Ashoak Upadhyay

PM's focus needs to change

ASHOAK UPADHYAY | Updated on July 16, 2011

Twenty years after 1991, it is apparent that the growth trajectory has been terribly flawed

Dr Manmohan Singh is worried about how a besieged government can impact growth. But he would be better off focusing on governance.

Henry Ford is credited with having denounced history as bunk, and most politicians in India at least would nod heartily in agreement with that fatuous notion. One would, however, expect a Prime Minister like Dr Manmohan Singh to think otherwise and to recall the journey since 1991, as he spoke to a select group of editors in what an editorial in this paper called his “talk show”.

Even on a second reading of his observations, sprinkled liberally with the usual homilies, one does not get the slightest whiff of a reckoning with the recent past in which he played such a critical role.

Learning from the past

When he expressed the worry that a besieged government could derail growth, he seemed unmindful of the passage of time; India in 2011 is not the India of 1951 or for that matter, 1991. If he had asked two decades ago to be allowed elbow room to foster progress, he would have made sense from a national viewpoint. For a country close to defaulting on its international obligations, who could have denied the government of the day the space to prevent a disaster?

History is not nostalgia or bunk if one learns its lessons well. For a government now wallowing in the comfortable knowledge that the economy is on song with swelling foreign exchange reserves, buoyant revenues, and the promise of the second highest rate of annual GDP in the world in the current fiscal, 1991 may appear like a childhood best forgotten. But remembering the journey would illuminate the current destination all the better.

And for Dr Singh's team (or, to use the inversions of television's talking hairdos, Team Dr Singh) the past should be all the more important, because today's key personnel were yesterday's protagonists as well.

On the verge

Twenty years ago, Dr Singh as Finance Minister aided by Mr Montek Singh Ahluwalia and Governors like Mr S. Venkitaramanan and Dr C. Rangarajan at the Reserve Bank of India, pulled India away from the abyss by securing critical aid from the IMF that gave it some breathing space.

To the credit of the policymakers under the late Prime Minister Narasimha Rao, they made good use of the elbow room that the IMF funds gave them. They put in place a programme of macro-economic stabilisation that was, in just a couple of years, to turn leading economic indicators into the black.

What did those reforms influence? The first was government finances. All through the preceding decade the gap between revenues and expenditures that had widened alarmingly was financed by tapping into household savings through heightened statutory requirements; by September 1990 the SLR for banks had reached 38 per cent of net demand and time liabilities.

Profligacy spread like a disease to the external sector as short-term debt flows, aided by a policy that discouraged equity, added to the current account deficit of 3 per cent of GDP by the start of the 1990s. The drop in foreign exchange reserves to $1 billion was inevitable; with the disproportionately large debt obligations, a balance of payments crisis was as inevitable.

No one can deny the role that many policymakers, from Dr Singh on, played in averting the crisis and getting the economy on to its growth path with a raft of policy initiatives down the decade: reducing tax rates, widening the tax base, abolishing licensing, rationalising customs duties and clearing the thicket of arcane regulations, and opening the financial system with caution. The tortoise-like speed may have exasperated NRIs and global investment managers besotted with Wall Street's magical success till September 2008, but it seemed to confirm calibrated reforms were fine.

By 2004-05, after an initial blip when leading indicators seemed to derail yet again, the organised economy was ready to roll, and roll it did for the next five years, a period that coincided with the UPA's first term.

Annual economic growth and output rates seemed to vindicate many of the changes introduced in the nineties.

Cut to the present

When Dr Singh reminds us that growth takes precedence over all else, he assumes the journey begun in 1991 has ended and that the task of government is to simply stay the course.

But in 2011 we are aware that that growth trajectory has been terribly flawed, that it has left behind a vast majority of Indians and that it has, contrary to those who expected otherwise, fostered a viciously smug arrogance among the privileged (and they include more than politicians) who believe that the right to make money equals the right to violate laws, natural resources and democratic institutions.

Dr Singh can do nothing more substantial for economic growth than has been done over the last 20 years. But he can do a lot else by figuring out why his government is feeling besieged.

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Published on July 03, 2011

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