Independent of which political party forms the next government after elections 99, it threatens to be business as usual for India Inc.. With both the major alliances announcing virtually identical economic manifestos, the fears of a reforms reversal have receded. BT presents the CEO's guide to India's new two party, one economic policy system.

By Rukmini Parthasarthy & Swati Kamal

Heads, reforms win. Tails, reforms win. Right now, voters across the nation are deciding the composition of the 13th Lok Sabha. You can safely wager that, for most of them, the choice will not be based on the economic reforms programme of the various political parties. That's not because the reforms do not matter--today, economic issues occupy more space in party manifestos than ever before--but because the great ideological debate over them is, finally, over. Shrugs Surjit Bhalla, 51, Director, Oxus Fund Management: "Like voters in most other nations, Indian voters now have to only choose between Tweedledum and Tweedledee."

Ironically, the policy certainty has been generated by recurring political instability. "Between 1991 and 1999, every major political party has been in government at the Centre. We have seen all kinds of political formations; yet, on economic issues, the Indian elephant remains on course," declares Tarun Das, 60, the Director-General of the Confederation of Indian Industry. With most parties agreeing on contentious issues like public sector disinvestment, import liberalisation, the introduction of tighter patent protection norms, and the opening up of the insurance sector, the fears of a reforms reversal have ebbed. Adds Arvind Agarwal, 47, the Executive Director of Escorts Construction Equipment: "We have learnt to become more comfortable with all colours of government."

THE POSITIONING

"The Congress reiterates its firm commitment to faster economic reforms, with a human face"
Congress-I

"We will continue with the reforms process, and give it a strong swadeshi thrust"
National Democratic Alliance

Credit fundamental repositionings across the political spectrum for this shift in perceptions. Over the last decade, economic ideologies and, hence, identities have blurred. Consider, for instance, the distance travelled by the 2 major political formations: the Bharatiya Janata Party (BJP) and the Congress-I. For much of the last 50 years, the BJP (in its earlier incarnation, the Bharatiya Jana Sangh) had sharply differentiated itself from the Congress-I by espousing the principles of free trade. Yet, as the party shot into national prominence in the 1990s, the BJP jettisoned those very tenets. Partly because the Congress-I and, later, the United Front had annexed the reforms platform. So, the BJP sought to differentiate itself by promoting a vigorous brand of economic nationalism a.k.a. swadeshinomics.

Indeed, by the time Elections 98 rolled around, the process of rebranding the BJP was complete as the party produced a manifesto brimming with economic nationalism. The experience of governance has, however, diluted the brand. In its 13-month stint, the Atal Bihari Vajpayee Administration has accelerated the phase-out of quantitative restrictions, drafted an Insurance Bill that allowed foreign participation, and did not slam any brakes on foreign companies setting up 100 per cent-owned subsidiaries. Observes Dilip Shah, 58, CEO, Vision Consulting: "The swadeshi lobby has been silenced."

During the run-up to Elections 99, even the rhetoric has been muted. The joint manifesto of the National Democratic Alliance (NDA) simply echoes the earlier National Agenda for Governance (NAG), the post-poll programme hammered out by the Vajpayee Administration in 1998. Of course, the repetition of vague generalities is partly due to the fact that the party is fighting these elections as an alliance of 23 parties. Since the agendas of a disparate grouping of parties have all to be accommodated, the resulting common minimum programme is bound to be bland.

However, the dumping of a stridently swadeshi ideology in favour of a more flexible approach reflects more than just coalition compulsions. Points out Mahesh Rangarajan, 35, a Delhi-based political analyst: "The BJP has a distinct nationalist ideology when it comes to issues of identity and faith, but it has always been much more flexible on economic policy. By downplaying swadeshi, the BJP is now reverting to its roots as a party of free trade." Acknowledges Jagdish Shettigar, 51, a Member of the BJP's Economic Cell: "In dealing with economic issues, we cannot afford to be dogmatic. We have to be pragmatic."

Indeed, to re-emphasise the party's reforms credentials, the NDA manifesto was followed up by the release of a more specific charter of commitments. And the notable additions included further liberalisation of the provident fund and insurance industries; the formation of an Investment Promotion Board different in form and features from the present Foreign Investment Promotion Board; and the corporatisation of public utilities. Clearly, the BJP is seeking to establish itself as the leader of a responsible alliance for governance.

Yet, if the responsibilities of being in power have forced the BJP to hark back to its original economic philosophy, the experience of being out of power has compelled the Congress-I to completely shed the legacy of its Socialist past. In 1991, the Narasimha Rao-led Administration was, at best, a reluctant reformer, prodded into action by a balance of payments crisis. In 1999, the Congress-I has emerged as the most aggressive champion of liberalisation amongst the political parties. Manmohan Singh, the original architect of the reforms, is being pitched as the Congress-I's alternative prime ministerial candidate. Its manifesto promises to carry forward the reforms in virtually every field. And contentious issues that political parties normally dodge are actually mentioned in its manifesto.

Instead of reiterating slogans about the need to protect small-scale industry, the Congress-I manifesto promises to review the welter of incentives and product-reservation categories that have stifled the growth of small-scale enterprises and bred industrial sickness. Instead of relying on sops and incentives to stimulate the capital markets, the party proposes to deepen the markets by disinvesting part of the huge stockpile of equity held by the financial institutions. And, instead of side-stepping the political minefield that it is, the manifesto suggests the forging of a national consensus to review the archaic labour laws. "Labour laws and small-scale reservation are icons that have not been touched by politicians," says Rahul Bajaj, 60, CEO, Bajaj Auto. "The Congress-I has displayed a willingness to tackle these issues despite the risk of annoying voters."

That is a risk the Congress-I will, increasingly, have to take. Apart from the minorities, the core voter-base of the party consists of the economic underclass: the poor and the illiterate. As growth-rates rise, these vote-banks will yield diminishing electoral returns. Reforms, therefore, provide a platform for capturing a larger share of the growing middle-class vote. Argues Rangarajan: "The conflict that the Congress-I is going through is not unlike the conflict the Democratic Party in the US went through in the 1980s. A party that is historically positioned left-of-centre has to espouse a neo-conservative market ideology to expand its voter-base."

THE PACE

"The Congress pledges to present to the people of India a report that measures the progress of implementation of the promises made by the manifesto"
Congress-I

"We will take all such steps as would expedite (the) implementation of policies and programmes in accordance with our national interests"
National Democratic Alliance

Economic ideologies have converged, political parties have changed their pitch, but, despite the consensus, the reforms continue to merely crawl forward. The backlog of Bills pending before Parliament is mounting steadily even though the bulk of the legislation awaiting amendment is non-controversial. Every Administration since 1991 has sold bits and pieces of public sector units; yet, nearly a decade later, ownership and control of not even a single public sector enterprise has been transferred to the private sector. Says Pramod Mahajan, 49, the BJP spokesperson: "The fundamental issue today is speed. Right now, everyone agrees on what needs to be done, but nothing gets done."

Blame political instability for patchy implementation. To begin with, frequent elections mean frequent interruptions. Laments Dhruv Sawhney, 55, Chairman, Triveni Engineering: "By the time the policy-momentum starts to build up, fresh elections are announced, and the system has to wind down." Even when the system is up and running, the pulls and pressures of managing fractious coalitions slow down decision-making. "Since coalitions have to pander to a wide variety of vested interests, implementation gets blocked," complains Vinayak Chatterjee, 42, Chairman, Feedback Ventures. Congress-I General Secretary Pranab Mukherjee, 63, is even more dismissive: "As the experience of the last 3 years demonstrates, coalitions cannot implement coherent economic policies."

However, as the experience of the last 3 years has also clearly demonstrated, much will depend on the constituents of the coalition. For instance, the strident opposition of the Left to liberalisation hobbled the disinvestment efforts of the United Front Government; so, if a minority Congress-I government has to rely on the Left for support, its ability to push through such reforms would be constrained. In that respect, the unwieldy NDA may actually be better-placed. For, apart from rolling back its cuts in urea-subsidies, the Vajpayee Administration did not really have to contend with opposition from its alliance partners on matters of economic policy. Concedes A.B. Bardhan, 74, the General Secretary of the Communist Party Of India: "The so-called co-ordination committee of the NDA never met to discuss policy issues; it was there just to iron out political squabbles. In fact, the dissensions within the BJP on matters of economic policy are much greater than the disagreements with the other constituents of the NDA."

Significantly, the manifestos of both the Congress-I and the NDA attempt to deal with issues of implementation. While the Congress-I has pledged to present a progress report to the nation on the implementation of its commitments every year, the NDA will seek institutional solutions to the problem of political instability. In fact, the only notable addition made by the NDA manifesto to the list of promises contained in the earlier nag is the proposal for a fixed Parliamentary term. Analyses Mahajan: "In a term of one-and-a-half years, you spend the first 6 months picking up speed. Then, you have to spend another 6 months slowing down in preparation for elections. If Parliament gets a fixed term, you would reduce the number of stations the train has to stop at."

THE PROGNOSIS

"We will revive economic growth and sustain it in a broad-based manner at 7-8 per cent a year for a decade and beyond"
Congress-I

"We will bring GDP growth to the 7-8 per cent bracket and control deficits--fiscal and revenue"
National Democratic Alliance

What, then, can industry expect from the new government, apart from a continuation of the existing policies and, maybe, even their slightly faster implementation? For starters, a thrust on public sector disinvestment even though both manifestos are careful to avoid any mention of privatisation. Warns Joydeep Mukherji, 38, Associate Director (Sovereign Ratings), Standard & Poor's: "The new finance minister will, no doubt, reveal that the fiscal deficit is bigger than ever despite relatively good growth. This is likely to stimulate India's moribund privatisation programme."

Other than disinvestment, the new government is likely to continue the gradual reduction of impediments to Foreign Direct Investment (FDI). Both manifestos target inflows of $10 billion a year. Obviously, the thrust areas will be infrastructure although nothing will be done to level the playing field by discouraging inflows into the so-called non-priority industries. Agrees Escorts' Agarwal: "All the belly-aching over a level playing field is over because Indian industry has realised that it cannot be protected beyond a point."

To woo back foreign investors into the ailing telecom sector, the Vajpayee Administration has ushered in a revenue-sharing regime and, despite the furore it created, the Congress-I will endorse the switchover. In fact, the latter even proposes to do away with the ceiling limiting foreign equity participation so that "technology-rich global majors can participate in the expansion of our telecom network in a more direct manner."

To speed up the funds-flow into infrastructure, insurance sector reforms will also be accelerated. Hopes Antony Jacob, 38, the CEO of the Anglo-Australian insurance company, Royal Sun Alliance: "As the Standing Committee on Insurance was headed by a member of the Opposition, and had representation from all the main political parties, the Insurance Bill is likely to be approved without further delay."

Ironically, a BJP-led Administration is likely to press harder for insurance liberalisation. Apart from unlocking a new source of fund s for infrastructure finance, that would send a positive signal to the international community. Which is vital for a government seeking to contain the negative fallout of the announcement of the Draft Nuclear Doctrine. A Congress-I Administration, on the other hand, is likely to rely more on quicker external sector liberalisation to attract foreign investment. Its manifesto has already pledged to lower India's tariff-rates to Asian levels in 3-4 years.

Delays will, however, continue to plague the execution of second-generation reforms like public-sector restructuring, fiscal consolidation, the rationalisation of user-charges for infrastructural services, and the formulation of an Exit Policy. Any government will stall not because procedures are antiquated or because elections are imminent, but because of the sheer lack of political will to carry out these reforms. "There is a strong consensus on weak reforms," observes S&P's Mukherji. Concurs Subodh Bhargava, 55, Chairman, Eicher Group: "When it comes to the really tough decisions, neither a Congress-I nor a BJP-led Administration will really do anything."

That does not mean that the more difficult structural reforms will not take place. "Economic compulsions will ensure that the reforms will happen," declares Indira Rajaraman, 51, RBI Professor, National Institute Of Public Finance & Policy. "The public sector is not in a sustainable position." Consider the numbers: Central and state public sector units account for nearly a quarter of GDP, and that huge capital stock generates a return of less than 1 per cent. Adds Triveni's Sawhney: "There has to be comprehensive public sector reform. Otherwise, a large part of our industrial economy will be in jeopardy."

Similarly, a looming fiscal blowout is forcing the state governments to reform. With their combined fiscal deficit bulging to 4.3 per cent of Gross Domestic Product, cash-strapped state governments across the political spectrum are increasing user-charges for infrastructural services and putting state public sector units on the auction block. Private participation in power distribution is being allowed by BJP-led governments in Uttar Pradesh and Haryana, a Congress-I government in Orissa, and a Telugu Desam government in Andhra Pradesh. Even the CPI (M) regime in West Bengal is trying to sell off ailing PSUs.

Clearly, irrespective of the outcome of Elections 99, the reforms will continue. And they will continue to be driven, not, however, by consensus, but by crises.

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