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Devdatta Das
in New Delhi

At the end of a certain state dinner, a harassed gent remarked in exasperation to his neighbour, "Women take everything so personally. They cannot imagine things in general." The lady seated next to him remarked, "No, I am not like that!"

At the Federation of Indian Chambers of Commerce and Industry (or FICCI) conference held in New Delhi recently, all political parties swore that they were 'not like that', that they all were committed to a consensus.

But that's as far from reality as far can be. If there are four political parties, then there are four different types of consensus that they would like to reach.

Dr Amit Mitra, secretary-general of FICCI tries to put up a brave front: "But we have held discussions for the past four months with all the important leaders from all political parties. Individually, they have all agreed to the need for a common national agenda to govern the nation. The passing of the Finance Bill reflects their commitment to a consensus."

But can there by a consensus in a polity as divided as ours?

The New Economic Policy with its much glorified reforms has catered to just the top three per cent of our population. Clearly, there is a fracturing of the body politic with 97 per cent of the population seeking to find representation through politics based on caste, community and region. To eliminate conflicts from escalating, a consensus on the wider gamut of economic issues seems to be the order of the day.

As Pranab Mukherjee, member of the Congress Working Committee, puts it: "The need arises out of commitment and compulsion."

"But the consensus should only provide directions to the government. You cannot expect a consensus on details," warns Finance Minister Yashwant Sinha.

Are such individual pronouncements at such gatherings conducive to better policy making? For an analysis of economic policy making, it is essential that the policy-maker unravels inter-relationships amongst the key variables to achieve the desired goals. And in the lager interests of the nation, at least the possibility of an issue-based convergence of views warrants a scrutiny.

"The acute paucity of investible resources has resurfaced time and again as the incorrigible fiscal deficit. But the classical recipe prescribes fiscal deficit to develop social and economic investment," says Sitaram Yechuri, senior Politburo member of the Communist Party of India (Marxist). "Harping on fiscal management reflects fiscal fundamentalism," he adds.

What seems to elude him is that fiscal deficit financed through borrowings is being used in India for current consumption expenditure. And with borrowings threatening to lead us into an internal debt trap, apart from driving up interest rates, fiscal management cannot be stalled any further.

According to Pranab Mukherjee: "The only way to combat fiscal deficit is by eliminating revenue deficit." Supporting his views, Sinha adds: "We can agree on eliminating revenue deficit in the next two to three years and after that fiscal deficit would automatically come down to two per cent of the GDP. We can live with fiscal deficit of this magnitude." While their intentions seemed sincere, one cannot help wondering how they will augment their resources.

It was heartening to hear Sinha endorse Yechuri's suggestion of taxing the rural rich to raise resources. Suggesting that this politically explosive option could be a part of his famous second generation reforms, Sinha added: "States can look at this option for shoring up their resources." But how feasible is this option? Even within urban areas which are concentrated pockets, millions evade taxes, even though incomes are fairly well-defined within the secondary and tertiary sectors. Widening the net to the rural rich is impossible as they are spread all over the country.

Moreover, in agriculture there is no account-keeping as incomes are ill-defined. Says Arun Kumar, professor of economics, Jawaharlal Nehru University: "Share of agriculture is falling in the GDP. So you must target the tertiary income whose buoyancy is high."

"You are barking up the wrong tree," says Jairam Ramesh, joint secretary, AICC. "No political party will touch the rural rich. It is a bogus claim." Hence neither in the political perspective nor from the point of view of economics does this appear a viable suggestion.

So what are the remaining options? The finance minister suggests increasing user charges and cutting subsidies. Admits he: "This is an area in which we are prepared to beat each other with the longest and strongest stick we can get."

Disagrees Jay Dubashi, economist, the BJP: "Agriculture is still unprotected despite input subsidies. The reforms have just targeted industry and the financial markets. There can be no question of cutting subsidies to agriculture." Concessions to industry to make it competitive contribute to making India a high subsidy regime.

But streaming the delivery mechanism for subsidies and better targeting are easier said than done. A case in point is the public distribution system. Says Bibek Debroy, economist, the Rajiv Gandhi Foundation: "The per unit cost of the Food Corporation of India's operations is higher than that of private traders. The PDS has a pro-urban bias -- the dependence of the poor on the PDS in rural areas is around 16 per cent. For every rupee spent on the poor through the PDS, around 20 paise reach target beneficiaries."

To tackle poverty, there has to be a better way. But for any meaningful investment in social or economic infrastructure, we must generate resources. Sinha suggests downsizing. But he adds: "The government cannot be downsized unless there is a political consensus on which of its functions can be shed." With Sitaram Yechuri emphasising the role of government intervention in development of social and economic infrastructure, a consensus seems unlikely in the near future.

Neither is a consensus likely on reforms in public sector enterprises. About half of the 240 central PSEs are loss-making with some of them having piled up losses exceeding their net worth. A similar fate has struck the state-level PSEs. Divesting equity in PSEs and using the proceeds to retiring public debt seem logical.

But the Achilles' heel in restructuring is the question of dealing with the workforce. There is no consensus on blocking this drain on our resources. In China, downsizing is a reality. Defending the Left's stance, Yechuri emphasises the need for proper safety nets in the form of unemployment insurance that exists in China. That makes the opening up of the insurance sector imperative.

But we are yet to reach a consensus on that. Is there no feasible option then to boost our rates of growth?

Says Debroy: "Without growth fall, redistribution measures amount to a redistribution of poverty. Cross-country empirical studies show that trickle- down does work -- it becomes a gushing-down mechanism. But it works only if economies grow at eight per cent or more over a sustained period of time."

To achieve such rates, the demand recession that has manifested must be reversed. Says Yechuri: "Land reforms must ensure economic wherewithal to the masses to boost domestic demand required for industrial growth. The reform process must encompass them to be successful."

It is music to one's ears to hear the finance minister agree to such land reforms. Says he: "The bulk of demand must come from the rural areas. I have also believed this."

But land reforms will not suffice. To boost domestic demand we have to create non-agricultural income within the rural sector. The 67 per cent of population stuck in agriculture have to be given alternative means of livelihood. And that obviously entails investment in rural infrastructure.

Hence to arrive at a consensus consulting the states is inevitable. Explains Mukherjee: "Even with an absolute majority in Parliament and Congress governments in most of the state, I could not achieve a consensus on major economic decisions."

But Singh reassures that several states have signed MoUs with the Centre to induct fiscal discipline in their functioning. And if that is the continuing trend, reaching a consensus at least on fiscal management may not be just wishful thinking. It is true that this initiative is a bold one, especially in current times when coalitions seem here to stay.

But can a consensus ever develop on issues like the black economy which has a magnitude of almost Rs 7 trillion every year? Why is India such a high cost economy despite dirt-cheap labour? It is because of the large transactional costs related to black economy that add 80 to 90 per cent to costs.

Despite doing away with the licence raj and other controls, this phenomenon permeates every sphere of professional activity in our economy. Says Professor Arun Kumar, JNU: "All technical suggestions like bearer bonds, voluntary disclosure schemes, have failed to check it. Numerous committees have submitted reports. It has to be dealt at political economy level."

Direct taxes in India are paid by 13-14 million people (1.4 per cent of our population) instead of the 50 million who should be paying. Hence we should be collecting Rs 3 trillion and not the paltry sum of Rs 450 billion that we receive if this black economy is in control. The fiscal regime would come into the orbit where one could reduce the indirect taxes without having to subsidise.

Consequently, heavy borrowings and the heavy interest burden would be a thing of the past. Revenue deficit, given time, could be converted to a revenue surplus. That would settle the question of investible resources that has tormented our finance ministers for ages. So have they seriously hunted for solutions? Obviously not, for there is no political will to tackle such a sensitive issue. After all, they cannot commence on such a suicidal venture. So till the time such hard decisions are taken any pursuit of a consensus is child's prattle that must be ignored.

Kind courtesy: Sunday news magazine

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