Sunday, December 6, 2015


From Business World of 1 November 2004.

Interesting times ahead

Rakesh Mohan joined the finance ministry as secretary (economic affairs) on 2 November; Parthasarathy Shome joined a month earlier as adviser to the finance minister as Vijay Kelkar departed. With these two appointments, P Chidambaram has acquired the strongest set of economists that any finance minister has ever had in India.
The first economist to wield power in the finance ministry was J J Anjaria. He brought in I G Patel from the IMF. After Anjaria’s departure in 1962, I G was the economic czar till the early 1970s. It was an era of severe foreign exchange shortage, volatile growth, high inflation and intrusive economic policies; so the finance ministry wielded enormous power. I G believed that economic policy-making would improve if economic expertise was spread into other ministries; so he persuaded a number of ministries to recruit economic advisers. Amongst them was Manmohan Singh, who joined the commerce ministry. 
In the 1970s, I G departed. Manmohan Singh took over the reins in the finance ministry. When he was elevated to the Reserve Bank in the 1980s, Bimal Jalan and Deepak Nayyar took over the finance ministry. Their reign coincided with the crippling payments crisis of 1989-91. It prematurely ended the tenures of two minority governments and their finance ministers, Yashwant Sinha and Madhu Dandavate. Manmohan Singh, who followed, changed his team; he brought in Montek Singh Ahluwalia as secretary (economic affairs) and me as chief consultant. Then, when Ahluwalia wanted to undermine me, he brought in Shankar Acharya as Chief Economic Advisor. The process was begun in his time to bring in Partho Shome as advisor, but it was lost in the shoals of bureaucratic obstruction. Thus except for the brief period when I and Shankar Acharya coincided, Manmohan Singh found two economists in the ministry sufficient. Chidambaram has three economists at the level of secretary, plus Ajay Shah in a consultant’s position. Never in the history of the finance ministry has the minister been assisted by so many economists.
Nor is it just a matter of numbers. Rakesh Mohan is arguably the first reformer in the government. It was Amarnath Varma and he who persuaded Ajit Singh to raise the exemption limit for industrial licensing so high in the mid-1980s that it ceased to matter for practical purposes; the relaxation unleashed the industrial boom of the late 1980s. He began as an industrial and urban economist, but he has considerably widened his initial range since the 1980s: he has been Chief Economic Advisor, director general of National Council of Applied Economic Research, chairman of the task force on infrastructure and deputy governor of Reserve Bank. He has the broadest experience of all the economist bureaucrats.
Parthasarathy Shome is perhaps the most internationally prized Indian economist. The International Monetary Fund, when it lends to countries that have ruined themselves, also sends a team of economic repairmen to ensure that the countries get back on their own feet. Partho Shome was one of IMF’s best fiscal repairmen. His skills were so highly valued that a number of Latin American countries offered him nationality; how many Latinas offered themselves to him is not known. But he resisted the blandishments of both. After his bid to join the finance ministry failed, he took over the National Institute of Public Finance and Planning as director. But Raja Chelliah, chairman of its governing board, made his life miserable. The Fund was delighted to welcome him back, and made him director of its training institute in Singapore. Thence he comes to the finance ministry. Partho is one of the world’s foremost experts on value added tax (VAT), and will no doubt help in orchestrating the changeover to it, which is now only five months away.

Rakesh Mohan has strong liberal convictions and tends to shoot from the hip; Partho Shome has a very clear view of fiscal reforms. Just in case they threaten to move too fast, Ashok Lahiri, the Chief Economic Advisor, will provide the ballast. He is level-headed and sensitive to bureaucratic compulsions; he is likely to ensure that the boat is not rocked. And Ajay will continue to push for pension reform. After the lackluster years of Yashwant Sinha and Jaswant Singh, the finance ministry promises to become an interesting ministry again.