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May 29, 1998


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Budget Commentary/Mahesh Nair

And now for the economic explosions

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A couple of months ago, the erstwhile finance minister P Chidambaram and industry minister Murasoli Maran had an excellent idea: disband the Foreign Investment Promotion Board, the nodal body that channels foreign investment into India.

Prime Minister Atal Bihari Vajpayee has taken this piece of advice to heart. Ever since he picked up the hotline from Pokhran and heard A P J Abdul Kalam's voice proudly state, "Mission Successful" (or as Newsweek claims, "The White House Has Fallen!") the Indian prime minister has given a quiet burial to the FIPB.

Instead, he has now given the responsibility to attract foreign investment to the Department of Atomic Energy and the Defence Research & Development Organisation!

Depending on the inputs he received from these two organisations on how fast India could attain nuclear weaponisation, how good our nuclear delivery systems are, or how and where are we storing our nuke stockpiles, the PM and his Cabinet have triggered off an economic fission.

Their new motto: Forget swadeshi. Think economic (radio)activism.

Consider these developments: * The day after the first tests, Urban Development Minister Ram Jethamalani announced that foreign investment would be welcome in the housing sector.
* Two days after the second round of blasts and just when the United States government had made it clear that it would impose economic sanctions, the ministry of steel & mines granted a licence to the US-based Phelps Dodge, the world's biggest copper mining company to mine in Bihar and also set up a 100 per cent subsidiary.
* The same day, Power Minister P R Kumaramangalam announced the government's decision to grant counter-guarantees to three mega power projects worth Rs 85 billion. These include the US-based CMS-promoted Neyveli project, the Ispat-promoted Bhadrawati project and the Hindujas and British National Power-promoted Vizag project.
* On May 15, the petroleum ministry signed the production sharing contracts for 18 exploration blocks. Five US companies, and one each from Ireland and Australia are amongst the firms that have bagged thiscontract which has been hanging fire since 1994.
* On the same day, approvals were given to 34 proposals for prospecting and exploration in the mining sector covering an area of 49,000 square kilometer in the mineral-rich states of Bihar, Rajasthan, Gujarat, and Maharashtra. Fourteen of these companies were from Australia, the first to openly criticise Indian's nuclear tests. And 13 from the UK which has so far abstained from announcing any sanctions.

A day later, exactly five days after the first series of tests, the prime minister circulated his five-point Development Action Plan to ministries and central departments. This plan will be incorcoporated in the Union Budget to be released on June 1.

The focus will be on sectors such as information technology, agriculture, and infrastructure (power, roads, petroleum, ports, telecom). According to officials, projects worth Rs 800 billion are going to be given the green signal in the next few weeks. The government has also cleared hurdles for both foreign and private participation in the construction and management of ports.

Topping all the above will be the Union Budget. Expected highlights include a massive increase in expenditure on the infrastructure sector, and far reaching reforms on the financial sector (a new policy on insurance, entry of private pension funds, etc).

Correct me if I am wrong, but when was the last time we saw any Indian government act so fast and clear economic policies specifically related to foreign investment?

The only time we did it was in the dark days of 1991 when Messrs P V Narasimha Rao and Manmohan Singh assumed office. The nation was facing bankruptcy -- our reserves held gold sufficient to buy dollars for only two weeks to keep the engine of the Indian economy running! To survive Manmohan Singh introduced a clutch of economic reforms within the first two weeks.

It took all of seven years later, courtesy a nuclear bomb and the furore of economic sanctions, for a government to act swiftly again.

And here is my submission. Only when we are faced with a crisis will we, the people and government of India, ever act boldly on economic matters. Peaceful times are bad times for economic growth, especially with regard to policy decisions. Not that it should be. But, sadly, that is how it is.

Our policy makers act only when they have to, when there is no other option. When all is quiet on the economic or national front, all that our politicians and bureaucrats will do is twiddle their their thumbs, demand colleagues to be included or dropped from the Cabinet, lecture at seminars and push files back and forth. North Block and South Block are better examples of sosegado than the backwater of Goa.

This is the frightening aspect. After this week and the next, during which the Budget will be presented, will the government slip into deep slumber again?

And pray, if the nuclear issue is resolved, what will it take to trigger off the next round of economic reforms? Do we have to wait for a natural catastrophe -- a Godzilla stomping on all our sick public sector units, a Deep Impact-like tidal wave swallowing our short-sighted politicians-before there is another bout of action on the policy front?

The irony is that our policy-makers have made a virtue of inaction. For 40 years the Congress was proud of how it led India on the economic front. Then Manmohan Singh came along, caught the existing economic policy by its tail, threw it away, and replaced it a with a new one. There was a deafening silence. And then came the applause.

Today, the Congress is proud of what Manmohan Singh did.

Ditto for the BJP. When its coalition-led government came to power they were claiming to the world how different their economic policy would be, especially on the foreign investment front. Then came the Bomb and the Sanctions. To compete, the BJP-led government has temporarily buried swadeshi (after all, there is little it has done till now on the domestic industrial front). And pursued foreign investment with a vengeance.

Tomorrow they will be proud of what they did.

We will all be proud too if our policy makers act without waiting for a disaster to happen.

Mahesh Nair

Budget '98

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