Blame-game: Monty's 'defence' of Pranab is sneak attack on Sonia

Planning Commission Deputy Chairman Montek Singh Ahluwalia has in recent times been living in a fanciful world in which, as he recently claimed, India could grow at 8-9 percent for 20 years.At a time when the wheels were coming off the India growth story, and with policy action all but frozen in the UPA 2 government, such exaggerated claims, perhaps intended to signal self-confidence to assure foreign investors, only gave rise to derision.

Even in the face of glaring evidence of a sharp slowdown, the Planning Commission isn’t looking to scale back its growth projection for the 12th Five-Year Plan to an unrealistic 9-9.5 percent, which left us wondering what these guys were smoking .

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Given Ahluwalia’s inclination to inhabit la-la land, his recent brutally honest admission - that India stands no reasonable chance of growing at the projected 7.6 percent this year, but would slow down to about 6.5-7 percent, must count as a return to sobering reality.

His estimates are still on the higher side of reality, and the subtext of what he said in his interview to Karan Thapar ( transcripts here) suggests that he still nurses an enduring faith that since we achieved 9 percent growth without undertaking any reforms, we can still go back to high-orbit growth without doing anything drastically different.

[caption id=“attachment_363778” align=“alignleft” width=“380” caption=“Sonia Gandhi and Ahluwalia share a history of distrust: Reuters”]  [/caption]

Such a prognosis, of course, betrays an inadequate understanding of the extraordinary factors that underlay the brief period of high growth of recent years. As we'd noted here , Incredible India’s 8-9 percent growth between 2003 and 2008 was a fluke, a freak of nature driven by global liquidity flows and the good karmic consequences of the few reforms undertaken by the NDA government.

But at least the cold glare of reality today has compelled Ahluwalia to now concede that there are “bottlenecks” that need to be cleared and that an early return to the high-growth path cannot be taken for granted.

Ahluwalia also claims that it is unfair to single out former Finance Minister Pranab Mukherjee for criticism, in the way that many commentators have done, or hold him responsible for the sharp slowdown in the economy.

Asked bluntly whether Mukherjee was to blame for the slowdown, Ahluwalia said: “I really don’t think this is an issue that you pin on any one person. The India growth story having slowed down is not something that the previous finance minister is denying. If you look at the last six months, time and again, people have admitted that growth has been slowing down.”

On this count, Ahluwalia is again being more honest than he perhaps intended to be. His defence of Mukherjee is perhaps motivated by a keenness to deflect criticism of one of the the UPA Government’s heavyweight economic policymakers, but it’s true that as bad as Mukherjee’s policies were, and as much as they reflected his ‘Indira Gandhian’ tax-and-spend worldview, he wasn’t the only one to blame for the mess that the economy is in today.

Mukherjee was a mere cog in a giant welfarist machine that passed for the UPA government’s economic philosophy. The UPA government could count on an all-start economic team - from Manmohan Singh to Ahluwalia to C Rangarajan to Kaushik Basu - many of whom had a reputation (whether well-earned or otherwise) as reformists. More recently, there is an effort to induct Raghuram Rajan into the brains trust, although, as we've noted here , it doesn’t make sense to draw him in if you lack the political will to address what he has already identified as problem areas.

Yet, if the UPA 2 government failed to undertake even the feeblest reforms, it is because - as Swaminathan S Anklesaria Aiyar points out ( here) - “all real power is wielded by Sonia Gandhi (and) she is not much interested in economic reform (since) her emphasis has always been on welfare and subsidies.”

For the same reason, Aiyar reasons that it is folly to expect Mamohan Singh to undertake sweeping reforms, as analysts and the markets appear to expect. “Sonia and 10 Janpath,” he writes, “are focussed on survival, not reform. Given the chance of an early election, they do not want to risk reforms that produce winners in the long run but alienate even a few losers in the short run… Doing nothing is seen as less risky than purposive reform.”

“The economic policy paralysis that critics castigate is no aberration,” says Aiyar. “It is political policy. (Manmohan) Singh’s assumption of the finance portfolio will not change that.”

Ahluwalia, of course, cannot blame Sonia Gandhi outright for anything, but that is the coded message he conveys when he rushes to Pranab Mukherjee’s defence - and points to the unfairness of singling Mukherjee out for criticism for the slowdown.

Sonia Gandhi and Ahluwalia share a history of distrust: Sonia Gandhi has thus far effectively vetoed Manmohan Singh’s efforts to induct Ahluwalia into the Finance Ministry; and even within the Planning Commission, she has used her kitchen cabinet of NAC activists to cramp the policy space for Ahluwalia and keep him on the defensive.

With his ‘defence’ of Mukherjee, Ahluwalia now appears to be directing blame for the slowdown to the right quarters: to 10 Janpath, and to the “super-Prime Minister” who rules from inside its high walls.