Monday, November 24, 2014

Manmohan Singh’s Second Wind

NEW DELHI – In September, India’s mild-mannered prime minister, Manmohan Singh, turned 80. He also turned a page: After months of being pilloried by every pundit with a soapbox for indecision and weakness, and for presiding over “policy paralysis” while corrupt colleagues allegedly made off with the country’s silver, Singh has boldly seized the initiative. A series of reform announcements, and some frank talk to the public, have underscored his new message: “I am in charge.”

The initial steps that he has announced are impressive. Several controversial provisions included in the government’s last budget are being reviewed. Foreign direct investment will be allowed to enter the retail sector and civil aviation – bold decisions that cost the government the support of a recalcitrant coalition ally.

Likewise, the government has reduced subsidies on diesel and cooking gas in the face of vociferous opposition, including a one-day strike that shut down the country. And more reforms are in the works, sending an unmistakable signal that India is not ready to be written off, as had seemed to be happening earlier amid tales of investor flight and credit-rating downgrades.

The rebirth of Singh the reformer came after a long wait. As Finance Minister in 1991, Singh unleashed the liberalization of the Indian economy. “No power on earth,” he memorably told Parliament, quoting Victor Hugo, “can stop an idea whose time has come.”

The measures that he took contributed more than anything else to earning India – long derided for its “license-permit-quota Raj” and its snail-like “Hindu rate of growth” – a global reputation as the world’s next big economic success story. As Prime Minister since 2004, his success story continued even during the global recession.

But Singh’s most recent chapters have been less positive. India’s growth has slipped, while his government has been consumed by one corruption scandal after another. His mildness came to be dismissed as timidity, his unflappable manner excoriated as complacency and ineffectiveness. The bloom had come off the Indian rose, and Singh – damned by Time magazine as “the underachiever” – was blamed.

With just a year and a half to go before the next scheduled general election, Singh must walk a tightrope – sending the right signals to global investors that India remains open (and profitable) for business, while assuring voters that he has their interests and concerns in mind. The famously reticent Singh even delivered a televised address to the public, in both Hindi and English, explaining his decisions. That might not be unusual elsewhere, but in India, it was almost unprecedented, thus serving to reaffirm that vital changes were in the works.

Part of Singh’s problem is that decisions that hurt voters (higher diesel prices, fewer subsidized cooking-gas cylinders) have an immediate impact, whereas the benefits of foreign investment, for example, take years to become apparent. All politicians in democracies think in the short term; few have time horizons that extend beyond the next election. With his 20-year record of accomplishment to show the public, Singh has a better case than most to be trusted by voters when he says that he is acting in their long-term interest.

Within Singh’s Congress Party, the pressure will mount to match economic-reform initiatives with “pro-poor” programs. The Congress can rightly take credit for the most far-reaching such program, the Mahatma Gandhi National Rural Employment Guarantee Scheme, which assures one member in every poor rural family 100 days per year of paid employment. This program, financed from additional revenues generated by earlier reforms, is the poster child for the ruling party’s commitment to ending poverty. Funds saved by measures such as raising diesel prices could be spent on new schemes that similarly target the aam aadmi, the common man, by whom the Congress swears.

There is also talk of a long-delayed Food Security Bill being brought to parliament. Land-acquisition reforms are in the air, and the New Delhi rumor mills buzz with talk of an imminent government reshuffle to inject young blood into a notoriously geriatric Council of Ministers.

Singh’s accomplishments are extraordinary. The India that existed when he took office in 1991 was an inefficient, centrally planned economy. For 45 years, bureaucrats had occupied its commanding heights, stifling enterprise under a straitjacket of regulations and licenses, erecting protectionist barriers against foreign trade and investment in the name of self-reliance, subsidizing an unproductive public sector, and struggling to redistribute the country’s poverty. Twenty years later, India boasts a thriving, entrepreneurial, and globalized economy, with a dynamic business culture. Today’s India competes on its own terms and pulls more than ten million people out of poverty every year.

The prime minister who has done the most to make this possible has returned to the charge, clearly determined to consolidate his legacy after a spate of bad-news stories. India, and the world, will watch him with hope.

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    1. CommentedRajesh D

      Mr Tharoor, please be bothered about performance and not just perception. Its this perception the congress has been managing since ages. The people of the country need to be benefitted, not fear detriment.

    2. CommentedVivek S

      Oh, I completely forgot about the employment program that Tharoor is so proud of. As part of that program, one cannot use machinery or contractors while building roads and working on farms. How smart is that? And, coming from an economist too. LOL!!

      "Why don't you give them spoons instead of shovels?" - I think it was Friedman who said this a few decades back when looking at one such employment program. He saw people using shovels instead of machines and commented why they didn't use machines to do the job more efficiently. A politician replied that the goal was to employ as many people as possible. To which he replied, I thought the idea was to build infrastructure. If the goal is to employ more people, why not give the people spoons instead of shovels?

        CommentedProcyon Mukherjee

        The reference to growth rate of 6% with a high inflation rate was to direct attention to the fact that for an economy like India, which is growing, non-food inflation already gives a head start to counter-act wage stickiness by rebalancing as we have seen wages rise above what the productivity rise would have actually called for. The flip side is of course to have a close watch on the food price inlftaion and on runaway inflation thereafter.

        Procyon Mukherjee

    3. CommentedVivek S

      PS should state more clearly that Tharoor is a member of India's governing party and as such his articles are going to have that bias. Its not sufficient to say that he is an MP.

      Second para is funny. He says that the steps are impressive. And, what does he come up with first on that seemingly impressive list? Controversial provisions are being reviewed. Lol :) Quite typical of the Indian elite to use superlatives without any basis whatsoever! What was MMS doing when those controversial provisions were being discussed in cabinet meetings?

      Even Victor Hugo's quote rings hollow. India as a democracy opted for commonsense economics 40 years after independence. Most economists would agree that the time had been ripe for most of those 40 years before 1991. Even communist China acted earlier than democratic India. Again, nothing like the Indian elite quoting without any basis in reality! MMS should have added after the quote, that the IMF had been breathing down India's neck, literally throttling the government out of their slumber.

      As Tharoor shows, he and his party, including MMS are more worried about perceptions. They get worried when a magazine makes a slight comment about ineptitude, but they don't seem to be moved by the glaring reality in the country that should be far more damning to them. Why doesn't Tharoor point out that sense of urgency, instead of arguing that the Times had a bigger role in stressing urgency to MMS. How pathetic is that?

      While blaming all the bad things to pre-1991 policies, Tharoor also forgets that they were the result of long term bungling of the economy for over 40+ years by his party, and MMS didn't have any option in 1991. 1991 isn't MMS' legacy. Its the legacy of PVN Rao who created the political consensus for commonsense reforms and the IMF recommendations. Any economist, MMS or otherwise can and would have delivered the reforms once the political consensus was reached.

      "Singh has a better case than most to be trusted by voters when he says that he is acting in their long-term interest."
      But, he doesn't need the trust of votes. He comes from Rajya Sabha and hasn't won any Lok Sabha elections at all. Why should be care about what voters think? Doesn't his advantage stem from the fact that he is a technocrat and not a "petty" politician?

      Where is the discussion of MMS being stymied by the leader of the UPA? Why is there no discussion here of the role of Sonia Gandhi, as the leader of the governing majority?

    4. CommentedJagan Rampal

      Phew.. Waking up after three and a half year (or more) of slumber (because of next election is knocking at the door), well difficult to swallow it as 'seizing the intitiative'. The politicians are supposed to be blessed with forward vision rather than the ability of rationalizing inaction as requirement of democracy or any other alibi. Just to elaborate in Indian context, Jawahar Lal Nehru did not build dams and steel plants for the next elections. For a common man, leaders are supposed to lead the public (and format the public opinion) and not try to follow what the public wants (or what the leaders say the public wants). If the public knew the nitty gritty of governance and policy making, well, we would have chosen better representatives to lead us. Exasperating absence of forward looking statements and over-abundance of justifications of continuing failures. 'Pilloried for ..... indecion and weakness..., while corrupt ......" seems and understatement. Seems that our star athlete in 100 meters dash kept sleeping till everyone else sped away for 90 meters, and is now flexing his muscles giving an impression that last 10 meters are his.
      Sorry for the despondent expression. There is nothing more frustrating then to be nation of highest potential and being repeatedly let down by corrupt and self promoting leaders.
      It is scary if you analyse what India realy needs to do and what is being done currently. For a helicopter view of our imperatives, read my recent work, "India Rising, But who will make it happen"


    5. CommentedProcyon Mukherjee

      Sorry Mr. Tharoor, this is more like a treatise on satisfactory under-performance, otherwise how do we account for a growth rate of 6% when the inflation is above that and also when the number of people entering the threshold age of 25 to 35 is a whopping 100 million every year? I would not be as harsh as Raghuram calling this kind of a growth a ‘no-brainer’, but would like to point out to aspects in the article that has missed the point.

      First of all FDI in retail and civil aviation and removal of subsidies in diesel may have been all the right steps but at a time when core sector growth has stalled and electricity generation showed a slight de-growth in the last quarter, this is one of those dysfunctional features of an economy where basics could be missing while there could be roaring success of peripheral frills.

      But I am rather drawn to the reference of Am-Admi (general people), who have nowhere to take refuge than in the success of subsidies that state programs orchestrate like Rs.2 per kg rice (four cents per kg rice), which in stark contrast belittles every other subsidy program of the country; one would have to travel just about 100 kilometers from any city to see how the interiors of the country are without clean water, toilets, schools, health centers, by-roads, and the list could just go on.

      Some argue that FDI in retail would transform this rural economy as middlemen would be eliminated and the farmer could get the right price for his produce. In reality the marginal farmer, with no means of even remotely understanding the price mechanism, is always going to be at the receiving end as with much lower area of cultivation and with higher hands at work, the marginal productivity required for breaking even is long lost while the debt spiral repeatedly ushers the pall of gloom. No wonder India is the only country where farmers commit suicide at the end of each season in large numbers. Productivity improvement and diversification in agriculture would have done a world of good, instead.

      Procyon Mukherjee

        CommentedVivek S

        6% growth is after inflation. Nominal growth would be 13-14%