Singh has his hands tied ~ kalyani shankar
Why is it that economist Prime Minister Manmohan Singh is unable to perform the way he did in 1991-96 in retrieving the situation? Does he miss the political backing he received then from Prime Minister Narasimha Rao? The answer is that 2013 is not 1991. Times have changed, situations have changed, India has changed and even the world has changed. Singh is finding it difficult to balance the expenditure with growing amount of subsidy for welfare measures and simultaneously managing growth. With the UPA coming up with welfare schemes like MNREGA and Food Security Bill, expenditure has substantially gone up and so has fiscal deficit. After all, no two prime ministers can function in the same way. Indira Gandhi did not emulate Nehru, Rajiv Gandhi had his own style of functioning and Rao did not follow Rajiv Gandhi’s footsteps. Singh has his won style of functioning. He does not have a free hand on two counts. One is that he has to follow the left of centre policy of his party chief Sonia Gandhi and secondly, he is heading a coalition government. He has to function within these constraints. Expectations of Singh are high given his track record. In short, while each prime minister has his own way of wriggling out of a mess, Singh is at the receiving end today mainly because of this peculiar situation.
In 1991, India needed a courageous and bold economic policy and Rao took that decision not out of choice but out of compulsion. He chose Singh as his finance minister and put together a reform team consisting of his Principal Secretary A N Verma at the official level and Manmohan Singh at the ministerial level.
But when Singh became the Prime Minister, the economy was thriving and India was already on the map of foreign investors. He also put together a team for reform with Montek Singh Ahluwalia, Chidambaram, Kamal Nath, Anand Sharma, C Rangarajan and Raghuram Rajan. But where Singh failed was in coming up with second-generation reforms. The economy grew despite lack of reforms, which were blocked by the left parties in UPA-I.
UPA-II was bogged down with several scams including 2G, CWG and Coalgate, and the whole time was spent on fire-fighting rather than tackling the economy. Added to that was the global recession.
Of late, there is much pessimism about the dipping economy. There are doubts whether the Indian growth story is over. So far, the UPA had got away because of high economic growth. The government has been attributing the present downturn to the global economy catching a cold. But it is clearly more than that. Although the situation is not as bad as it was in 1991, even Singh has admitted the precarious condition of the economy in Parliament this week.
Giving credence to this pessimism is the fact that business confidence in India is taking a big hit. Global rating agencies like Standard & Poor&’s and Moody&’s have been predicting a downgrade because of India’s sliding economic growth and weakening fiscal profile.
Hard decisions like the exit policy; labour, pension and banking reforms are put on hold until the next elections. While living standards in India grew faster than many other economies, it will be much slower than many in the next two decades, according to IMF.
Fiscal and trade deficits are soaring, inflation is high and investment and consumption are down. The fall of the rupee is historic. Growth in key manufacturing and infrastructure segments has dipped sharply. Even the service sector has slipped to single digit growth, while farm sector growth is lower. At the root of the problem is the inadequacy of the political leadership. There is no consensus on reforms not only within the Congress, but also within the UPA and the Opposition. Rao also faced this problem, but he managed to overcome it with his way of handling things. In addition, consensus building is becoming more difficult with the growth of regional parties in some states.
To compete with them, the Congress and the BJP too are resorting to populist politics. 2014 is the election year and political parties are coming up with new populist schemes. No opposition party wants to let the Congress walk away with the credit.
The optimists led by Singh and his team feel that the growth story is not over and it is only a temporary setback. While blaming the Opposition for not cooperating with the government, Singh is hopeful, as he assured Parliament that the government would address all concerns. But he needs political backing and there is not much time before the next polls.
He should use the next few months to build consensus within his party, with the opposition and also within the UPA to restore the economy. The opposition too should realise that on the question of economic growth, there should be a bipartisan approach, as national interest comes first.
As there is a broadly accepted foreign policy, there should also be an economic policy. Political parties should realise that economic strength is power as China has proved, and a weak economy would not get global recognition. Singh has to decide whether he wants to be remembered as a better Prime Minister or a better Finance Minister.