The Budget rolls on

The slew of economic policy announcements on Thursday, including the liberalisation of foreign investment policy, are clearly part of what would have been “Part A” of the Union finance minister’s budget speech on February 28. Since the Union government has chosen to go in for an early election and has asked the finance minister to seek a vote-on-account, it has obviously decided to notify or announce one after another all that Singh would have said in his budget speech. However, when the finance minister makes policy statements in the Lok Sabha he offers an explanation as to why a particular decision is taken. It would be in the fitness of things if the government does this in explaining its recent decisions on the FDI front.

Lack of transparency and clarity encourages malign speculation. Hence, even when correct decisions are taken, they get tarred by the suggestion of favouritism, cronyism and worse. The decision relating to permitting more foreign investment in telecom, and the intermittent expression of concern about national security, aired at convenience by responsible members of government, has generated avoidable speculation about the manner in which such important policy decisions get taken. India is no banana republic. Surely the people deserve to know the whys and wherefores of policy. It has also been reported in the media that the government is contemplating the appointment of the Sixth Pay Commission. This will be a wholly wrong decision for an out-going government to take at this stage. The United Front government led by I.K. Gujral destroyed the public finances, pushing many state governments into dire straits, to appease the populist elements of that coalition by accepting the recommendations of the 5th Pay Commission. Neither the Union government nor many state governments have yet recovered from the fiscal impact of the Gujral-Chidambaram largesse.

Regrettably Andhra Pradesh Chief Minister Chandrababu Naidu has tainted his reformist image by going ahead and announcing a pay commission for state government employees. Rather than reprimand him for this fiscal irresponsibility, the Union government is thinking of following his example. Entirely avoidable. The other measures announced this week, including the decision to go ahead with the political pricing of sugarcane out of sync with economic imperatives, shows that the government is in a hurry to appease all sections of society without too much concern of the fiscal implications. This may foster a feel good feeling today but can only contribute to fiscal problems in the future. Rather than opt for populism, the government must do everything possible to sustain the positive environment for business, so that new investment and employment are forthcoming and the economy can generate higher income growth. Voters are not fools to fall for sops. They want good economics and better politics!