurance regulation which eventually came to nothing. This is why, while pointing out the way ahead for the new regime, he observes that all the bills are there and it is for the government to press ahead with them. As the bills took shape after considerable national debate and internal drafting and redrafting, any future government wanting to put its own stamp on them will mostly make only cosmetic changes.

 

But the real issues in the measured valediction and near-deadpan narration of statistics are not the lost enactments but the record. At the end of the day, was Mr Chidambarams helmsmanship at North Block beneficial or not for the country? The major economic crisis staring the country in the face is the slowdown. Business sentiment remains down in the dumps. In doleful conversation throughout the country, businessmen doubt whether there will be a recovery even by the end of the current year. And hardly surprisingly, the man in charge at the time the slowdown has become obvious and getting the blame is Mr Chidambaram.

However, the evidence at hand paints a different picture. The slowdown started from the third quarter of 1996-97 and has to be attributed to the tight money policy and high interest rates that prevailed earlier and also Mr Chidambarams first lacklustre budget. Credit policies through 1997, particularly the busy season one, loosened money and brought down interest rates but demand failed to pick up. A brief ray of hope and enthusiasm came from the 1997 budget but its impact was soon lost in the uncertainty of politics. At one stage, when Mr Deve Gowda was being ushered out, there was no knowing whether those dramatically lower income tax rates would be written into law. By the time the UF had a new leader and the government again got back to business, buoyancy in sentiment was gone.

The other great bone of contention over whether Mr Chidambaram was good for the system or not and he does not have too many willing to stand up for him is whether his dream budget was all that it was cracked up to be. On the face of it, the budget failed to deliver, ergo the budget was misconceived. A most formidable critic of the budget has been Dr Manmohan Singh, who has pointed to the unachieved revenue targets and said, in so many words, I told you it wont deliver and it has not. But why?

An unforeseen blow to revenue was the fall in oil import prices and the resultant loss of customs revenue. It has recorded negative growth. But the major innovative feature of the budget was the slashing of income tax rates. Direct taxes have recorded a marginal gain, albeit remaining way behind the target. One can well imagine the compliance levels and the final figures if the tax cuts had not been there. Corporate profits and direct tax revenue would have been higher if growth had been more buoyant. Thus Dr Singh is only half right in blaming the UF for the failure of its budget. They richly deserve to reap the negative harvest of their inability to provide political stability. But equally, the budget failed to deliver because of the slowdown, the seeds of which had already been sown, by none other than Dr Singh himself!

A major achievement of the UF has been the virtual dismantling of administered oil prices. The Congress government sat on a needed price rise for long. The two hikes the UF government put through traumatised it but they came nevertheless. Today the oil sector looks unrecognisable. When the issue of oil bonds was decided in October, a figure of Rs 18,000 crore was contemplated to pay the oil companies the money owed to them. But by the time the bonds were actually issued in February, the figure had come down to Rs 13,000 crore. They year may well end with an oil pool deficit of Rs 11,000 crore and if oil prices continue to behave the way they are doing, the oil pool deficit will be wiped out by the time 1998 is out! So what fate took away from the UF with one hand by way of political uncertainty, it gave back with another through rock-bottom international oil prices!

In sum, the economic record of the UF government is nothing to be embarrassed about and if anyone is to blame for Mr Chidam-barams great gamble with his second budget to take the economy further on the path of 7 per cent growth, then it is Mr Kesri. Mr Chidambaram passes on an unfinished agenda but by no means a vacuum. Like a good bureaucrat, he has pushed a lot of papers into the pipeline so as to keep the business of government going until the new masters have had time to put their own ideas into practice. In todays degenerate political culture, finance represents an island of sense and continuity.