Twists and turns ahead

Now that a new coalition government has been installed in New Delhi, it will be useful to assess its prospects, analyze the interplay of forces within the Congress-led 15-party United Progressive Alliance (UPA), the extra-constitutional role of Sonia Gandhi as the "power behind the throne" and the effect of this on the performance of the prime minister, and the state rivalries of the constituents which may have an impact on the cohesiveness of the alliance.

Without a proper understanding of the forces at work in the coalition alliance and the power structure of the new Indian government, it will not be possible to formulate the right approach to the forthcoming composite dialogue between Pakistan and India.

There cannot be greater proof of the vitality and self-assurance of Indian democracy than the election of Manmohan Singh as the first Sikh prime minister of India. Not even the most sanguine of optimists could have predicted this development in 1984 after the massacre of the Sikhs in Delhi following the assassination of Indira Gandhi in October that year.

In a shrewd move, Sonia Gandhi has regained moral high ground by deflecting the Bharatiya Janata Party's campaign against her foreign origin. Manmohan Singh may not be the greatest, but he is certainly the best available person for the job.

A technocrat of international repute and an economist by calling, he is widely regarded as a man of peace and moderation. How much control he will have over running foreign policy affairs and the conduct of relations with Pakistan is another matter.

The fact that he has never been a politician could turn out to be an asset. His weakness may become his strength. Manmohan Singh's biggest headache, however, will be the play of politics and the state rivalries among the constituents of the alliance.

It will take some time for the new government to settle down. It may be a couple of months before it begins to show its political body language. But there are some indications even now which point to the shape of things to come after the honeymoon. It appears that Sonia Gandhi has already assumed the extra-constitutional role of the real authority behind the office of the prime minister.

This means Manmohan Singh will be in office but Sonia Gandhi will be in power. According to a report in The Hindu, career-minded officers and agency chiefs are already calling on Sonia Gandhi and briefing her on matters of national security.

If that continues, the government in New Delhi may become like a car with two drivers. Referring to his equation with Sonia Gandhi, Manmohan Singh has apologetically explained that he would be seeking "guidance" from her.

No one should be surprised over this development. It is exactly in accord with Congress culture and tradition since the days of Indira Gandhi who even today remains the role model of absolute authority. Over the years, particularly in the last five years, the party has got used to a one-power centre - the Gandhi family.

If this practice continues, as it is likely to, the performance of the prime minister will be affected. To begin with, the Congress ministers will be reluctant to extend their total loyalty and respect to Manmohan Singh. The next stage will come when the ministers will follow suit, and show their independence.

For instance, the prime minister had no choice in choosing his cabinet ministers as all of them had been nominated by their respective groups and parties and he had to accept all.

The other consequence will be that those Congress ministers who have been close to Sonia Gandhi will become virtually all-powerful. For instance, Mr Natwar Singh, who has been loyal and close to the Gandhi family, is likely to run the external affairs ministry without any interference from the prime minister.

Since he has been Indian ambassador in Islamabad and is considered an expert on Pakistan in the Congress hierarchy, India's policy towards Pakistan is likely to be his exclusive domain. Policymakers in Islamabad should not ignore this factor in their strategy formulation.

The Left, with its 60 odd members of the Lok Sabha, is a crucial member of the UPA which has formed the government at the centre. Since the CPI(M) and other leftist parties have declined to join the cabinet and will support the government from outside, their attitude towards government policies will be watched with interest.

The Left may become a sort of supervisory body to judge whether the Common Minimum Programme and other agreed policies are being implemented or not. It remains to be seen how this will affect the smooth working of the government.

The Common Minimum Programme (CMP), adopted by the ruling United Progressive Alliance, is social-democratic in orientation. As a compromise between the Congress supporters of big business and the socialist policies of the leftist parties, its emphasis is on the "value of plural social institutions and a mixed economy, as against either a one-party system and a command economy, or the untrammelled working of the free market economy."

The most significant and boldest feature of the CMP is the promised "enactment of a National Employment Guarantee Act" to provide a legal guarantee of 100 days of employment in a year, on a minimum wage, to one able-bodied person "in every rural, urban poor and lower middle class household".

This "right to work" will lead to a massive asset creating a public works programme capable of transforming the socio-economic face of India. How the staggering amount of Rs.20,000 crores, to meet the employment needs of 100 million workers, will be provided remains to be seen.

The most important question is how long will the United Progressive Alliance, comprising 15 parties and groups of conflicting interests, last? The constituents got together with the common desire to defeat the BJP.

Having done that, will the glue last long? Most of the partners in the alliance are rivals in the states. For instance, the largest left group, CPI(M) owes its success to a good showing in West Bengal and Kerala, and in both these states its main rival is the Congress itself.

A serious problem will arise when state elections take place in these states as the Congress is a competitor for power locally. Both the state parties of CPI(M) and Congress are against a national level tie up, and that was perhaps the chief reason for the CPI(M)'s refusal to join the coalition government at the centre.

State elections are due in the important states of Maharashtra, Bihar and Tamil Nadu. They will provide the first real test of unity and cohesion for the Alliance. It is a mistake to write off the BJP. We must remember that only in politics do resurrections occur.

Much will, however, depend on how the BJP takes its defeat and formulates its future strategy. Will it revert to its Hindutva ideology, as its hardliners are trying to do, or will it continue on the path of moderation chosen by Vajpayee? The Vajpayee argument has considerable weight.

The BJP cannot become a mainstream party in the true sense of the word as long as the Muslim voter remains alienated. If the Gujarat tragedy had not happened, the result of this election might have been different. How the Indian voter will behave in the next election is one of the great imponderables of Indian politics.

The writer is a former ambassador.

Neither in nor quite out

The communists have committed yet another "historical" mistake by not joining the Manmohan Singh government. It took former West Bengal chief minister Jyoti Basu two years to admit it when he said he should have accepted the offer to head a third front coalition and become India's prime minister.

This time the Left's realization may be sooner because, as the days go by, the Congress-led coalition will get more entrenched and the communists' support less crucial.

Their acceptance of the Lok Sabha Speaker's assignment reduces them to the position of Chandrababu Naidu's Telugu Desam which was routed because of the limited performance by the Vajpayee government at the centre. The Left may suffer in the same manner. Somnath Chatterjee's writ will run in the precincts of parliament, not with the cabinet where the power resides.

Strange, the communists still do not face the facts. Outside support is like committing a sin without enjoying it. Probably, the outcome of the election has placed them in a position where they will be damned both ways.

The Left does not seem to realize that it is in a Catch-22 situation: it can neither throw the government out nor withdraw its support. It can rant and rave but do little besides. The BJP is waiting in the wings and the prospect of a midterm poll can loom large.

By joining the government, they would have firmed up the coalition. They could have influenced the Congress not to corner all the top portfolios. They could have also told the allies not to display in public their unhappiness to the delight of critics. The presence of the Left in the cabinet would have been far more effective.

If the Left did not want to respond as a group, it could have at least permitted the CPI. As it so happens, the party was keen to join the government. Strategy-wise also, it would have been better because the communists would have known what was happening inside.

The CPI ministers would, to some extent, have served as a check. How far the communists can influence from outside is clear from the futile efforts they made to get Mulayam Singh's Samajwadi Party into the government.

CPI (M) secretary-general Harkishan Singh Surjeet took along Mulayam Singh's lieutenant, Amar Singh, to Sonia Gandhi's dinner without an invitation. But it made no difference to the Congress.

The party wants to rebuild its base in UP where Mulayam Singh is at present supreme. He has 37 seats out of 80 in the state. Obviously, things would not have worked out. Mulayam Singh, who once claimed that no party would be able to form the government in Delhi, has done well to go back to UP to look after his flock.

The Congress knows that the Left will huff and puff but has no alternative to support even when the Congress goes beyond the agenda of the common minimum programme. That the Left may not sign it only lessens the importance of the document, but, at the same time, it doesn't enhance the importance of the communists. The Congress will concede what does not come into conflict with its interests because the communists are an ally as well as an adversary.

The communists must understand that the Congress fought against them with all its force in West Bengal and Kerala, their strongholds, during the Lok Sabha election. It will do so again when the two states go to the assembly polls two years hence.

Had the communists been in the government, the two would have probably found some solution to the embarrassment of contesting in the states while sustaining unity at the centre.

The secular forces have to evolve ways to accommodate one another. If they fail this time, the communal elements may return with a vengeance. A better way out for the Left to register its presence would have been in the selection of ministers.

A CPI (M) leader has said that if any incident of corruption is noticed and misgovernance identified, "we will oppose" it. How come they allowed the Congress to include in the cabinet a person against whom seven cases of corruption are pending in various courts?

L.K. Advani was also charge-sheeted and he should have resigned from the cabinet. Laloo Prasad Yadav's matter is different; a day-to-day hearing is going on in the case.

One communist leader has said that they have not given the government a blank cheque. Another has stated that the Left parties will serve as the watchdog and conscience-keepers of the government. These are brave words and sound impressive. But they come to nothing.

The Left can make noises. But the Congress can also plug its ears and go its own way. What is the use of the politburo saying that the defeated candidates should not have been inducted in the government? The Left should have made it an issue.

That these people have done a clean and competent job does not give the Congress the right to flout a popular verdict. The question is moral. Jawaharlal Nehru never violated the norms. He allowed a decent period to pass before reinstating the defeated people.

Former Prime Minister Atal Behari Vajpayee wanted Jaswant Singh and Pramod Mahajan in the cabinet badly. But he too waited for some time before bringing them through the back door of the Rajya Sabha.

The Left's defence is that it did not want to interfere in government formation. Little does it realize that its stock at stake is as much as that of the Congress. By saying that they are not part of the government, they cannot escape the responsibility. The Congress and the Left either hang together or people will hang them separately.

There are reservations whether or not the government would last its full tenure. For the first time in India's political history, the Congress leads the coalition. The governments of Deve Gowda, Inder Kumar Gujral and Chandrasekhar fell because the Congress did not join the cabinet.

It withdrew support from outside whenever it found it convenient for political considerations. The communists, even if driven to exasperation, are in no position to do so. Even if forced to quit, their number of 62 does not pull down the government. The UPA may hobble but would not fall because it may be able to get the support of other parties.

At present, the UPA has the strength of 330 in the Lok Sabha of a 545-member house. The Congress and its allies make some 215, requiring only 57 to reach the magic figure of 272.

The party can face a real problem if and when people like Laloo Yadav and Ram Vilas Paswan - they are not happy with their portfolios - plan to raise their standard of revolt. That the communists should have been inside the government to strengthen it may be clearer to them at that time than it is today.

The problem with the communists is they do not seem to understand that politics is an art, not science - the legacy of Karl Marx. Circumstances and situations in which the politicians have to act are always unique. An art presupposes material which does not vary.

Political actions are performed irrationally. The communists may learn this lesson as the current Lok Sabha progresses.

The writer is a leading columnist based in New Delhi.

Housing and construction in the lead

The housing and construction sector with its high employment potential, strong forward and backward linkages with a number of sectors and sub-sectors, can have large direct and indirect employment and income generating impacts.

For instance, in India, it has been estimated that every Rs. 100 invested in housing add Rs. 78 to the GDP. Recognizing these linkages, the government has taken a few measures to stimulate the growth of this sector.

The purpose here is to argue that other than the additional initiatives required to reinforce the positive impact of the interventions made to date, much remains to be done to achieve the objectives associated with the government's plans for the sector, most of which lie in the domain of the provincial governments.

The current shortage of housing in Pakistan is estimated at five million units. Being the simplest form of long-term activity, it can become the lead sector for accelerating economic growth, since investment in housing by households is the single largest undertaking.

It is also the most secure because people are more likely to service their home mortgages before they service other obligations. Housing finance has, therefore, served as an engine for economic growth in countries with a vibrant housing sector.

In Pakistan, housing finance from the formal financial sector has never exceeded 1.5 per cent of the total investment in housing (estimated at around Rs. 150 to Rs. 160 billion per annum), contributing less than one per cent to Pakistan's GDP as compared with 51 per cent in the US and around 25 per cent in Southeast Asia.

It is estimated that the untapped potential for housing finance is Rs. 25 billion per annum, which, assuming loan maturity periods of 20 to 25 years, suggests an estimated demand for credit for housing of Rs. 500 to Rs. 600 billion.

The high interest rates throughout the 1990s, the excessive rates of taxes on property-related transactions (averaging 18 per cent of property values), the culture of wilful default and the procedural complications encountered by financial institutions in encashing collateral, particularly of immovable property, were deterrents holding back the private sector from venturing into housing finance activities.

The most formidable problem in developing housing finance in Pakistan has been the high risk of non-payment owing to the difficulty of enforcing foreclosure laws in the event of default.

The procedures built into the legislation for foreclosure are tedious and time-consuming. However, the improved performance of banking tribunals and the enactment of the Finance Institutions (Recovery of Finances) Ordinance 2001, provide a basis for hope that the challenges of foreclosure have been addressed effectively with the strengthening of the legal framework and debt recovery procedures. Nevertheless, foreclosure is likely to continue to be an issue in the case of home-lending.

The rationalization of taxes on construction materials like steel and cement (through the phasing out of excise duty in the case of the latter and lowering of import duties in the case of the former) and the eventual development of a secondary market in housing finance leading to the introduction of tradable mortgage-backed instruments, whereby primary lenders would be able to securitize their mortgage holdings for resale to other investors in the sector, will give an additional fillip to the sector.

The other key legal, fiscal and administrative constraints for the development of housing lie within the purview of provincial governments. The lack of an adequate land information, access, and retrieval and verification system underlies the poor quality, unreliability and inaccuracy of the records of ownership rights.

These factors, combined with weak protection of property rights, are major impediments to the development of efficient and more liquid land markets. However, the problem of unclear land titles, although a fundamental issue, can only be addressed over a longer timeframe.

An important factor hindering the growth of housing is the high cost of registering property transfers. All related instruments are either wielded by or within the control of the provincial and local governments.

The costs in urban areas include a one per cent registration fees, a five per cent stamp duty levied by the government of Punjab compared with a nominal transfer fee of Rs.150 per sq. yard (and no stamp duty) payable to the Capital Development Authority in Islamabad (on average, roughly one per cent of the value of the plot) and three per cent stamp duty in the province of Sindh and other charges (professional charges, brokerage fees and court fees).

In the case of a loan, there was a one per cent charge for registering mortgage documents, which the government of Punjab, for instance, has reduced to 0.25 per cent in the budget for 2003-04. Therefore, the cost of investment needs to be reduced by rationalizing the stamp duty on property-related transactions.

There are multiple agencies, development authorities or building control authorities (as in the case of Karachi), cantonment boards and tehsil municipal administrations administering different zoning and building laws and building approval criteria within a city.

These zoning and building by-laws (those relating to heights of buildings, ratio of floor area to plot area) need to be updated and also made uniform across authorities within a province.

Some local government taxes and fees raise the cost of investment for the construction sector. For instance, the Lahore Development Authority (LDA) levies a commercialization fees equivalent to 20 per cent of the value of a plot in case of a change of use of property, even in areas declared to be commercial zones.

The rationale underlying these rates is the wide gap between their expenditures and revenues from property tax and receipts from the provision of other services. The property change of use levies need to be pruned in areas categorized as "commercial" under-zoning regulations.

The deficits faced by these agencies to satisfy their mandates should not be bridged by taxing investment but addressed through a combination of measures involving the restructuring of property tax, rationalization of user charges, appropriate strengthening of the collection machinery, enhancements of the efficiency of expenditures and better financial management.

A major issue is the slow colonization of the housing schemes, even when the necessary infrastructure has been provided. As a result, not only is the investment on roads and electricity, gas and water supply and sanitation systems being underutilized, the assets created through the provision of infrastructure for these housing societies deteriorate because of long periods of non-use.

To discourage speculation, encourage colonization and release land for development (which will also bring down the price of land), the government should consider raising the non-utilization fees or levy an idle land tax on plots lying vacant. Such an arrangement will also generate resources that would enable utilities to earn a return on the assets tied up in the infrastructure .

Another factor constraining the expansion of the housing sector in the province is the pro-tenant bias of the Urban Rent Restriction Ordinance, 1959. The provisions of the legislation with regard to rent revision and eviction of tenants discourages owners from renting out property.

The most important provision of the legislation governs conditions for the eviction of tenants, under which the rent controller has sole authority to determine if the demand of the landlord for the vacation of his premises (so that he can renovate it or carry out new development or use it himself) is reasonable and in good faith. The landlord is required to establish his bona fides of need.

Moreover, the process of eviction slows down (and can even take several years) over disputed questions of fact that require witnesses and submission of evidence.

Other major factors that serve as disincentives for developing properties for rental purposes are: a) The high rate of stamp duty (three per cent of value of contract) and registration fee (one per cent of contract value) on the registration of lease documents covering a period of one year and above; b) The structure of property tax under which rented out properties in Punjab pay 10 times the tax paid by similar owner-occupied properties, even though they have similar access to facilities like roads and street lights and to services like solid waste disposal. This differential is much higher than in Karachi where the ratio is 1:2 and in Islamabad where both categories pay the same rate of property tax.

Hence, the need for improving the incentives for the construction of property for rental purposes by narrowing the differential in property tax paid by rented and owner-occupied properties and by repealing or revamping the Rent Restriction Ordinance to reduce the pro-tenant bias.

The potential loss of revenue from the reduction in the property tax rate of rented properties would be more than recovered from a reduction in the evasion of property tax on rented properties, increased development of properties for rental purposes and a slight revision in the tax of owner-occupied properties.

The measures proposed above should be combined with disposal of land owned by government in prime commercial locations and being used for less productive purposes. The divestment of this land or that leased out to the private sector at a nominal rent will help exploit the potential of this.

It will thereby stimulate private construction activity, improve utilization of land, mobilize revenues for all levels of government and generate resources for utility agencies from sunk investments in completed sites and schemes not yet fully colonized.

The writer is a former finance minister of Punjab.