Defend the budget

Defend the budget

As the defence deals bribery scandal runs with undiminished momentum into yet another week, there must be rising concern about the impact on the economy. The scandal will effect the economy in two major ways: by raising doubts about the stability of the government and by causing policy gridlock. The uproar is not going to fade away quickly. That is for sure.

Opposition parties preparing to go into major assembly elections are not about to let the public forget the sleaze that the Tehelka tapes expose. As for the damage being contained, there is little hope of that. The Vajpayee government’s responses so far show it lacks the determination to cut itself loose from discredited friends and start a credible cleansing operation. Without a miraculous outbreak of political understanding on all sides, it is going to be a long hot summer and nowhere will it be felt more acutely than in the economic arena.

For the stock markets, all hell has broken loose with the rude awakening from the infotech dream followed by the unrelenting downslide in the Nasdaq and Dow Jones, followed by not one but several alleged insider trading scandals, payments crises in one or more exchanges, political uncertainty and, pouring oil on troubled waters, OPEC cutting back production. With awful regularity, crises show up the rotten foundations of many institutions. It is now obvious the Bombay and Calcutta stock exchanges, at least, will require structural changes.

Resistance from vested interests is inevitable and already visible. Change can be brought about only if Sebi and the finance ministry are firm. But in the present political climate, will the government be prepared to court unpopularity and take hard decisions? There will be delaying tactics; new committees can be predicted but no forward movement. This is true also of some of the bold legislative measures promised in the Union budget. Even if the government were braveenough to introduce politically controversial amendments to the Industrial Labour Disputes Act and Contract Labour Act, could it expect the Opposition in its present hyper-combative mood to cooperate in passing them?

Privatisation of PSUs could come to a complete standstill as the bribery scandal casts its shadow over the government’s current policy of selling stakes in PSUs to strategic partners in the private sector. Ajit Jogi, the chief minister of Chhattisgarh, has made allegations about payoffs in the Balco sale to Sterlite. These have been denied and were not given much credence at the start. But once the public has seen how easily politicians and government officials are corrupted, there will not be unquestioning acceptance of the sale of public assets to private companies. Instead, charges of crony capitalism will be heard more frequently and probably believed. The government must start thinking of how it can prevent the whole strategic partner approach to privatisation from becoming a major casualty of the defence deals scandal. The slowing of reform initiatives, skewing of Yashwant Sinha’s budgetary calculations and the mess in stock markets do not add up to happy economic prospects.