SUBBARAO DELIVERS BUT KARUNANIDHI PUNCHES A BODY BLOW

 By Ruma Dubey

This is one of the few policies which the markets got it right. It had expected a 25 bps cut in repo rates and that is exactly what RBI did today. And that made the policy a complete non event. The token 25 bps rate cut is good news but it is extremely doubtful whether this will get transmitted down to the people by the banks. So immediate transmission of rate reduction can pretty much be ruled out.

But before the market could even start looking at the details of the RBI policy, political turmoil hit the streets – DMK announced that it was pulling out of the UPA Govt and as against widely expected, Mr.Karunanidhi said that he will not be giving outside support too. This completely spooked the market and the market immediately fell 250 points. The DMK has pulled out of the Congress-led UPA coalition in protest against the government's position on a US backed United Nations resolution on war crimes carried out during Sri Lanka's civil war.

All that which the RBI and the Govt expected to do in tandem currently stands in abeyance. With this huge crisis hitting the UPA, there is now worry about things will pan out in the future and whether all the policy decisions will remain merely on paper.

The DMK has 18 seats in the Lok Sabha and five ministers in the cabinet. The ruling UPA coalition is already in a minority.  The UPA govt is now 39 seats short of the half way mark of 271 required to form the Govt at the center and it currently stands at 232 seats. This is an evolving situation and one does not know how the Govt will salvage this situation.

Well, Karunandihi has not exactly closed the doors completely. He has said that he is willing to reconsider if the Parliament takes the right attitude and passes resolution on Sri Lanka by Friday.  One does not know if the Govt will toe the DMK line but what is being talked is probable support coming in from Mulayam Singh or Mayawati and may somehow manage to stay in power. The Govt may just give in to these uncomfortable partners, merely to stay in power and that is more dangerous than the UPA losing power. A powerless Govt is more sinister than a govt losing power.

All efforts will now be on firefighting and very little will get done economically, be it the Finance bill or Pension Bill or any economic reforms. Unless this is resolved asap, all the goodwill created by the Govt, will get negated. The Food Minister has already announced that sugar decontrol meet scheduled for today, has now been postponed but the Cabinet Panel has assured that it will take up the Food Security Bill today. Sushil kumar Shinde is going ahead, reading out the anti-rape Bill and there is a picture being sent out that things are normal and an ally pulling out will not seriously jeopardise anything.

But the consensus is that the UPA Govt will manage to survive this crisis too as there are too many MPS who do not want early elections. Surely there will be some deals which will get struck behind the doors in the next few hours and post this “trading”, you-scratch-my-back-I-will-scratch-yours attitude, this crisis is sure to get averted.  The FM has already come out and announced that the Govt is looking into the DMK demand of Sri Lankan resolution and assured that the Govt is absolutely stable. He has said that there could be a rethink on DMK’s need and is consulting political parties for the same. This current crisis is an ideological issue and if this gets resolved, things will be back to normal with DMK scoring a big point. The DMK wants words like "genocide" and "international inquiry" included in the resolution and one needs to see if UPA see's the point of view of DMK.

Yes, this is one political crisis which will get averted and one hopes that the Govt gets back to working and gets the economy back on track. Next year as such is going to be all about politics; at least let some work get done this year.