MIDAS TOUCH: Jaswant's first task is to show the light at the end of the tunnel

The motor of change in the domain of economic policy in India has been either a change of personality or a crisis. So says Anand Mahindra, managing director, Mahindra and Mahindra. It's a perspective that is hard to contradict. India's first encounter with reforms in 1991 had both. It is instructive that the timing of the change of guard at Gate No. 2 of North Block includes both-change of personality and the spectre of a failed monsoon and possible drought.

In a sense Finance Minister Jaswant Singh is poised on the brink. On one side is the rut that the Indian economy is stuck in. Rising government expenditure, sliding GDP growth and comatose stock markets have combined to wipe out the feel-good factor and led to calls for putting the economy back on track. On the other side is the political dimension of Jaswant's appointment. His predecessor Yashwant Sinha had to swap places with him primarily because he had alienated the middle class.

Having dealt with the complexities of the Indo-Pak conflict and the triangularity of India's relationship with the US, walking on the brink is no new experience for Jaswant. An instinctive reformer, he understands and truly believes in the need for the government to stay out of business. Indeed, the Mozart aficionado struck the right chord by stating his intent to put money into the consumers' pocket to trigger growth. In a breath he encapsulated the problem and the approach to its resolution. But can Jaswant walk his talk?

On the face of it his advent into Room 134 of North Block is well timed. Some would even say he is the lucky general Napoleon would have sought out. Consider these numbers: the last quarter of 2001-2 saw 6.4 per cent growth of the GDP, the highest in nearly three years signalling a season for hope. In a recent FICCI survey, 53 per cent of the respondents reported higher investments, which could translate into higher industrial output. Indeed, the index of industrial output grew by 3.8 per cent in May compared to 1.7 per cent in the same month last year. Revenue collection in the first quarter of the financial year was up 20.2 per cent at Rs 39,173 crore.

"Moves to revive the economy must address the issue of lack of investor confidence." Deepak Parekh, Chairman, HDFC

But naturally, these tender signals of revival and Jaswant's stated desire to get consumers buying were quickly interpreted by travelling analysts as the season of sops (see chart). True to style, Jaswant curbed the exuberance with a firm but diplomatic "there will be no interim budget". Jaswant, though, has already begun work on measures for the near, medium and long term.

The question though is, how far can he go? Does the fiscal condition of the Government give the finance minister room to manoeuvre? Those managing the Government's expenditure believe that the buoyancy in revenue collection allows him some space to initiate measures to revive the feel-good factor.

"Two-thirds of the consumers depend on agriculture. Steps for revival must include them." Ajit Singh, Union Agriculture Minister

Indeed, some steps (regarding RBI Relief Bonds, tax on insurance premium and restoration of Section 88 rebates) would largely be revenue neutral and send positive signals. There is also a strong lobby that believes reverting to the old system of taxing dividends in the hands of a company is a viable move. Their contention: individuals are bound to avoid tax, that taxing the companies is a far more efficient way and along with the expected cut in interest rates would send a strong signal among the middle class as also Dalal Street.

Perhaps. The jury though is out on the question of timing. In terms of economic management, any sops given now would have to factor in the possibility of a drought. Also, the signals of revival are rather tenuous. Then there is the issue of political timing. Sops would necessarily have to translate into electoral benefits given the polls in 10 states early next year. In that sense it is wiser to come up with a big bang election budget.

Former finance minister P. Chidambaram disagrees and believes that if the feel-good factor is to be revived the initiatives must be taken now. "It might seem difficult now but it will be more difficult next year in the face of higher deficit." Adds Mahindra: "We must move away from the February mindset and initiate real time reforms if the revival is to accelerate."

Interestingly, the recommendations from industry chambers and corporates have focused on long-term measures rather than immediate sops. Savour some of the suggestions: Videocon Group Chairman Venugopal Dhoot wants the Government to home in on the fiscal deficit. "The surest way of getting money into the consumers' pocket is by controlling deficit," he says. CII President Ashok Soota wants "resolution of the day to day hassles of running businesses and it in governance". BPL Communications Chairman Rajeev Chandrashekar wants the "entire Government humming one tune, that is growth".

That is something Sinha couldn't orchestrate. It is believed that Jaswant, due to his proximity to the prime minister and the gravitas lent by his membership of the think tank, would be able to pull the right strings. And it is happening. A secretary-level team is looking at reforms in the agriculture sector. This will be followed with a meeting between Jaswant and Agriculture Minister Ajit Singh. The idea: 65 per cent of India's consumers depend on agriculture and without them any revival would be tenuous. Also mooted is tax exemption on once-a-year spending on travel for taxpayers. The rationale: boosting tourism will fuel employment and growth.

The pressure would be immense, the glare of media intense and the honeymoon short. The primary expectation from Jaswant is to show light at the end of the tunnel. Reviving the feel-good factor would be an essential first and immediate step. The sooner the better.