How Chidambaram managed the Left

Two weeks have passed since Finance Minister P Chidambaram presented his 2005-06 Budget to Parliament.

The proposals in the Budget have been criticised for various reasons -- for their failure to adhere to the mandated path of fiscal correction and to outline an agenda for the much-needed reforms in various sectors of the economy.

In addition, the two new tax proposals -- one of them levied a tax on fringe benefits to employees and the other on cash withdrawals from banks -- have evoked howls of protests from industry, tax experts and analysts.

But what has gone relatively unnoticed is the manner in which the Budget has received a virtually unqualified endorsement from the Left -- a key supporter of the United Progressive Alliance government at the Centre.

Which makes one suspect that one of the primary objectives of Mr Chidambaram's Budget for 2005-06 was to unveil initiatives that please the Left.

One thing is sure. Whatever may be the Left's problems with the UPA, it is not going to say a word that might create problems for the government to complete its legislative business in the Lok Sabha.

In other words, the UPA government can expect to get the Left's support in getting the Lok Sabha to approve the motion of thanks to the President's address, the Railway Budget and the Union Budget.

For a government that remains critically dependent on the Left, this seems to be a good deal: Present a Budget to the Left's liking and ensure a smooth passage of the legislative business in Parliament and even the government's future.

How did Mr Chidambaram achieve all this? His Budget had several key elements that the Left found difficult to oppose. First, he announced the promised new deal for rural India.

An estimated Rs 25,000 crore (Rs 250 billion) of extra funds were allocated for new schemes and initiatives for the upgrade of rural infrastructure and poverty alleviation in rural India.

The finance minister left no one in doubt about his commitment to the goals outlined in the National Common Minimum Programme, the UPA government's agenda to which the Left too has given its support.

Second, he announced a Rs 14,000 crore (Rs 140 billion) plan for fresh equity and loans for public sector enterprises.

Although this is only marginally higher than what was provided in 2004-05, the fact that the public sector continues to be supported and encouraged by the UPA government is a thought that will please the Left no end.

Never mind that a little over 40 per cent of the promised fresh equity and loans is meant for the Indian Railways alone, which means only about Rs 8,000 crore (Rs 80 billion) will be left for the public sector undertakings.

This may not meet the Left's expectations. But something is better than nothing. And the Left considers this a positive gesture. What it of course prefers to ignore is the fact that Mr Chidambaram has also plans to raise about Rs 10,000 crore (RS 100 billion) through the divestment of government equity in various PSUs during 2005-06.

It will argue that the Budget makes no mention of divestment of government equity in PSUs. Mr Chidambaram's explanation is that since the proceeds from divestment are going to a different dedicated fund, it stays out of the Budget and the Consolidated Fund of India.

This may be a clever ploy, but the Left seems to be happy that divestment does not figure in the Budget.

Third, the Budget underlines the need for restructuring subsidies, but fails to outline an action plan. It entrusts that responsibility to other ministries. So, it is a case of making the right noises, but not leading the charge against the growing subsidies regime.

Naturally, the Left sees in this the government's reluctance to act on this front. And since there are no cuts in the government's subsidy support to various sectors (in fact, subsidies are expected to go up next year), there are no protests and the Left, too, is happy.

Finally, the impact of both the new taxes proposed by Mr Chidambaram will be felt by the relatively affluent middle class. The fringe benefits tax may have been levied on companies, but in reality no company will take the hit directly.

Most of them will pass on its impact on those salaried employees who enjoy the fringe benefits. Similarly, the impact of the cash withdrawals tax will be minimal on most people.

As the finance minister argued, how many Indians draw more than Rs 10,000 a month from the bank? So, the Left has given its silent endorsement to both the proposals.

You might argue that with the economy growing at 7 per cent a year, the finance minister has lost a golden opportunity of taking advantage of the boom, imposing fiscal discipline, and introducing reforms in new areas.

Instead, he has chosen to undertake some tax reforms and has devoted a lot of his energy to ensure that the Left remains happy with the Budget. This may be clever political management.

But there are occasions like this when you wonder whether our politicians and ministers will ever go beyond managing the immediate political environment. And whether they will see merit in functioning like true leaders -- and not just like managers.