Bad politics triumphs over good economics

By Indranil Banerjea

If an adamant UPA-II government under his stewardship was busy fending off Opposition onslaught for a Joint Parliamentary Committee probe into the 2G spectrum scam in winter 2010, it is foreign direct investment in multi-brand retail this time around.

Was the cabinet decision on FDI good economics but bad politics? The move to allow a decisive 51 per cent FDI – which forced the United Progressive Alliance partners Trinamool Congress and DMK rally alongside the Opposition parties reigned against retail FDI – is being described by pro-reforms lobby as the economist-prime minister’s vote for national interest when the rupee was hitting the nadir. A move intended to arrest the rupee’s slide.

But even reasoned economic decisions can at times result in a backlash with a vengeance given the political situation. It is not 2008, when a determined Manmohan Singh, trusted and fully backed by Congress party and UPA government on the issue of civil nuclear agreement with USA (he was opposed by the Left, which was supporting the government from outside), carried the coalition through the term. The second innings of UPA is different. It is vulnerable in the face of a slew of corruption charges, dithering on issues such as statehood for Telangana and wavering on Lokpal following a popular upsurge in support of anti-corruption crusader Anna Hazare, to name a few.

But then the PM had to act. Perhaps he thought majority stake for FDI in retail could arrest the falling rupee. Perhaps the success of the confidence motion of July 22, 2008 – when he emerged victorious – was playing in the back of his mind. But alas, it was not to be now. Was it overconfidence that he would be supported as his intentions cannot be questioned?

As it turned out, Mamata Banerjee – the stormy petrel from West Bengal and the rebel within the UPA – played the lead role in overturning, for political reasons, what was essentially a purely finance-related decision. Numbers ranged against the decision in Lok Sabha, an Opposition on the offensive and the looming Assembly elections in five states, mainly Uttar Pradesh, combined to slam the door shut on retail FDI. And possibly, on other reforms-related issues and legislations such as FDI in aviation, Bills on insurance, pension etc (which are part of some 16 Bills to be taken up in the current session of Parliament).

Unlike the nuclear issue, the PM confronted a divided cabinet, a host of MPs ranged against the FDI decision, some state units of Congress such as in Kerala opposing it, and a high command not backing him to the hilt though it initially seemed as though he had the party leadership behind him.

The contradictory views came not so much because of opposition in principle but because of the timing – state polls staring the party in the face and mid-way of a Parliament session.

The events which pulverised the UPA II must have left Singh wondering why he accepted the prime ministership. From the high of giving the country economic reforms in the 1990s as finance minister to inking the civil nuclear cooperation agreement with the US to playing a role in returning UPA to power in 2009, the events unfolding in 2010 and 2011 have left him in an unenviable position.

He may have seen too many ups and downs during the topsy-turvy reign of over seven years heading two coalition governments but the recent events must have been too upsetting for Mr Cool. Singh started his political career with economic reforms and to retract now on what is an essentially reforms-related agenda must have been too unsettling for him.

Mild mannered, he surprised many when he took on a towering BJP veteran L.K. Advani soon after his own heart surgery. But now, with two and a half years left of the current term and talk of party scion Rahul Gandhi taking over from him, Singh presides over a government that seems to have lost its sheen.

In the last one year, lack of direction on Telangana as well as anti-corruption ombudsman Lokpal, have left a hapless UPA government open to the accusation of being in a drift. After two full years, there is no decision on the contentious issue of Lokpal. The end of the winter session of Parliament may well bring the government to its knees again – on Lokpal – as Hazare has threatened to renew his fast.

Lack of decision-making for months on end forced India Inc to brand the Singh government of suffering from “policy paralysis.” However, this very move to end “paralysis” may have forced the UPA government not to initiate any such moves for the next nearly six months, given the state polls.

The policy inertia may take some time to ease. It may continue till the election of a new President of India slated for July next year. With UPA requiring help of allies – even Opposition – it cannot afford to rub them on the wrong side.

There was perhaps miscalculation on the part of the PM as he took the allies for granted. He did not consult them earlier; you cannot say the issue was already in the public domain. He perhaps rightly thought that they were ideologically not opposed (to FDI). He did not see the threat of the economist becoming a hostage to politics.

A senior minister who was present at the cabinet meeting that discussed FDI told INAV: “This issue is no nuclear Bill. It can hit people’s livelihood. For all political parties this was a major issue and they grabbed it. It is like walking into a trap. Economic reforms-wise, was it necessary when we were still doing seven per cent growth?”

With Trinamool Congress and the Opposition having tasted blood, the going during the rest of its tenure may continue to be tough. Rising inflation, falling rupee value, lack of policy direction, scams battering its image, the UPA in its second avatar is only a shadow of the past, no matter how good the intentions of an economist-PM. It is politics that matters, after all.

The last two years of UPA II have been no bed of roses for prime minister Manmohan Singh. Buffeted by a slew of scams, demands for Telangana state and corruption watchdog Lokpal, besides the charges of “policy paralysis”, the PM finds himself in an unenviable position. That the “bold decision” to allow FDI in multi-brand retail ended in a whimper is only the latest example of a PM caught in the web of coalition politics. INAV

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