Breakthrough or not?

Just when it seemed that the government had managed to get its supporters from the Left parties to play ball on some aspects of economic policy, the water has been muddied again and it is no longer certain whether there will be forward movement or only fresh bickering.

It is not clear whether the discordant noises that have been made are on account of intra-Left tensions, or whether they reflect lack of basic agreement with the government.

The finance minister has made some conciliatory noises that are probably meant to try and deal with the situation through diplomacy, rather than force the issue. That only leaves the basic question unanswered.

This is not the first time a meeting between the government and the Left has ended with differing versions of what transpired.

After a meeting between the Prime Minister and some Left leaders not long ago, the latter claimed that Manmohan Singh had agreed to raise the interest rate on provident fund balances by a percentage point—something that Dr Singh promptly denied.

Is the Left now playing tit for tat, in rebutting the government’s version of the latest meeting, or is there more serious disagreement?

If the government does manage at some point to get the Left parties to endorse its stand on banking reforms, it would be akin to pulling a rabbit out of a hat.

Although it has seemingly conceded ground by agreeing to the conditions that have been reported, these are mere tokenisms.

Putting in a clause for ensuring that no bank employee will be retrenched when public sector banks are restructured means less than it suggests, since no employees get sacked anyway.

There is always a voluntary retirement scheme, and such schemes have been used quite effectively in the past to bring manpower down to more rational levels.

Ditto in the case of any banks that are taken over by foreign banks.

And the rider that the money got from offloading 5 per cent of the government’s equity in Bhel be put in a dedicated fund, whose proceeds are to be used only for strengthening public sector enterprises, is also a token gesture since all it means is that funds for these enterprises—which would otherwise have come out of the general

Budget—will now come out of this fund to begin with.

It is also unlikely that the Budget will provide more money for the revival of PSUs than it would have in the absence of this fund.

All the more reason to regret the fact that what seemed like a breakthrough agreement has been reduced to a question mark.

The proposed policy change on foreign banks has been a bone of contention even within government and regulatory circles.

There is good reason to dislike the idea, since a foreign bank’s liability in case its Indian subsidiary goes bust is limited to its equity in the bank.

In contrast, if a foreign bank collects deposits from its branch network and this goes bust, it is the parent bank’s global balance sheet that is dipped into to pay back depositors.

It is hard to understand why the government considers a change from this position to be banking reform.