The Meltdown

Published: Thu, 08/01/2013 - 07:47 Updated: Fri, 08/02/2013 - 06:35

Why is UPA II appearing so rudderless, weak and crumbling?

Sanjay Kapoor Delhi 

When the anti-corruption protesters, clandestinely backed by diabolical strategists of the Sangh Parivar and supported by venomously partisan 24/7 television coverage, occupied Delhi’s Ramlila Ground and many other streets in the country, the United Progressive Alliance (UPA) II government seemed shaky, vulnerable and on the threshold of losing legitimacy. This was clearly a camouflaged putsch to weaken and perhaps topple the government.

Anyhow, the government hung on to power without giving in to the demands of faux Gandhian Anna Hazare and his merry men to appoint an extra-constitutional ombudsman. That was in 2011.In hind sight, it was a big achievement for Prime Minister Manmohan Singh in the context of how governments and regimes all over the world have been brought to their knees by the new display of crowd power.

While the UPA may have been able to disperse the crowds quietly and peacefully from the streets then, it could not really rid itself of the core charge that the protesters were making — that the Congress-led UPA II government is perhaps the most corrupt in independent India. The scale and number of scams brought out by government auditors and courts point to that. Blighted by these scandals, many politicians, bureaucrats and businessmen have come to grief. The arc of the Central Bureau of Investigation (CBI), under the supervision of the Supreme Court, has not spared even the Prime Minister’s Office, which has contributed to eroding its ample authority.

UPA II represents a tragic and tired contrast to the triumphant manner in which it rode to power in 2009, or its reasonably secular, stable and pro-people stint during UPA I, backed by the Left, and with a progressive Common Minimum Programme. A little less than a year away from the 2014 Parliamentary elections, the government is fast unravelling an inadequate and disinterested response to a kaleidoscope of crisis that stares at it.

From the economy to foreign policy issues, to addressing the serious challenge posed by communal forces which are out to viciously polarize and divide Indian society, the UPA II government has shown a certain pronounced weakness and lack of vision and commitment that could seriously harm India in the long run.

There have been reports that the finance minister was unhappy with the RBI Governor’s refusal to change the trajectory of his policy rates. He wanted him to go, but the PM chose to back him. The PM’s move is truly intriguing 

The RSS-BJP and its aggressive hardliner Hindutva mascot, Narendra Modi, have clearly sensed this precipitous decline in the government’s resolve and form. They are thus desperately claiming inevitability about being voted to power whenever elections take place. As a result, there are more corporates, diplomats and bureaucrats willing to cut a deal with the opposition BJP than the ruling regime in Delhi.

Similarly, cases that involve probing deeper the conduct of certain BJP leaders, like the involvement of Narendra Modi and his buddies in the post-Godhra carnage, or the fake encounters in Gujarat, are being handled perfunctorily. If media reports are anything to go by, Modi got himself anointed as the chief campaigner of the BJP to enjoy immunity from any probe, now or later.

So bizarre is the situation now that senior ministers don’t attend office, skip crucial cabinet meetings and some of them have the gall to go on private visits abroad without seeking permission from the prime minister. The crucial Group of Ministers (GOM), an important entity created by Manmohan Singh to fast-track decisions, too, suffers from the same disease with steady dropout by ministers. The pessimistic scenario is that the government just cannot get itself to take crucial decisions —any decision.

Indeed, among a tiny handful, only Finance Minister P Chidambaram has been working himself to a standstill to get the economy kicking again during the last mile of the UPA rule. Earlier, as Union home minister, he had single-handedly faced the wrath of the BJP inside and outside Parliament after fast-tracking the probe into the involvement of Hindutva terrorists in several bomb blasts.

Indeed, the political executive is also being cramped by the cagey attitude of the bureaucrats who just do not want to move a file till they are given guarantees that they will not be hounded by either campaigners of the Right to Information (RTI), the courts or the CBI. Their worry lines have deepened over the manner in which the investigating agency is being vested with extraordinary independence to probe and prosecute without being weighed down by any kind of supervision.

After the arrest and prosecution of former telecom secretary Siddharth Behura in the telecom scam, and the interrogation of former coal secretary Harish Chandra Gupta, considered a man of impeccable integrity, in the coal scam, no one seems immune from the long ‘paws’ of the CBI. “Why should we take a decision when there are no guarantees that we will not be hauled up later,” says a senior secretary at the Centre.

 The drift and display of weakness within the top political leadership is creating circumstances where sections of the corporate world and media are openly pitching for fascist forces

The stasis is hurting all around. Worse is the economy, epitomized by the steady fall in the value of the rupee against the US dollar. Since May, there has been a fall of 10 per cent in the value of the rupee, at times attributed to the announcement by the US Treasury Secretary, Ben Bernanke, that the government was planning to withdraw its substantial stimulus. His announcement had hurt the currencies of all emerging economies, but the rupee bled a bit more due to the fundamental failings of the economy.

Although Bernanke withdrew his statement, the rupee did not really recover — even if the stock market did. To prevent its further fall, the Reserve Bank of India (RBI) had to take some extraordinary steps to squeeze out extra rupees from the market to make it dearer in comparison to the dollar — a move that could hurt a credit-starved economy much more.

The industry has been in the throes of deep recession; it could not believe that RBI Governor Duvvuri Subba Rao could take such measures. Financial intelligence sources even blame some corporate houses involved in treasury operations for the relentless hammering of the rupee as they make profits through arbitrage rather than from their core activity. The recent release of balance sheets is a big giveaway about which company could be engaged in what is construed as an “anti-national” exercise.

The moot question is, can the government, which is hemmed in from all sides, really take any concerted action against these large corporate houses?

Termed by Colombia University economist and unabashed Modi fan Arvind Panagriya as the worst RBI Governor, Subba Rao’s decision to keep the policy rates high had dampened any hopes of revival of the country’s economy at a time when the external environment was so adverse. Everywhere else in the world, central bankers had been resorting to easy interest rates to boost the industry, but in India, inflation control was given precedence without realizing its genesis and nature.

There have been reports that the finance minister was unhappy with Subba Rao’s refusal to change the trajectory of his policy rates. He wanted him to go, but the prime minister chose to back Rao. The prime minister’s move is truly intriguing.

Cases that involve probing deeper into the conduct of certain BJP leaders, like the involvement of Narendra Modi and his buddies in the post Godhra carnage, or the fake encounters in Gujarat, are being handled perfunctorily

If one looks at the growth and employment figures of the economy, they will unhappily coincide with the time the policy rates were hiked in 2011. The latest figures of public sector banks also show fall in profitability since the last two years.

The recent National Sample Survey (NSS) figures show a dramatic fall in poverty in the second term of the UPA till 2011. The reduction in the number of poor, economists feel, would have troughed if the 2012-2013 figures had also been included in the survey. In fact, the UPA’s growing misery, which has been deepened by growing public disenchantment, is linked to stalling in growth as well as growing unemployment. Those who were agitating on Delhi’s streets in 2012 were the collateral casualties of an economy that suddenly lost
its way.

Although Rao treats controlling inflation as the holy grail of the RBI, such monetarist interventions go contrary to acceptable practices needed to revive decelerating economies. As stated above, the major reason for the spike in the rate of inflation was obvious supply-side constriction. This was accentuated by the inability of the State to manage infrastructural inadequacies.

Most roads, bridges and power projects have been delayed on one count or the other. The government’s much vaunted public-private-partnership (PPP) projects have collapsed. One of the most prestigious, the Delhi Metro Airport Express project, based on the PPP model with Reliance Infra, has crumbled, leaving the urban development ministry to hold the can (See story, Derailed, page 6). There are road projects where companies like GMR have quietly slipped out. 

The central government’s best-laid plans have been tripped by unhelpful state governments. Take, for instance, West Bengal’s mercurial Chief Minister, Mamata Banerjee. Not only has she single-handedly destroyed any prospect of sorting out the border and river water disputes with neighbouring Bangladesh that would have helped the Indian government improve its profile in a country that is traditionally deeply suspicious of its big neighbour, she has done a lot more long-term damage.

Financial intelligence sources blame some corporate houses involved in treasury operations for the relentless hammering of the rupee as they make profits through arbitrage rather than from their core activity

Most of the central programmes and schemes do not get much response even after the state governments are party to it. Highways are a major casualty. Land acquisition has been delayed and all the funds sunk in these projects are sitting idle. The mining and power sectors are other areas which have got stuck due to regulatory issues and widespread people’s protests. Surely, in the absence of power, the engine of growth is bound to sputter.

Besides, there is the delicate issue of a probe by the CBI of the repetitive corruption scandals. Nearly all the infrastructural projects have been grievously hurt by the various probes. India’s telecom sector, which was such a success story, is bleeding badly. The government’s bid to attract Foreign Direct Investment (FDI) in this sector ran aground after it was tainted by the dubious spectrum auction. All foreign companies like Norway’s Telenor, UAE’s Etisalat, Russia’s MTS and Malaysia’s Maxis have suffered due to the inability of the central government to protect their investments. Many believe that these foreign companies have come to grief due to the influence of some crony capitalists who enjoy clout in this government.

It is cronyism again that is hurting the best-laid plans of the government to get FDI in the country’s retail sector. Due to the lack of predictability in public policy, foreign investors are reluctant to enter the country. They don’t know when the goalpost will be shifted and at whose behest. The growing and visible weakness of the government is accentuating this problem.

The recent release of balance sheets is a big giveaway about which company could be engaged in what is construed as an ‘anti-national’ exercise. Can the government, hemmed in from all sides, take any action against these large corporate houses? 

Public perception of a slowing economy and weak fundamentals have been compelling people to invest money in gold rather than in other financial instruments. Although the stock market is still reigning around 20,000 sensex points, those investing in stocks have come down substantially. Worse, there are no public issues.

The spurt in the purchase of gold has been responsible for the ballooning of the current account deficit (CAD). The recent moves of the government have been directed towards the CAD; however, since the mood in the economy is so dismal, there is little likelihood of FDI coming in or exports rising to cover the gap between outgo in imports against the accruals coming in through exports.

There is a body of opinion that believes that the slowdown is artificial as most of the corporate houses are sitting on a pile of cash and they are not keen to spend money, till this government that has ‘foolishly’ unleashed the CBI on some corporates and has shifted colossal funds to the social sector, is removed. The current debate between Nobel laureate Amartya Sen and neo-liberal economist Jagdish Bhagwati on how the economy should be managed is an indicator of the big business stakes in the impending showdown between the Congress and the BJP. 

Although the UPA got elected in 2004 and 2009 on the issue of secularism, it has fallen short in booking the guilty and restoring faith in ‘justice for all’. The ugly face-off between the Intelligence Bureau (IB) and the CBI on the issue of Ishrat Jahan and three others’ fake encounter in Gujarat is a pointer. Despite overwhelming evidence against a top IB official, the Union home ministry with Sushil Shinde at the helm has not been able to display clarity as to how to handle this matter.

Other terror cases against members of Hindu extremist organizations (with RSS linkages) are also meandering into nothingness due to the inability of the central government to bring closure to them in the early part of its term. Now, with the UPA II term coming to an end, investigating officers are reluctant to ask tough questions or hurt those who were involved in terror acts. “No one is interested in taking them on,” confided a minister.

In the realm of foreign policy, the UPA government is at a loose end on how it should deal with Afghanistan after the US forces depart. It is under pressure to save its investments as well as ensure that Pakistan does not enjoy inordinate influence over its neighbour. A weakened Delhi is demoralizing for those in Afghanistan who have invested along with India.

Even Sheikh Hasina Wajed’s government in Bangladesh that was banking on India feels shortchanged by the UPA dispensation. The Bangladesh prime minister was hoping that she would be able to swing the border and water disputes with India and beat down her opponents. For instance, the UPA government’s failure to bring Mamata around to supporting the Teesta river deal has hurt both sides badly. So desperate are the Bangladeshis for this deal that the visiting Foreign Minister, Dipu Moni, even pleaded with Narendra Modi to support the passage of the Bill for constitutional amendment. Wonder what Foreign Minister Salman Khurshid had to say to this!

It is difficult to comprehend that a government that has done a stupendous amount of work on the ground for the poor and disenfranchised in the last nine years of its rule, should look this way. The Right to Information, Right to Education, MNREGA, farm loan waiver, cash transfer and Right to Food campaigns have seen considerable success on the ground (with active help from civil society groups) — and this is precisely what has peeved greedy corporates and staunch neo-liberals in the media who are suddenly accusing the UPA II of turning ‘socialist’.

It is difficult to comprehend that a government that has done a stupendous amount of work on the ground for the poor and disenfranchised in the last nine years of its rule, should look this way

Although it has gone ahead with the National Advisory Council-driven Food Security Ordinance and allowed FDI in many sectors, there is little to suggest that there would be a radical change in the Congress party’s fortunes. Indeed, the drift and display of weakness within the top political leadership is creating circumstances where sections of the corporate would and media, along with vested interests, are openly pitching for fascist forces.

In public perception, too, this uncanny flux of a rudderless government can become potent ground for the rise of fascists and an authoritarian State. Indeed, for a secular, pluralist, democratic country, this can become a diabolical and dangerous scenario.

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Why is UPA II appearing so rudderless, weak and crumbling?
Sanjay Kapoor Delhi 

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This story is from print issue of HardNews