State's resistance on the wane

By P. Venugopal

THIRUVANANTHAPURAM, AUG. 12. Kerala's resistance to the Central policy initiatives under the globalisation-liberalisation philosophy is clearly on the wane.

This is evident from the UDF Government's decision to sign a memorandum of understanding (MoU) with the Union Government on issues relating to reforms in the power sector. The conditionalities to which the State seems to be committing itself while negotiating loans from institutions like the Asian Development Bank (ADB) also bring out this weakening resistance.

For the better or the worse, the State is fast being drawn into the whirlpool of the emerging economic milieu where success or downfall will depend on the ability to compete in a global environment. The previous LDF Government in the State had been trying to swim against the tide of the globalisation- liberalisation initiatives of the Centre.

The best example of the previous Government's unwillingness to fall in line with the Centre's dictates on the policy front was the approach it adopted in the power sector. The State, when the LDF was in power, had not set up a Tariff Regulatory Commission, as stipulated by the Central Electricity Act, and also to split the State Electricity Board into three independent business entities dealing with generation, transmission and distribution of power.

The argument against the Tariff Regulatory Commission was that the decision on fixing power tariff should ideally be made by the Government itself, which is directly accountable to the people who had elected it to office and not by an independent body, which might deal with the subject strictly on business principles.

The LDF had opposed the very spirit of the Central Electricity Act, arguing that it was designed as a tool to facilitate privatisation of the power sector in the country. The Nayanar government had also voiced its concern over the ``hidden agenda'' behind the Centre's decision to institute a special fund to provide incentives to the States which complied with the stipulations from New Delhi. This `special fund' was perceived as a `trap' by the Nayanar Government.

Whatever be the defects of the power policy pursued by the previous Government, Kerala witnessed a record jump in its generation capacity during its term. Though the KSEB's finances are now a shambles, with its monthly revenue deficit touching nearly Rs. 160 crores, many other States which had gone ahead with the power reforms are in a worse situation. Some of the States which are uncomfortable with the Centre's coercive approach to reforms in power sector have even started taking a closer look at the `Kerala pattern of power reforms'.

However, the UDF Government has now clearly indicated its intention to give up its predecessor's experiment at an alternate power policy by declaring that it was ready to sign a memorandum of understanding with the Centre on the reforms to be undertaken in the sector. The Tariff Regulatory Commission is also being set up in the State, as stipulated by the Central Electricity Act.

Top officials of the State Government are proceeding to Manila this week to negotiate a loan from the ADB for supporting fiscal reforms in the State. A contact mission of the ADB had, in June, visited the State for preliminary discussions with the Chief Minister, other Ministers and State Government officials on the subject of this assistance.

The `aide memoire' of the ADB Mission, sent to the Government after these initial discussions, mentions about a series of `next steps' to be taken by the State as a pre- condition for getting the loan. One of these steps relates to converting the policy measures `being' proposed in the White Paper on State Finances, brought out by the UDF Government, into a draft policy matrix ``which should be shared with the ADB staff''.

Another step proposed by the ADB is to establish a public finance review committee, as ``envisaged'' during the discussions. This committee should be chaired by an eminent ``independent'' public finance expert.

Both these conditionalities seem to indicate the desire of the financing institution to have a direct say in the formulation of the future policies of the State Government. Also, interestingly, the White Paper, the general drift of which finds mention in the `aide memoire' of the ADB Mission, was only under preparation at the time of the mission's visit to Thiruvananthapuram in the first week of June, this year.

Referring to the power sector in the State, the document speaks about ``more radical reform options for the State Electricity Board, similar to those being implemented by States which have undertaken major power sector reforms...'' The mission recommends that the State Government ``intensify its dialogue with the ADB and with the Government of India on policy options for reform''.

The big question now is: Who is deciding Kerala's policies?

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Section  : Southern States
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