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Business Commentary/ R C Murthy

Vajpayee's goal: overcoming resistance from within to economic reform

After the pangs of Cabinet formation, the first acid test for Atal Bihari Vajpayee comes when the 13th Lok Sabha assembles on October 20. Vajpayee will face MPs from more than 35 parties. He is lucky the Telugu Desam Party opted out of the government, sparing him the agony of finding portfolios to TDP's satisfaction.

Yashwant Sinha promised a fortnight back in Washington that the goal of his National Democratic Alliance is a government that works. The initially planned agenda for the first three weeks was to pass 14 pieces of legislation, including the long-pending bill establishing the Insurance Regulatory Authroity.

(However, Sinha hinted in a newspaper interview that economic legislations may have to wait till January because the opening session of a new Lok Sabha is reserved for traditions like oath-taking and other customs.)

The IRA Bill, when it becomes an Act, would set in motion the entry of foreign insurance companies, an issue that is rankling the Rashtriya Swayamsevak Sangh. Seshadri, RSS senior functionary, has recently reiterated that foreign companies should not be allowed into insurance.

The insurance reform failed to take off so far because of differences within the Bharatiya Janata Party and the determined opposition from Left parties in the 12th Lok Sabha. In the new Lok Sabha, the Communist Party of India (Marxist) and the Communist Party of India will certainly make noises, but they are not a force to reckong with.

It is a moot point to what extent the public sector insurance employees will mobilise support from George Fernandes, who as a labour leader, may be more sympathetic than anyone else in the NDA government to their cause of keeping insurance reforms at bay.

But Vajpayee will have to resolve the knotty problem of opposition within the BJP to the foreign companies' entry into insurance. He got over the RSS opposition to alloting key portfolios of finance and defence to Sinha and Fernandes respectively by offering the crumbs of office: 46 out of 70 berths in the Cabinet have gone to BJP.

The RSS is against the government allowing not more than 24 per cent foreign stake in insurance, a formula that does not enthuse foreign companies and their governments. The insurance reforms are aimed at bringing new technology and new products.

The via media evolved earlier this year was to exclude the maximum 20 per cent equity to be given to the Asian Development Bank and Internatioinal Finance Corporation, a World Bank affiliate, from that 24 per cent. The two international institutions are trying to catalyse the flow of investment and technology to insurance.

Whether or not that understanding holds good now and the insurance bill will be passed is to be seen. But one thing is clear: it requires a high degree of political management, give and take.

Finance Minister Sinha, whom the RSS targeted earlier, is on a weak wicket to handle such issues.

That means the prime minister and the Prime Minister's Office will virtually run the finance ministry.

The road ahead for the BJP government is bumpy. After the election rhetoric, Vajpayee should get down to business. Translating into reality the promises made during the poll campaign is easier said than done.

The goal is to eradicate "absolute poverty within this generation -- within the first decade of 21st century...", as the NDA manifesto put it. The agenda talks about 7-8 per cent growth in the medium term, lifting the savings to 30 per cent of gross domestic product and achieving foreign direct investment of $10 billion a year.

Reducing the fiscal deficit, which the Planning Commission estimates at six per cent of gross national product this fiscal (against the budgeted four per cent), is even more difficult.

The toughest task probably is reconciling globalisation of the economy with the aspirations of local industry and trade. "We will carefully analyse the effects of globalisation," the NDA agenda goes on, "calibrate its process by devising a time-table to suit our national conditions and requirements so as not to undermine but strengthen the national economy, the indigenous industrial base and the financial and services sectors." Brave words indeed.

Vajpayee can however exploit internaional differences on certain issues of reform to his advantage. Like cutting down fiscal deficit beyond a point and its pace as also the level of interest rates, on which there is no international unanimity.

The World Bank, the International Monetary Fund and the western nations on one side and Japan, Asia and the ADB on the other are debating the issues. Spearheading the later group is the Asian Development Bank Institute, which is calling for lower interest rates and flexibility in fiscal management against the IMF medicine: low fiscal deficit and high interest rates.

But keeping the domestic industrial sector happy and on top, privatisation of public sector industry and evolving an internationally acceptable exit policy for labour are tough issues.

Will Vajpayee complete the full five-year term attempting these reforms? Power corrupts and absolute power corrupts absolutely. The disgruntled among the alliance partners and within BJP will still be many.

As they feel the heat of reforms, the BJP hardliners will regroup and try to unsettle the government. Vajpayee will have to muster all his skills to maintain a balance and take the nation forward.

R C Murthy

Business