Saving India's Economy?
Prime Minister Singh Also India's New Finance Minister
Expectations are high that Prime Minister Manmohan Singh, a trained economist, and now also the finance minister of India, could finally make a mark in his second stint as head of government. The stock markets that have been in doldrums for long are buzzing again, writes Siddharth Srivastava.
(Above): File photo of Prime Minister Manmohan Singh addressing at the release of the MG-NEREGA Sameeksha in New Delhi, July 14. [Photo: PIB]
Prime Minister Manmohan Singh is the new finance minister of India as the previous incumbent Pranab Mukherjee has been sworn in as the new President of the country.
A day after taking charge as finance minister last week, Prime Minister Singh urged ministry officials to ‘revive the animal spirit in the country’s economy’ and ‘reverse the climate of pessimism.’ As matters stand, India’s high growth rates have slipped perceptibly, especially in the last three years, after clocking a robust 9% for four consecutive years 2004-8.
Many cash rich Indian entities today find it more fruitful to invest their money overseas than within the country. The economy is in dire need of a boost. Changes are needed in sectors that span insurance, pension funds, retail, mining, excessive fuel subsidy and more. Infrastructure such as in roads, transport and power needs a major push. Government delivery of social services such as education and health continues to be very poor.
It is an irony that Singh, as Finance Minister of India in 1991 had heralded the process of economic reforms and liberalization that catapulted India as a top global economy. Today, when he is Prime Minister, the country is slipping.
Some of the policy paralysis is courtesy difficult coalition partners such as the mercurial Mamata Banerjee who heads the Trinamool Congress. Due to rational, perhaps irrational or even narrow political gains, Banerjee has been Singh’s principle bete noire, shooting down every proposal of change, while stopping short of withdrawing support.
The Singh government thus finds itself in the peculiar position of neither being alive or dead. It has turned comatose. The Indian Prime Minister had shown some resolve, including threatening to resign, while pushing the Indo-U.S. nuclear deal in his first tenure as PM from 2004-2009. At that time the obstreperous Left parties, on whose support the Congress government survived, were blamed for the lack of big-ticket economic reforms to set up the next decade of growth.
But, Singh took on the rabidly anti-American Left on the nuclear issue and prevailed. He turned hero, especially in the eyes of the middle class that played a big part in Congress retaining power in 2009. Unfortunately, today, three years into his second tenure, Singh has not much achievement to show, even as the economy dips. The government is also under severe attack due to charges of corruption chiefly orchestrated by a former minister again belonging to another coalition partner DMK.
Over the past couple of years Singh has been described as effete, weak and too timid to stand up to the likes of Mamata. Although his personal integrity and honesty have not been questioned, the overwhelming view is that inaction cannot be excused. All of this has played a part in the repeated defeat of the Congress party in the state level elections, including big states like Uttar Pradesh, Punjab and more recently Andhra Pradesh.
(Above): President Pranab Mukherjee with the outgoing President Pratibha Devisingh Patil on his way to Rashtrapati Bhavan riding the traditional ‘Buggi’ after the swearing-in ceremony, in New Delhi, July 25. [Photo: PIB]
It has stunted the political career of Rahul Gandhi, whose prospects as a future Prime Ministerial candidate have taken a beating, even as others such as Narender Modi and Nitish Kumar have been flexing their credentials in more than subtle ways in the recent past.
With the finance ministry now under his charge, the big question is whether Singh will be able to display some steel in doing what he was probably good at – managing the Indian economy.
Can he turn it around for the Congress party in 2014 when general elections are due in the country?
In 1991, Singh’s reform moves were backed by then Prime Minister P.V. Narasimha Rao. With India on the verge of a debt trap, New Delhi was forced to implement macro-economic reform measures and trade liberalization dictated by institutions such as the International Monetary Fund.
Today, Singh needs the backing of all-powerful Congress President Sonia Gandhi to manage the political side of matters. Over the years, Gandhi has gained some political experience. It was on ample display when she deftly outmaneuvered Mamata by having her way in the appointment of Pranab Mukherjee as the Presidential candidate whose victory has been established.
However, Gandhi’s politics, influenced by her late mother-in-law Indira Gandhi, revolves around keeping the aam aadmi (common man) happy, with the state playing the role of the chief benefactor.
So far, she has not strongly backed economic reforms (or taken on Mamata on the issue) that create an immediate constituency that resists such change while the diffused positive impacts take time to reflect. Instead, she has had her way in channeling billions of rupees into grandiose social welfare schemes essentially seen as wasteful unproductive expenditure. As numerous studies show, most of this taxpayer money is siphoned away by corrupt middlemen and agents, never reaching the intended poor beneficiaries.
Again, Manmohan has been a silent witness to the fiscal drain, although he has been outspoken in the past about such deficit-causing schemes adversely impacting the government’s financial health and resulting inflation that ultimately hurts the poor the most. Perhaps, such profligacy might have been ignored had India continued on its path of growth. Paradoxically, state revenues have only burgeoned as new high growing service tax paying sectors such as software, telecom, hospitality and outsourcing have emerged.
Will Singh be able to prevail upon Gandhi?
Till now, economic matters were handled by Mukherjee, seen as a little ‘old-world’ in his economic thinking. Singh too has preferred not to cross Mukherjee, his senior, in past Congress governments.
Fate has again presented an opportunity to Singh to redeem his own legacy, reverse the Congress party’s diminishing political fortunes and win back the increasingly disillusioned middle class.
The next few months are going to be crucial.