An Evaluation of Common Minimum Programme

Summary

This 16-page Forum of Free Enterprise booklet, jointly written by Tata Services economists S.S. Bhandare and J.K. Mukhopadhyay within days of the United Front (UF) Government’s installation in 1996, offers a sceptical but not hostile reading of the 13-party coalition’s Common Minimum Programme. The authors concede that the CMP is a creditable consensus statement of intent — covering federalism, decentralisation, fiscal consolidation, PSU restructuring, financial-sector reform, agriculture, and a ‘human face’ for adjustment — and they note that it broadly tracks the famous 10-point medium-term objectives of Dr. Manmohan Singh’s interim 1996-97 budget. But they argue that, as a coalition compromise, the CMP is ‘neither a blue-print’ nor a credible action programme: it dodges the politically costly items (exit policy, Companies Act amendment, opening coal and oil to private capital) and leaves the institutional mechanism for delivery unspecified.

The analytic core of the booklet is what Bhandare and Mukhopadhyay call the ‘financial iron triangle’ — an inadequate domestic savings ratio (around 24% of GDP, against the 30-35% of East Asian peers), an unsustainable fiscal deficit the CMP wants to bring from roughly 6% down to 4% of GDP, and the RBI’s prudent 1.5%-of-GDP cap on the current account deficit. Inside that triangle, the authors argue, the CMP’s simultaneous goals of 7% GDP growth, 12% industrial growth and significantly higher social-sector spending (an extra Rs. 12,000-15,000 crore) are ‘not internally consistent’, and trade-offs between growth, inflation and social justice are bound to bite. They flag a missing ‘resource position’ chapter, the crowding-out from a high revenue deficit, ambivalence about whether fiscal discipline will spare ‘development or investment’, and the populist drift in CMP-style federalisation as States pursue prohibition, cheap-rice and free-power schemes that mount fresh claims on the Centre.

The political reading is equally hard-edged. The authors warn that some UF constituents — notably the CPI(M) on insurance — may walk back even the diluted commitments, that trade-union militancy could be reawakened, and that Mr. Narasimha Rao’s epigram ‘unity at Centre and struggle in the States’ captures the coalition’s tight-rope walk. The CMP, they conclude, is ‘Common Maximum Pussy-footing’ — a deceleration of reform rather than a reversal — and ‘there is still some enchanting music of socialism even in the midst of the market oriented reform.’ Yet they end on a constructive note: reforms have now acquired wider acceptability across the Indian polity, Finance Minister P. Chidambaram’s early expenditure-management and PSU-dividend guidelines are commended, and the booklet closes with an exhortation that the CMP demands a matching ‘Common Maximum Effort’ from all stakeholders. An Appendix reproduces a detailed digest of the CMP’s policy proposals across federalism, agriculture, industry, fiscal issues, and social-sector goals.

Key points

• Treats the United Front’s 25-page Common Minimum Programme as a creditable but compromised consensus statement of intent rather than a deliverable blueprint, while noting the CMP is ‘not a White Paper’ on the state of the economy.

• Argues that the CMP largely re-states the 10-point medium-term objectives of Dr. Manmohan Singh’s interim 1996-97 budget, signalling continuity of reforms but at a decelerated pace (‘Common Maximum Pussy-footing’).

• Identifies a ‘financial iron triangle’ — inadequate domestic savings (~24% of GDP), high fiscal/revenue deficits driving crowding-out, and the RBI’s 1.5%-of-GDP current-account cap — as the binding constraint that the CMP fails to address.

• Flags the internal inconsistency of pursuing 7% GDP growth, 12% industrial growth, a 4% fiscal-deficit-to-GDP target, and an additional Rs. 12,000-15,000 crore of social-sector spending simultaneously.

• Catalogues areas the CMP ‘deliberately overlooked or ignored’ — exit policy, reconstruction of the National Renewal Fund, amendment of the Companies Act, and opening of coal, minerals and oil to private investment.

• Warns that the federalisation drive — review of Sarkaria Commission recommendations, more autonomy to States — risks aggravating fiscal imbalance as States pursue populist schemes such as Andhra Pradesh’s prohibition and cheap-rice programmes.

• Notes coalition fragility: the CPI(M)‘s stated opposition to opening insurance, the prospect of trade-union militancy, and Narasimha Rao’s barb about ‘unity at Centre and struggle in the states’.

• Commends Finance Minister P. Chidambaram’s early guidelines on expenditure management and minimum PSU dividend payouts (20% of equity or 20% of post-tax profits, 30% for oil/petrochemical/infrastructure PSUs) as a ‘business-like’ early signal.

• Concludes with cautious optimism that reforms have gained acceptability across the Indian polity and that the CMP demands an answering ‘Common Maximum Effort’ rather than coalition spoils-sharing.