The UPA Government’s ability, bereft of assured majority, to get legislative approval for key reforms, especially involving FDI, will be severely tested in Parliament, which reassembles on November 22. Virtually, all regional parties besides BJP are opposed to FDI liberalization, and the country is already going through a churning-up process in anticipation of general election ahead of 2014. Even the Congress leading UPA has not firmly ruled it out.

The reform agenda was set in motion by the Prime Minister himself with focus on fiscal consolidation, subsidy reform and correction of other imbalances in the economy, clarity in taxation for the guidance of foreign investors and accelerated implementation of power and other projects. All these measures, he hoped, would help to revive the growth process and restore confidence in India as investment destination. But the immediate focus is on liberalized FDI entry as the surest way for economic revival.

The rally followed a reshuffle in the Union Council of Ministers in late October with the Prime Minister Dr Manmohan Singh assigning important portfolios for many of the younger ministers, with few new faces, in an exercise claimed to blend youth and experience. With this exercise after the launch of the mid-September economic package, UPA-II hoped the “misperceptions” of policy paralysis would give way to recognition of its new direction on economic growth by improving business climate and rebuilding investor confidence.

It is one thing for the Congress President Ms. Sonia Gandhi and the leader-in-waiting Mr Rahul Gandhi to declare that the party was fully behind the Government’s reform agenda, and both underlined the importance of FDI in retail sector, at the rally, as a step which would bring investment and benefit to “not just farmers but the common man and youth”. But Ms. Sonia Gandhi would definitely be pushing for welfare projects, apart from effectively delivering what was promised to the ‘aam aadmi’ before, and her priorities include the food security bill, with its huge implications for subsidy outgo. But fiscal balancing exercises under way may rule out its launch until next year.

The Congress leadership is itself going through an agonising appraisal of where things have gone wrong for UPA-II in the over three years it came to power in May 2009 with a renewed mandate, and determine what needs to be done in the coming months - a period of several state elections - to refurbish its image besmirched by charges of corruption, policy paralysis and macro-economic mismanagement. The party’s morale is low at a time of considerable political uncertainty which may even lead to an election ahead of 2014.

Lack of decisive action, until recently, to stem the rot had led to threats of downgrading of India’s sovereign credit standing by global rating agencies. The UPA Government began to move in August when the Finance Minister announced a comprehensive action programme on repairing the economy, reviving investment and restoring the growth momentum. The mid-September package of a diesel price hike and curbs on LPG supply at subsidised levels, was intended to signal Government’s determination to reduce oil subsidy, a sizeable element in fiscal deficit.

Subsequent Cabinet approvals of reforms designed mainly to attract foreign direct investment in sectors including multibrand retail, aviation, broadcasting and insurance contributed to generating positive sentiment in business and markets. But Corporates, domestic and foreign, prefer to wait for firmer Government actions for making new investments—on sorting out land acquisition problems and project clearance delays, apart from resolving the power and coal riddle and other infrastructural constraints.

The Finance Minister had also by end-October presented a road-map for fiscal consolidation under which fiscal deficit is to be contained at 5.3 per cent of GDP in current year and bring it down to 3 per cent by 2015/16. But he has not specified measures by which he hoped to achieve the targets, and this has aroused doubts whether Government would be able to adhere to the road map, especially in a messy political situation with elections in the air.

The Prime Minister considers achieving an 8 to 9 per cent growth essential to create new jobs for young people entering the labour force every year. A faster rate of growth is also needed to generate resources for affordable healthcare, quality education and remunerative jobs and reliable infrastructure. Therefore, he says, an environment conducive for increased investment and savings rates has to be created. But there is undue reliance on FDI in a difficult global environment though India needs some capital flows to balance its external deficit and secure some resource for infrastructure building.

The Party is also aligning itself with an FDI-focused strategy which would not be of much appeal to the mass of the electorate while the Congress-led Government has consistently ignored or belittled their more serious concerns in regard to unchecked inflation, which has ravaged millions of households on low income. And new burdens are being or would be foisted on them by way of tariff revisions in power, telecom and other services. This is apart from impending hikes in oil product prices to align them with international prices and to achieve the intended deficit reduction.

This is what Finance Minister Mr P Chidambaram has in mind when he talks now and then of “burdens being shared by all”, irrespective of the way Government manages the economy and public finance without any accountability. Mr Chidambaram appears worried his policy announcements, essentially to create a favourable investment climate, has not begun to yield results. Rather than goad the corporate sector, he finds it easier to apply pressure on RBI and public undertakings, the former to put growth ahead of inflation and the latter either to put to use their cash surpluses on capacity expansion or to transfer part of it to government as special dividend.

Neo-liberal policies, diligently pursued by UPA-II no doubt with customary obeisance to the “aam aadmi’, are always sought to be justified in terms of capital flows needed for financing infrastructure investments and employment generation though any direct linkage for such benefits has not been established. Also, the insistence on high growth as pre-requisite for revenues to finance pro-poor programmes has been over-stretched for too long and with little evidence to show up in India’s miserable social indicators. (IPA Service)