India has never had a presidential election like the one we are seeing right now. Mr Pranab Mukherjee has been named the UPA's Presidential candidate, which virtually makes his election certain. But India's economic policies will change possibly even before his formal election. Let us take note of the milestones.
Mr Mukherjee will resign as Finance Minister on June 24 when the Prime Minister takes charge of the Ministry. There are a number of instances where the Prime Minister retained the Finance portfolio for long.
Jawaharlal Nehru retained the finance portfolio after the resignation of T T Krishnamachari in 1958 and presented the Budget for 1958-59. Indira Gandhi had presented Budget as Finance Minister and Prime Minister in 1970-71. Rajiv Gandhi had presented the Budget in 1987-88 when V.P. Singh resigned as Finance Minister and left the party.
REFORMS OPPORTUNITY
There would, hence, be nothing extraordinary about the Prime Minister, Dr Manmohan Singh, presenting the next Budget, and retaining the Finance portfolio. There are indications that this could happen. Before his departure for the Earth Summit and G 20 meeting in Rio, Dr Singh is learnt to have instructed his office to prepare a detailed blueprint for an economic policy offensive.
His first task should be to take a hard look at the tax proposals in the last Budget, which have unnerved investors. Retrospective taxation was criticised the world over as showing that India does not have a stable framework of taxation.
Stipulations that the fiat of the Ministry and tax departments should prevail even above provisions of tax treaties created complete uncertainty. Prospective taxation of capital gains is unexceptionable; however, imposing retrospective obligations is surely objectionable.
Mr Mukherjee's departure from North Block provides the opportunity for Dr Singh to correct some of these impressions. He can reaffirm his credentials as the progenitor and moving force behind India's economic reforms.
He can reassert his authority as Prime Minister to push through pending reforms that had been stymied by the presence of Mr Mukherjee at the Finance Ministry and Trinamool Congress (TMC) MPs in the Lok Sabha.
Mr Mukherjee and Dr Singh go back many years. Dr Singh was Governor of the Reserve Bank when Mr Mukherjee was a powerful Cabinet minister.
MAMATA FACTOR
As for Ms Mamata Banerjee, she opposed FDI in multi-brand retail, pension reforms, petrol price revision, the insurance Bill and rationalisation of railway tariffs. Economic policies had turned more towards the Left than the Left could have afforded, had it been in power.
With her dogged opposition to the UPA consensus on the presidential candidate, she was isolated. Her sway on policy will be nil.
With Mr Mulayam Singh Yadav's Samajwadi Party (SP) and Ms Mayawati's Bahujan Samajwadi Party (BSP) having committed support to the UPA till the next general elections, the UPA should be able to carry through its reform proposals comfortably.
The two together have 41 seats in Lok Sabha, while TMC, UPA's coalition partner, has 19.
Therefore, even if TMC continues to vote against reforms, with SP and BSP support it should be possible to push through the measures.
The reforms that could now be expected to be on fast-forward mode are the Banking Voting Rights (Amendment) Bill, which gives higher voting rights to bank shareholders.
The Pensions Fund Regulatory Development Authority Bill, which has been hanging fire for a long time, can be pushed through with the support of SP and BSP. The insurance Bill, allowing higher foreign direct investment in insurance companies, is also in waiting.
All these Bills might now be placed before the Cabinet. Even if TMC raises objections, they will be brushed aside. This could provoke TMC to leave the UPA.
The passage of a raft of reform measures could alter India's image. The freeing up of FDI curbs on a number of sectors could surely attract more FDI and institutional investments, boosting sentiments on the stock market and the foreign exchange market. One can hope that the rupee will appreciate in the medium term.
In case Ms Banerjee leaves the UPA, the greatest beneficiary would be the critical infrastructure sector: Indian Railways. During her stewardship of the Railways, she virtually made it bankrupt.
No investments could be undertaken. Grandiose proposals were formulated and as quickly left behind.
Track renewal, rationalisation of passenger fares and freight rates, reasonable investment plans, regeneration of rolling stock, and introduction of technology into the railway network should be speedily implemented.
In sum, the Presidential elections provide a chance to the Finance Minister to overcome the policy paralysis that has gripped the government.
(The author is a Delhi-based commentator.)