Faustian bargains?

The broad contours of the deal made by the UPA with its Left allies can be traced from the list of Bills slated to make the cut in the coming session of Parliament.

In return for being allowed to go ahead with the sale of 10 per cent of the equity of state-owned Bhel, the government will drop the pension and banking Bills, which have been fiercely opposed by the Left parties, and pass only those Bills that the Left is in favour of, like the one that promises guaranteed employment.

In other words, the government prefers to use the spending option in order to gain Left support, and has no serious objection to dumping badly-needed reform measures.

If this is indeed the trade-off that has been arrived at in those closed door parleys, a high price has been paid for being allowed to sell some Bhel shares.

While those in favour of it argue that the employment Bill will virtually eliminate poverty at a cost of a mere 1.3 per cent of GDP, the fact remains that this is a pie in the sky.

The Planning Commission’s review, reported in this newspaper, shows that even in the best-administered schemes, the target PDS (TPDS), leakages are more than in the normal PDS! In TPDS areas, just 42 per cent of subsidised grain reaches the poor.

Field reports on the way in which the employment programme has been organised raise other questions about cost and benefit.

It is far from clear that the Prime Minister buys into the logic of such programmes; indeed, his initial tactic was to buy time. If Parliament now approves the Bill, the time will have come for the chickens to come home to roost.

Delays in pension reform will have a damaging impact on the fisc. According to calculations by the Invest India Economic Foundation, the current cost of the pension liability for existing government employees is Rs 1,700,000 crore, or about half of GDP.

Factor in other payments like gratuity and this goes up further. But Left leaders object to pension reforms, since government employees will be assured only payments that are linked to what they have put into the system and the returns on investing the corpus, instead of today’s open-ended commitment to inflation-adjusted payments for life.

But surely no government can afford to run up a pension liability equal to nearly all its other liabilities (the government’s internal debt is around 70 per cent of GDP), and that too for just 5 per cent of the working population.

The pension Bill would have prevented such denouements and also ensured that the rest of the country’s population got access to a modern, low-cost pension system; blocking it means everyone remains dependent on the creaky Employees Provident Fund Organisation (EPFO), which had a shortfall of Rs 15,000 crore a few years ago and now has a Rs 22,000 crore hole.