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Economic Survey: visionary or impractical?

— PHOTO: PTI

REPORT CARD: Security personnel, with sniffer dogs, checking the copies of Economic Survey, before distributing them among the Members of Parliament.

The Economic Survey, placed before Parliament days before the presentation of the Union Budget, is a report card on the economy prepared by the Chief Economic Adviser. Its assessment of the economy and its prospects are presumably as authentic as any official report can be. Less clear however is the role the Survey has in the framing of budget proposals.

While the Finance Minister will rely on the Survey’s data and refer to them in his budget speech, it is highly unlikely that he will accept or be able to accept its recommendations — especially those on economic reform. “Big bang” they might be, as some newspapers have described them. But can any one claim that a majority or even a few of them can be implemented at this juncture?

The Congress Party might be better placed in the UPA politics this time to push ahead with its agenda but that does not mean it will have a free hand. Its coalition partners, the Dravida Munnetra Kazhagam (DMK) and the Trinamool Congress, will have their own say on matters such as disinvestment especially if it concerns undertakings located in Tamil Nadu and West Bengal. The DMK has already voiced its opposition to the government’s tentative proposal to offload a small stake in Neyveli Lignite Corporation. Equally significant, there could be opposition to major reform proposals from within the Congress party itself.

It goes without saying that any agenda for reform as sweeping as the one proposed by the Survey will have to answer the question: Is it implementable? It is true that Chief Economic Adviser Arvind Virmani said in a subsequent interview that the Survey had a longer horizon of, say, five years. In that case some parts of the Survey are to be seen as a ‘vision document’, something to strive for in the medium term. The Finance Minister’s tasks are immediate and while the Survey’s suggestions do look attractive from a theoretical perspective they may not be acted upon this year, the way the Survey wants. This is not to say that reforms such as disinvestment of public sector undertakings, opening of more sectors to foreign direct investment and abolishing price controls on petroleum products are inherently unworkable.

None of these is new. Many of them have been attempted over the years with varying degrees of success. But some of these reforms are imperative at the present juncture. And disinvestment is one of the obvious ways for the government to narrow its yawning fiscal deficit. Indeed the government has said so.

So the Survey’s wish list is not a pipedream but the emphasis it places on these and the overambitious targets it has set for the reform process may be counter-productive. Also, the political economy of reforms cannot be ignored. It is the political process that will determine the success or failure of reforms. It is naive to think that opposition to reforms is always ideological.

Take the Survey’s agenda for disinvestment:

Its main planks are: (1) Revitalise the disinvestment programme and generate at least Rs. 25,000 crore a year; (2) Sell a minimum 10 per cent stake in all unlisted public enterprises; (3) Auction units that cannot be revived; and (4) Sell a minimum 10 per cent of equity in all profit making, previously identified non-Navratnas.

The target, Rs. 25,000 crore each year, is ambitious not because the government has run out of quality stocks. Rather, it is a question of timing the large disinvestment programme that will be necessary to raise the targeted amount.

Earlier, it had backed off from ‘privatisation’ and strategic sale. These involve a change of management control. The argument in their favour was that the government as the vendor would get substantially more through strategic sale in a particular unit than it would through a step by step divestment of its shares.

Since it involves transfer of ownership privatisation is inherently more controversial. Today this option does not figure in official documents. When the Survey talks of disinvestment it is referring only to a gradual process of sale and not to an outright sale.

But even the less controversial disinvestment programme ought to be capable of being implemented. Listing the stocks of all PSEs so far not quoted on any exchange bristles with difficulties.

It is also a question of preparedness of the target company and the stock market’s ability to absorb the shares at a desired price. It should not be forgotten that pricing issues have dogged practically all previous disinvestment programmes.

In short, fixing a target of Rs. 25,000 crore or mandating the listing of all profit making PSEs does not seem to be the right away to speed up the reform process. Similar points can be made for the other measures suggested — decontrolling petroleum prices, opening multi-brand retail to FDI and others.

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