Did anyone notice that Manmohan Singh clapped the loudest and longest when Pranab Mukherjee was nominated to run for president?
Well, former Finance Minister Yashwant Sinha did, and this is what he had to observe about the PM’s “uncharacteristic” clapping in an article in The Economic Times: “Was it because he felt that a deserving person in his party had eventually got his due, or was it because he felt that it was a good riddance?”
Quite clearly, Sinha was implying that the PM was happy to see Mukherjee out of the finance ministry, and so it is time to ask: Will this shift imply any improvement in how the UPA government will manage the economy?
There are many ways to analyse why and what went wrong. But a key failing was the inability of the top actors in the UPA’s political and economic brains trust to talk to one another and sort out problems. This is what explains the PM’s secret desire to see Mukherjee out of the finance ministry — because the communication lines between the PM and the FM were almost non-existent.
From Manmohan Singh to Subbarao to Montek Singh to C Rangarajan to Kaushik Basu, India’s has had an A Team to run the economy. But it failed since they didn’t listen to each other. PTI
So the answer to the question of whether things will improve depends on whether this communication gap will be bridged. The fact that the PM will not be replacing Mukherjee for a while could be a positive development if the communication gap is bridged at least in government, with the PM’s Office playing a central role.
But the larger issue is whether the communication gap between the PM and the party chief has been narrowed.
The first and primary communication gap in UPA-2 has been between Manmohan Singh and UPA Chairperson Sonia Gandhi. For the last two years, the PM has known that the economy was going from bad to worse, but he did nothing. Is it because he didn’t know how bad things were? Or was it because he was miffed about the kind of decisions being dictated by the Sonia-led National Advisory Council, including an unaffordable Food Security Bill?
What is clear is that an economically literate PM could not convince an economically semi-literate Sonia Gandhi on the perils of letting things slide — especially on freebies and subsidies. This is the prime reason why the euro crisis has impacted India more than every other part of the world. While most currencies have slid 7-12 percent against the dollar over the last one year, the rupee has fallen 25-27 percent (Read here). Rating agency S&P specifically mentioned the Sonia-Manmohan gap as the reason for the policy paralysis.
Despite the fact that Sonia is supposed to repose implicit trust in Manmohan Singh, she has not let him have his way with the finance ministry — neither Montek Singh Ahluwalia nor C Rangarajan has been allowed to come anywhere near the ministry.
To get over this problem of the PM’s lack of authority over various ministers, Sonia and Manmohan tried a bureaucratic solution: insert Pulok Chatterjee as the PM’s Principal Secretary so that the ministries fall in line. It hasn’t worked. Bureaucratic heft is no substitute for political support.
That Sonia has the power to act is obvious when we see how quickly she acted to nip Mamata Banerjee’s efforts to queer the pitch on the presidential election by tying up with Mulayam Singh. But she acted only when she saw the threat of a political catastrophe. She didn’t act on any of the economic issues Manmohan Singh has been flagging for so many years.
The second communication gap dogging the UPA has been the one between the PM and his FMs — both P Chidambaram and Pranab Mukherjee. During the Chidambaram stewardship in UPA-1, the economy was ticking along fine without any problem. So the communication gap did not matter. But once the Lehman crisis struck, and Mukherjee managed to get the finance ministry as a consolation prize in lieu of the prime ministership that he felt was his due, the ministry effectively became completely independent of the head of government at a time when they needed to act in tandem.
Given his seniority in the party and government, Mukherjee’s finance ministry was effectively run as a personal fief, with the PMO kept out completely. Only after Mukherjee’s exit became a certainty has this equation changed.
As a report in Business Standard noted earlier this month, “More calls are going directly to officers in North Block from the PMO now than in the entire three-year period that Mukherjee was minister. The DEA’s (Department of Economic Affairs’) original role — as the coordinating wing of government between various ministries and the PMO — appears to have been restored. The road between North Block and South Block is suddenly getting narrower. A few weeks ago, the distance was so vast as to be almost unbridgeable.”
Now that the PM will play a more direct role in the finance ministry — at least for a while — the communication gap may close, but only if Sonia allows Manmohan Singh to have a free hand for a while. But we don’t know that. Assuming he has the finance ministry to himself only for a brief while, he will have to act yesterday.
The third communication gap related to the one between the finance ministry and Reserve Bank of India (RBI) Governor D Subbarao. It is no secret that the central bank has been increasingly critical of the finance ministry’s inability to rein in the fiscal deficit or cut subsidies, especially on oil, and has repeatedly said so in several monetary policy statements.
But the finance ministry has been on another track: that the RBI must cut rates even if inflation is untamed. While Chief Economic Advisor Kaushik Basu has been advising the RBI to “think out of the box” Subbarao has been clear that dousing inflationary expectations is his main job, and thus he has no option but to keep money tight.
So, a key reason for India’s inability to deal with the slowdown is this communication gap at the top of the political-economy: Sonia hasn’t listened to the PM, the FM hasn’t listened to either the PM or the RBI governor, and the latter had no option but to stop listening to the FM on interest rates.
From Manmohan Singh to Duvvuri Subbarao to Montek Singh Ahluwalia to C Rangarajan to Kaushik Basu, India’s has had an A Team to run the economy. But it failed since they didn’t listen to each other, and the people who could make them do so — Sonia and Manmohan — didn’t force them to either.
