India - North Block's Decline

The finance ministry was overruled in the Sixth Pay Commission case and cut a sorry figure in the 3G matter.
Has the finance ministry lost the clout it used to enjoy within the government? Two different events in the last ten days have prompted this question. One, the finance ministry has questioned the department of telecommunications’ move to go ahead with the roll-out of 3G telephone services and to announce its guidelines. Two, the Union Cabinet has approved the Sixth Pay Commission’s recommendations for implementation. Not only that, it has enhanced the Commission’s award and rejected suggestions of postponing the date of its enforcement and transferring the arrears payment to the Employees’ Provident Fund account.
In respect of the guidelines for 3G telephone services, the finance ministry’s objections were rather strange. The allegation was that the guidelines were finalised and announced without proper consultation with the finance ministry. The telecommunications department was not amused by these charges. It argued that there was an inter-ministerial body that discussed these guidelines and only after obtaining its clearance were the guidelines approved and made public. The inter-ministerial body had a senior official from the finance ministry as one of its members.
The telecom department had a valid question: What was the finance ministry representative doing at this meeting? And did the telecom department require a separate and specific clearance of the finance ministry? The finance ministry may have some reasons to question the validity of the guidelines. But it seems that the finance ministry’s opposition has been brushed aside and there will not be any official hurdle in the way of the grant of 3G licences. The irony of the whole drama is that one of the biggest beneficiaries of the telecom department’s decision will be the finance ministry, which will receive an estimated Rs 40,000 crore by way of licence fees from the various telecom players which will roll out 3G services on the basis of these new guidelines.
The drama over the Pay Commission’s recommendations was even more bizarre. The finance ministry expressed its serious reservations about the pay increase recommendations because of the adverse impact they would have on the government’s finances. There was even a proposal that the date of enforcing the award should be postponed by a year to reduce the government’s financial burden. There was another proposal that envisaged that the arrears, instead of being paid out to the employees, should be transferred to their individual Provident Fund (PF) account. In this way, the immediate impact of the Pay Commission award would have been deferred for some years. But the Union Cabinet decided against both the suggestions. And this happened because the prime minister decided in his wisdom that with general elections due to be held soon, it was time to keep about four million central government employees and an equal number of pensioners happy and beholden to the government.
In one instance, the finance ministry tried to prevent the kind of fiscal profligacy that can play havoc with the government’s finances and the economy. And in the other instance, the ministry tried to assert its right to be consulted on the question of framing a policy that has substantial financial implications. In both the cases, it got over-ruled. In respect of the Pay Commission recommendations, its sensible advice got superseded by the government’s political considerations. With regard to the 3G telephone service guidelines, the finance ministry’s objections were set aside simply because it either had a poor argument or it failed to make out a convincing case.
But the point to be noted here is that even a poor argument in the early days of economic reforms in the 1990s would have won the finance ministry any battle that it wished to be engaged in. North Block, where the finance ministry is located, enjoyed a clout that was formidable and could influence decision making by different economic ministries in the 1990s. Those days, the finance ministry played a big role in deciding foreign investment norms for different sectors or, for that matter, in framing the first telecom policy that was unveiled in 1993. That clout has considerably waned over the years. And that’s the big difference between the finance ministry of the 1990s and what it is now.