With rate cuts, govt hopes to keep urban voters content

By M H Ahssan

Concern over a sullen mood gripping urban India in the wake of a slowing economy and rising job losses and a clamour for a dose of populism from within the ruling coalition saw finance minister Pranab Mukherjee abandon propriety to announce duty and service tax cuts.

Keeping an eye on the rapidly approaching elections, the government not only bent its resolve not to offer any specific economy pills, but Mukherjee made it clear that the stimulus to the economy will continue to roll. Pointing out that the excise and service tax cuts had not needed amendments, he said more succour would be offered if needed.

Though the government claims that it can still offer more relief, the imposition of the model code of conduct could be a serious impediment — the motivation for 70-odd decisions taken by the Union Cabinet at its marathon meeting on Monday.

Sources confirmed fear of loss of jobs was the trigger for “second thoughts”. Explaining the imperatives, home minister P Chidambaram said, “We feel demand in rural areas is strong. But the mood is cautious in urban centres. We don’t want job losses. These measures should spur consumption as we hope cuts are passed on to the consumer.” It was evident that politics drove the change of heart.

Mukherjee said his concessions were “like a third stimulus” and he expected export sectors with high levels of employment would be benefited despite the government accepting revenue loss to the tune of Rs 30,000 crore. Following Rs 40,000 crore already surrendered by Chidambaram earlier, the revenue now written off is a kick in the stomach. But the government is ready to grin and bear for the political imperative.

The re-think came after a prod from the Congress high command as well with party chief Sonia Gandhi besieged with pleas of tax and excise relief in order to ease the pressure on consumers and jobs. In particular, the leadership was wary of possibility of a souring popular mood which could end up targeting the government. If NDA erred in falling for its own India Shining hype, UPA clearly does not want to fall afoul of the aam aadmi gripped by uncertainty and gloom. Government had pointed to the strong financial commitments to rural-oriented flagship schemes to defend its decision not to tweak tax rates and announce any major relief packages in the interim budget. The reasoning was that the rural vote would swing UPA’s way as massive spending on schemes like Bharat Nirman and NREGA along with higher MSP for wheat and rice kept the village economy afloat.

The switch on Tuesday is the result of the belated recognition that urban constituencies are not only large but also have a sizeable percentage of the poor, many who are in the unorganised sector. As in the case of inflation, the slowdown in sectors like construction hit urban labour immediately.

The government scrambled to reassure the voter who is being wooed aggressively by BJP. The calculation may see the government being pressured into exploring more populist moves like a reduction in prices of products before the EC enforces its code.