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Stock market calls reformers' bluff

S. Balakrishnan

NO talk of privatisation. No mention of disinvestment. No changes in labour laws to enable hire and fire. No proposal to close down losing public sector enterprises. That is the 2005-06 Budget.

Can one get away with all this? Because they are enough, one would think, to make the reform crowd commit mass suicide.

For, it was argued, these were the sine qua non steps to instil confidence in foreign investors and attract much-needed foreign capital. But the fact is that we have been, for the past several months, debating the use of our own bulging forex reserves for infrastructure investment. Obviously there is no huge resource vacuum that can be filled only by capital from abroad. To add insult to injury, the Budget proposes a big increase in outlays on agriculture and public and social services, without regard to the fiscal implications.

The stock market's resounding thumbs up - it put on 144 points in post-Budget trading - worsened the discomfiture of the pro-reform group. Has the market finally realised that foreign investment can only be the icing on the cake for a vast country like India?

One does not have to be an economist to know that the solutions to our poverty, illiteracy, child labour, lack of healthcare for the poor, et al, lie within ourselves.

The Budget rightly focuses on growing a broad development index including the quality of life for the weakest sections of society rather than mere GDP.

If, in the process, the Government has to borrow more or deficit limits are overshot, so be it. The SPV idea for new projects has come home at long last. Where a project is commercially viable, financing would be no issue.

If viability is missing, the Government can subsidise the SPV. This has the advantage of targeting subsidies for worthy projects instead of amorphous dole outs for ill-defined purposes.

SPVs could also be useful in cutting the politician-bureaucrat-contractor nexus and fixing responsibility and accountability for the vast sums of money being spent by Government.

Indeed, there is no reason why this route cannot be used to fund and improve even public and social services, possibly with the help of NGOs and SHGs.

True, these will ultimately lead to a dilution of the role of elected representatives and the bureaucracy, but they have fallen woefully short of the results expected of them. How long can we wait for deliverance?

The Budget has Dr Manmohan Singh's footprints all over it. For the past several years, reforms have been hyped as the end all and be all of Government.

But, this time, the icon of the market economy, the stock market, has voted its confidence, in what can be described as a "populist" Budget.

The bluff has been called.

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