Will the post-Left, post-trust-vote-win UPA turn from a timid non-reformer to a firebrand change-maker? Of course, many things can be done. As our columnist points out today, the whole edifice of the financial sector needs rebuilding. But political realities will have to be factored in. Three Bills—on insurance FDI, foreign investor voting rights in banks and pension reform—are getting star billing as the first evidence of the new, improved UPA’s policy determination. But whether the government would want another division—which is what passing any Bill would require—on the floor of Parliament, is a good question to ask. To the extent cross-voting from non-UPA MPs helped during the trust vote, UPA political managers would not be itching for more floor tests. So the Bills can be passed, but the UPA’s wish to test that proposition may not be a foregone conclusion. Big retail reform doesn’t require legislation, but is a political hot potato whose temperature hasn’t come down after the trust vote win. Not everyone in the Congress is comfortable about foreign retail stores. One doesn’t know how the Samajwadi Party will react to such a proposal either. The one thing the UPA can do and had wanted to do but couldn’t do because of the Left is small amounts of disinvestment. Selling small stakes in profitable PSUs won’t probably upset anyone in the UPA and, given that the real fiscal situation is grim and there are Pay Commission recommendations to think about, there’s great incentive for this policy. The government would, of course, have to assess stock market appetite for new issues before selling PSU stakes.
The fiscal deficit is one big macroeconomic problem for this government. The other is inflation. It would be silly not to recognise that the government’s economic thinking concentratess on inflation the most. For a variety of reasons, all referred to and explained in these columns many times, the government’s and RBI’s responses to inflation has been less than brilliant. Industrial growth is already faltering and there’s a ‘high oil price, subsidised domestic price, unchecked consumption, rupee depreciation’ cycle that the government is unlikely to have the political guts to break—because subsidies have to be reduced—and which makes inflation management difficult in more ways than one. So, yes, temper reform expectations.