Like a singer who had fallen silent for too long but has suddenly found his voice, Prime Minister Manmohan Singh has in recent days been “talking up” the economy.
Ever since he took over as Finance Minister last week, he has been conveying a sense of urgency about taking up long-pending policy initiatives to revive the economy. Perhaps acutely conscious that public perceptions of a policy paralysis have done grievous damage to the image of the government and its ability to get things going, he has been giving finance ministry mandarins – and the country at large – a pep talk or two.
His articulations last week on the need to revive the “animal spirits” of the industry and the economy were well received by a country that had been in agony for three years over the government’s failure to provide the spark of inspiration and a sense of direction.
As if to signal that propitious planets are lining up, some macroeconomic data from earlier this week, and the fall in international crude oil prices, have contributed to arrest the downward spiral in the prevailing popular sentiment about the economy.
Manmohan Singh has now used an e-mail interview to Hindustan Times to signal to “investors” that India means business. More specifically, he has identified five distinct areas of policy initiative as being of critical importance.
These are: first, to bring about clarity on all tax matters – and to tell “the world” that there will be no arbitrariness in tax matters; second, to rein in the fiscal deficit; third, to expand the range of investments for Indian investors and wean them off gold; fourth, to clear investments that are awaiting FIPB approval; and fifth, to give a major push to infrastructure.
More generally, Manmohan Singh used the interview to call for a change in the public discourse “from a critique of an open economy to a critique of what is needed to make an open economy work better for the welfare of the people.”
On the face of it, there is no reason to contest the merits of these initiatives or of the broader prescription for a change in the narrative. Each of the policy thrust areas that Singh has identified represents a space that has been crying out for action, but which his own government has been wilfully negligent of all this while.
To that extent, some of the policy initiatives he has identified amount to reversals of some of the more regressive policy actions of his own government. For instance, there wouldn’t be any need for the government to reassure the world that India “treats everyone fairly” and that there will be no arbitrariness in tax matters if his own Finance Minister, Pranab Mukherjee, had not pulled out a tax bludgeon in the form of his retrospective taxation proposals in Budget 2012 arising from the Vodafone case.
As BJP leader Yashwant Sinha notes (here), it is disingenuous for the Prime Minister to dissociate himself from the decisions of Pranab Mukherjee – and to make a virtue today of reversing them. Typically, in any government that is not dysfunctional, the Finance Minister and the Prime Minister meet on a few occasions to discuss the contours of the budget proposals – to align them with prevailing economic conditions, and the broader economic philosophy of the government.
“Every proposal that the (Finance Minister) includes in the budget is approved by the Prime Minister,” writes Sinha. “Every word of the budget speech is seen and approved by him.” The same, he notes, applies to all major policy pronouncements made by the Finance Minister separately from the budget during the course of the year. If this practice was not followed, and if Pranab Mukherjee was running his ministry like a fiefdom, Manmohan Singh owes the country an explanation, rather than distancing himself from Mukherjee’s decisions, he reasons.
Similarly, it is the Manmohan Singh government’s record of fiscal profligacy that fed the fiscal deficit (that he now says he intends to bring down); it is how own government that reversed the principle of market pricing of petrol prices, thereby allowing the fuel subsidy bill to balloon; and it is his own government’s return by stealth to the licence raj era that has forced industry, even when they were cash rich, to go abroad in search of more business-friendly investment frontiers.
And even on the need to change the narrative about the merits of an open economy, Manmohan Singh is being more than a little disingenuous. It was the UPA 1 and UPA 2 governments that misread the mandates of the 2004 and 2009 elections and consciously changed the economic discourse by drawing the shutters down on an open economy. For all the blame that UPA assigns to the Left parties and to recalcitrant allies for being impediments to reforms, there were many more snipers within the UPA government and its satellite agencies like the NAC who did the damage.
Even Manmohan Singh’s latest pronouncements merely signal that the discourse on “economic reforms” in India continues to be preoccupied with plucking the low hanging fruits of administrative tinkering.
The measures that Manmohan Singh outlines are, of course, necessary, but they are mere short-term initiatives, aimed at propping up market confidence, that don’t go to the core of the problems that hold back India from realising its economic potential. What’s lacking is a grand vision for broad-sweep reforms in the critical areas of industrial deregulation, labour market rigidity, educational reforms to meet the acute skills shortage, and speedy justice.
Some of these are areas on which it is far easier to forget a political consensus; these are the areas where reforms can truly bring out the animal spirits of the economy. Yet it appears that Manmohan Singh appears to have scaled back his ambition and is content with mere short-term tinkering.
Perhaps it’s a reflection of our own shrunken minds that we can’t see beyond the short term. But if we have our noses to the grindstone, we can’t ever see the stars.