Wednesday, October 8, 2014


I served as Chief Economic Advisor for a while - and was eased out by the Finance Minister's favourite to make room for Shankar Acharya. I continued to be interested in the goings on in the finance ministry. I also thought highly of Atal Bihari Vajpayee, but not of his management of his cabinet. This column from Business Standard of 10 October  2000 is a comment on the politics of that time.


It looks as if Shankar Acharya is leaving the post of Chief Economic Advisor. Nor is it for a cushy post in Washington; the rumour is that he is going to join Indian Council for Research on International Economic Relations. ICRIER was once a graveyard for defunct bureaucrats. Today it would not be an accurate description. Still, the chattering classes are likely to regard Shankar’s move as a precipitate fall.
He obviously does not, and can argue why not. Even if his explanation is accepted, the move will attract speculation. For the job fit Shankar like a glove. He once was an Economic Advisor. He could not take any more of Deepak Nayyar, the then CEA; so he packed his bags and left for the World Bank. Deepak in turn could not stomach my appointment  as Chief Consultant and left. Then, when I was removed as CEA, Shankar was brought in. For the next five years, Shankar was Montek’s alter ego.
The team broke up when Montek was sent to the Planning Commission. But that in a way brought Shankar into his own. Piyush Mankad, Montek’s successor, is a consensual worker; he concentrates on getting things done with the least friction. (He is too good to last.) The result was that Shankar had independent access to the finance minister for the first time. He seemed to enjoy it immensely. Hence the surprise: what made him quit?
The search or the lobbying for the successor is on. Of the hopefuls, one is a friend of mine. Another is a dancer. (For those who are not in on this in-joke, Jagdish Bhagwati gave a talk in India Habitat Centre in summer 1998. At one point, he turned to Jaswant Singh, who was presiding, and said, “Who are your economists? I have heard a couple of names. If those people are economists, I am a Bharat Natyam dancer.” A dancer is someone in Jagdish’s profession; an economist is one so recognized by a committee of Shri Shri Shankaracharya, Shriman Murli Manohar Joshi and Shriyut Balrao Thakre). The third is an economist.
The question is: should the dancer take the job? Clearly, he should not take it if he is going to face Shankar’s problem, that Yashwant Sinha shows little interest in Shankar’s advice. The question before the dancer is whether he does so because the advice comes from Shankar, or whether Sinha has lost interest in the economic angle on policy. I very much fear the latter.
It was not always the case. When he removed Montek and brought in Vijay Kelkar, Sinha wanted to table, together with the budget, a statement on the reforms he was going to do. Vijay was thrilled. But I advised him otherwise. I had a strong sense that Sinha was going to make a sensational budget (we are talking about 1999). He needed to rescue the idiotically managed Unit Trust of India, and anything he did would please the market. Besides, he seemed genuinely interested in making a mark then as a great finance minister; Vijay was equally keen to do real reforms, and not just to talk glibly about them in the inherited fashion.
So I advised Vijay that the white paper on reforms should be postponed. I said FM was going to get a good press over the budget; he did not need the white paper to do it. He should release it at the end of the budget session, when his coverage had fallen off. That white paper never saw the light of day, and Vijay was packed off for having done a good job.
Mine was good advice in light of the facts as I knew them. But then, I did not know the inside politics. Detailing specific events would reveal too much, so let me paint the broad picture.
We have a Prime Minister who simply does not bother with details. He also trusts his lieutenants a lot; and some of them have strong views on policies that have economic implications. But their understanding of economics is highly variable and, on the average, poor. This is how we find that although the PMO keeps up pressure in the right direction in respect of, say, telecommunications policy, or foreign investment, or public sector disinvestment, it also puts crazy ideas into the PM’s mouth, such as the roads from east to west and north to south, or doubling of agricultural production in ten years, or lowering the SSI limit. Normally it would be the job of the Principal Secretary to remove such inanities and inconsistencies. Let me just say that the PPS is not doing that job, whatever else he is doing.
With a passive Prime Minister and hyperactive messengers, there is bound to be friction between the PMO and the finance ministry. For the finance ministry is both the home of economic policy and the guardian of the treasury. If it keeps getting disjointed directives from the PMO, it cannot fulfil either of its duties.
Unless it has a finance minister who is willing and able to act as finance minister. And I am afraid Sinha cannot. He is an upright man; he also has basic understanding, and it is possible that left to himself, he would manage the finances competently and do some reforms. But he has not been left alone. It is not just the PMO. Every BJP leader makes demands on him, usually improper ones, and unfortunately he has yielded too often.
Could he act otherwise? Could he stand up and be a proper finance minister? I do not know what the sufficient conditions would be, but the necessary condition is that the Prime Minister should pursue the same goals of financial soundness and reform as the finance minister. In other words, the FM can act boldly only if he has the implicit assurance that the PM would back him up every time, and that he would not do or say anything that publicly undermined the FM’s autonomy.
Unfortunately, the senior officials in the PMO do not see things in that light; in their view, the finance ministry is poorly led and coordinated. They think the solution is to plant their proteg├ęs in the key posts – those of finance secretary and Chief Economic Advisor.
That, I am afraid, will not work. A subservient finance ministry may be in the interests of one or other official of the PMO. But the PM – and I mean the PM – needs a strong, independent finance ministry to deal with and discipline his reckless, rapacious and loquacious ministers. He cannot avoid making political deals; that is precisely why he needs a finance minister who would not. That would strengthen his hand. It is in his own interest.

If the FM came into his own, he could use a good dancer. But if, as is likely, he cannot, he would be best served by a devout economist, who would at least cook up good chants.