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Business Commentary/Mahesh Nair

With backs to the wall, the BJP will take tough decisions

Have you seen the Maruti Esteem commercial on television? Dad picks up son from school on the day exam results are out in his spanking new Esteem. And the conversation goes:

Dad: So did you get your report card?
Son: Yeah.
Dad: How much did you get in English?
Son (mutters): 40.
Dad: In Hindi?
Son (mumbles): 50.
Dad: And in maths?
Son (gulps): 38.
Dad (smiling and tousling his son's hair): Never mind, there's always a next time.
Son (grinning to himself): Dad is always in a good mood when he is driving his new Esteem. Trouble is we'll be home soon!

Moral: You can ignore bad news, if you have got a new car. At least until you reach home!

When India's new Finance Minister Yashwant Sinha presented the interim Budget in Parliament last fortnight, the Maruti Esteem commercial was played out in real life. Sinha read out a terrible report card of the previous United Front government -- the crux of which was "this is the worst thing that a finance minister can do to his successor!"

And then like the happy father, who's got a new car to drive, Sinha promptly forgot the sins of Chidambaram. In his interim Budget he has promised better results. Consider this:

* Chidambaram had promised revenue receipts of Rs 15.31 billion... Yashwant Sinha discovered that the exchequer had netted only Rs 13.85 billion... but has now promised that he will manage to collect Rs 15.33 billion!

* Chidambaram estimated that he would get about Rs 48 billion from the proceeds of public sector disinvestment. Sinha found that only Rs 9.07 billion had trickled in. And yet he promises to earn Rs 50 billion this fiscal year!

Trouble is we'll be home soon.

Sinha's successor will probably discover that Sinha has not delivered his promises. And so he will do unto Sinha what Sinha did to Chidambaram.

But despite my cynicism of what Yashwant Sinha's report card will look like, I believe the first year of the BJP-led government (like the first year of the Congress's Manmohan Singh) will see commendable work. When you have your back against the wall like Sinha does -- and Manmohan Singh and P Chidambaram did -- you have nothing to lose. You take bold decisions.

The indicators are already blinking.

* For all those who thought swadeshi is going to sound the death-knell for competitive markets in India there is relief. The word did not find mention even once in Sinha's interim Budget speech.

* Realising that he needs massive amounts of funds to kickstart the economy, Sinha and his friends are going to go all out to woo foreign direct investment in the infrastructure sector. The decision to allow states to clear FDI worth Rs 15 billion directly without asking for central clearances in the power sector is one such step. Sinha's trip to the US later this month -- a unique one considering that the finance minister is to present the Budget next month -- is going to be a precursor of what the BJP will do to attract foreign investment.

* Sitting in the saddle Sinha has realised that words like "non-priority sector" which was used liberally to garnish the BJP economic manifesto should be swept under the carpet.

This is the reason why he now says that foreign investment in sectors considered non-priority earlier (like food processing and consumer electronics) will be allowed if they encourage employment and exports. Which, strangely, has always been the condition imposed on companies like Pepsi, Coca-Cola, Sony, or Samsung when they offered to set up their operations in India!

* To infuse more life into the financial markets Sinha has made up his mind to allow the use of pension funds for long term finance. You can rest assured that the government is also going to throw open the insurance sector to private Indian firms in the Budget. All the decks have also been cleared for the introduction of derivatives trading (futures & options) by the next month. Sinha is also working on a package along with the Securities and Exchange Board of India to revive the primary market. One feature includes allowing blue chip private banks to come out with public issues.

* Sinha's colleagues, many of them greenhorns in the economic ministries, are also springing into action to make a good first impression. Ram Jethmalani, the urban development minister, is bent on repealing the Urban Land Ceiling Act and encouraging private investment, both Indian and foreign, in the housing sector. This is wonderful news for the real estate sector.

* Union Civil Aviation Minister Ananth Kumar is also ready to take off. He has already pointed out that the new civil aviation policy, which is being drafted, is going to encourage private investors. Amongst his plans are letting private firms run the Ahmedabad, Delhi and Hyderabad airports, giving the green signal to the Tata-Raytheon Bangalore airport project, and the merger of Air-India and Indian Airlines.

* Ramakrishna Hegde is giving the final touches to the Exim Policy. More incentives for exports, more items being taken off the special import license and restricted list, allowing futures trading in coffee are on the top of his agenda.

* Reserve Bank of India Governor Bimal Jalan and Sinha have already indicated that interest rates are going to fall further so as to let Indian companies avail cheaper finance. Also on the anvil are mega mergers in the banking sector.

* R Kumaramangalam, the power minister, has already stated that his job is to get rid of the hitches that have tied down the commissioning of the seven fast track mega-power projects. Along with the clearance of the private transmission bill in Parliament, you can expect these projects to take off within a couple of month.

Even if half these projects are implemented (and they will be since both the Congress and the United Front had espoused the same cause earlier), the BJP-led government will have a decent report card in its first year.

The other major factor which will make the BJP implement these reforms is that it has to create a good impression, both at home and abroad, on the economic front since this is its first innings in power. The first year will be the honeymoon period.

The troubles will start the second year.

The threat of a mid-term election, the contradiction of coalition politics, and the pressures of populism (increase in subsidies) will finally catch up with Yashwant Sinha & Co.

And then it will be time for the Maruti Esteem commercial again.

Mahesh Nair