Will reforms stall after election code implementation?

Other key decisions markets were looking forward to were: whether the Foreign Investment Promotion Board would hike the FII limit in HDFC Bank, if the prevailing high duty on gold would be cut, whether the government would scrap the decision to allow only airline operators with five years experience and 20 aircraft to fly abroad, and if the government would open up the railways sector for foreign direct investment.

Stocks of companies such as Titan (a major player in gold), SpiceJet and Kalindee Rail moved sharply in trade today after the model code of conduct was enforced amid expectations decisions on these will now be put off.

“I don’t think the government can announce these decisions without consulting the EC,” former finance secretary DK Mittal told CNBC-TV18. “Governments anyway usually go easy on decisions before the elections as key politicians are busy campaigning. Plus they don’t want to take decisions that could spark a protest from opposition parties or ignite a controversy.”

The former finance secretary added that the government had a lot of time to act on several decisions that now appear to be stuck in limbo. “The Commission may not accept the government’s argument [if it wants to implement a major decision].”

Former chief election commissioner SY Qureshi said that while prior permissions can be taken, proposals that are “not urgent can wait”.

“If the government has been sitting on a decision since years, it won’t cause problems if they are not acted upon for a few more months [till a new government comes in after the elections],” the former CEC said.

But the EC looks into decisions that a government takes on a principle basis, Qureshi said. “During my time, we even allowed the government to reduce petrol prices because we thought it was in the nation’s interest.”

Supreme Court lawyer Dushyant Dave, however, said that the government was free to take key economic decisions during the election code of conduct.

“The idea is: are you using government machinery to win voters,” the senior lawyer said. “The economy can’t stop running. Day-to-day decisions will have to be taken. So long as decisions don’t amount to, say, a financial grant or scheme that benefits a large number of people or it is specifically designed to woo voters, they can certainly be taken.”

Dave said that a case such as the Companies Act notification should not be a problem for the government to pass. “This will benefit the economy and the business sector as a whole and is not designed to please some voters.”

Citing a case in the past when the Supreme Court came down on the EC for blocking the taking-off of a road project between Bangalore and Mysore, Dave said the law was clear in terms of what can be done and what cannot.

At a press conference today, finance minister P Chidambaram indicated that it could be business as normal for the government with respect to decisions that have been under consideration.

Specifically refering to whether foreign investment limits in companies could be hiked, Chidambaram said: “The FIPB will continue to meet and take decisions. These are normal business decisions. Perhaps the application would have been made a year back by a foreign investor and a decision was being arrived at all this while. It won’t wait.”

On the issue of gold duty, the finance minister said the government would “revisit” the duty on gold after the full year current-account deficit figure becomes clear after the end of the financial year.