Yashwant Sinha, who was finance minister under Bharatiya Janata Party from 1998, was replaced by Jaswant Singh on 1 July 2002. Sinha had attracted much criticism; some of it was from me (I have placed it in this blog). He minded it, and complained to the editor of Business Standard. The editor asked him to write a reader's letter; he did, and alleged that I had personal animus against him. I published a column in which I pointed out the good things I had written about him. These two columns were published in Business Standard on 24 September and 1 October 2002. The matter died down, but next year I received a mail from the editor announcing a reduction of 40 per cent in my pay. I took the hint, packed my bags and left.
HAS JASWANT SINGH A CHANCE?
C P Thakur was dismissed from the government for
non-performance. That surprised me. In this government of nonperformers,
Yashwant Sinha’s must be the most spectacular failure. The causes may be
debated; he may be inclined to blame others – or the circumstances – while less
sympathetic critics may point to his lack of understanding of macroeconomic
forces, his flip-flops, his inability to get the best out of his teams, his
tendency to change horses midstream, and his glib covering up of his frailties.
I belong to this group. The recency of his entry into the BJP, the ill will
borne him by some of the stalwarts, and his consequent cravenness before party
bigwigs may have narrowed his policy options; but cravenness is a matter of
choice rather than compulsion. In any case, history judges people by their
achievements, not by their luck, good or bad; and on that count, Sinha’s
achievement – to have run the economy to ground – has few equals. Even such
poor judges of people as his party leaders finally replaced him. But they do
appreciate services to the party; which is why Sinha did not meet Thakur’s
fate. Instead, he got the plum job of the foreign minister.
And the foreign minister got Sinha’s job. The rationale
remains obscure, for Jaswant Singh’s credentials for the job are even more
tenuous than Sinha’s. Sinha had once before been an undistinguished finance
minister; Jaswant Singh’s connection with finance is unrecorded. Moreover, he
performed well as foreign minister. He had a strategy, right or wrong, namely
cultivating a relationship with the United States, and he followed it
single-mindedly. The strategy came under some strain after September 11, when
the US took ownership of General Musharraf; but it could be said to have paid
off in the equidistance the US has maintained between Pakistan and India, as
well as in the patience it has shown in face of India’s intransigence on
Kashmir. But there was not much more mileage to be drawn from a narrowly
US-centric foreign policy, and Jaswant Singh could be said to have reached the
limits of his vision. If this view is correct, then he was ripe for moving just
like Yashwant Sinha.
But why to finance? It was said that the Prime Minister
wanted to give him finance to start with and was prevented by party politicos, but
that is hardly a reason. If one were to read his interests from his books, Jaswant
Singh is really a bundobust man. The home ministry was the right one for him.
It would have made sense to give it to him, leaving Lal Krishna Advani to take
the reins from Vajpayee in the capacity of deputy Prime Minister. From the way
he has handled internal affairs, Advani is not particularly well qualified for
the home ministry; his replacement by Jaswant Singh would have been an
improvement.
Jaswant Singh’s first steps have been politically
explicable. He let insurance out of service tax. This was to help out Life
Insurance Corporation, which had seen a catastrophic decline in new policies
signed this financial year. He also gave minor income tax concessions, which
made no economic sense and were therefore political; they cannot, however, have
bought much political support.
More revealing is what he has proposed to do with Unit
Trust of India: with the concurrence of a ministerial committee which included
Arun Shourie and K C Pant, he decided to pour Rs 140 billion into UTI. This is
not shocking in itself; but it is in the tradition of Yashwant Sinha, who baled
out UTI twice.
The investors in and agents of UTI
are a powerful lobby that must be placated at any cost, and the cost is
invariably that of the taxpayer. It is not a new principle, so Jaswant Singh
cannot be blamed for following it. He could even be lauded for deciding to
liquidate the bankrupt half of UTI, which I optimistically take its bifurcation
to mean. His decision to turn UTI around before privatizing it is not wrong,
but it goes against Arun Shourie’s policy of leaving it to strategic partners
to turn around government enterprises, and will strengthen the hands of Ram
Naik and George Fernandes in regard to oil companies. I prefer Shourie’s
approach, which brings in new private management while retaining a substantial
share of equity; although it is not impossible that a public enterprise would be
turned around under public ownership, the odds are against it. This is
especially so in the case of financial enterprises like UTI, which are
extensively used to bestow political favours; the portfolio of US-64 is full of
shares of undeserving companies in which UTI invested either because of
political pressure or corrupt decision-making. The last chairman was briefly
arrested for such shenanigans; but the politicians and industrialists whom he
obliged went scot-free.
Apart from these first steps of his, the circumstances are
also hostile to Jaswant Singh. First, the political environment remains the
same. We have the same unthinking, impulsive Prime Minister who enjoys giving
political handouts. We have the same greedy BJP politicians. Second, there will
the political pressures arising from the impending general elections. There are
only two budgets left before the next election; so it is very likely that the
next budget will be political. Third, Jaswant Singh’s style makes him difficult
to help. He comes off as arrogant and aloof. However incompetent Sinha might
have been, he was a darling of the administrative service; his senior civil
servants willingly covered up for him. Jaswant Singh is unlikely to get this
loyalty; and if his imperious ways rub his senior bureaucrats on the wrong
side, they could well trap him into errors. And finally, unlike Sinha who got
four years to discredit himself, Jaswant Singh has less than two years to prove
himself.
Despite these unfavourable factors, there is a chance that
Jaswant Singh will improve upon Sinha’s performance. Sinha messed around so
much with his team that he was finally left with a mediocre one. Jaswant Singh
has immediately raised the quality of his team. Narayan has a narrow vision;
but he is far more able than his predecessor. Ashok Lahiri has devoted years to
finance and public finance; he should bring more depth and commitment to the
job of chief economic adviser. And Jaswant Singh has brought back Vijay Kelkar
whom, after he had crafted the best budget of Sinha’s five, Sinha kicked out to
please the IAS lobby.
So Jaswant Singh will get distinctly superior advice than
Sinha. He is also likely to recognize good advice better. So I do not feel as
despondent about him as I did about his predecessor.
A polite rejoinder to Mr Sinha
The Honourable Minister for
External Affairs, Mr Yashwant Sinha, has protested against my column of 24
September. I am flattered that he reads me. I can understand his reaction, for
my comments on his tenure as finance minister were not complimentary. But I
would like to rebut, as gently as possible, his impression that I nurse a deep
personal prejudice against him. On the few occasions that I have met him, I
have found him to be unfailingly courteous, affable, and polite. I have met
many politicians, and I can name few whose manners were as good as Mr Sinha’s.
He is generally well informed and persuasive on his ministerial charge. I can
honestly say that I have no personal prejudice against him; quite the contrary
– I quite like him, and have respect for his ability. He was once widely attacked
in the press on the Indo-Mauritian Tax Treaty. I thought that the criticism was
completely unfair, and wrote in defence of him as follows:
“We have a double taxation avoidance agreement with
Mauritius, which has relatively low corporate taxes; that has made it the
principal conduit for foreign investment. Sinha faced personal attacks; it was
written that he had given Mauritius the concession because his daughter-in-law
worked for a financial house in New York and channelled investment into India.
In this affair, I was completely with Sinha. The tax treaty was concluded in
1988, before he became finance minister even for the first time. When foreign
portfolio investment came to be allowed, the income tax department gave the
benefit of the treaty to firms approved by SEBI, and SEBI certified those firms
that had been registered with MOBAA, the Mauritian regulator. All this too was
much before Sinha took over. In 1998, a mischievous income tax collector in
Bombay denied the firms the tax concessions the treaty entitled them to. The
Central Board of Direct Taxes overrode him, but not firmly enough. The whole
issue landed up in courts, where it languishes.
“In this case, it was completely unfair to target
Sinha, who if at all had not been vigorous enough in defending the tax treaty…”
My comments of 24 September
pertained to his performance as Finance Minister. Mr Sinha does not refute any
of the allegations I made against him, except to say that some of them are
entirely untrue. On Kelkar’s removal, I have Mr Sinha’s word against another
insider’s. I believe the latter’s, but the readers can choose between the two.
As to his cravenness, it always struck me that Mr Sinha almost always knew what
was the correct course of action (as I viewed it), and would often propound it
eloquently, but then failed to implement it. To take a relatively innocuous
example, he issued strong warnings on fiscal profligacy, and succumbed to it in
practice. How can someone argue for something and do just the opposite? One
explanation would be that he was a hypocrite. I rejected that explanation, and
preferred to think that his actions were influenced by his loyalty to his
party. I am quite willing to replace “cravenness” by loyalty.
I understand Mr Sinha’s response;
I know how strongly someone in the government can come to feel that he has been
unfairly targeted. But then again, I would have responded differently in his
place. If I had decided that a letter was called for, I would have written
something on the following lines to the editor:
“I am flattered by the importance
Mr Desai has chosen to give me. But all your readers will recall that the East
Asian meltdown occurred months before I took over. Of the four years I was
finance minister, three were agriculturally disastrous. The last year saw the
end of the great information-technology-led boom in the US; since then, the
world economy has been drifting down. Unlike Dr Manmohan Singh, who only had to
launch the Indian economy into an ongoing world boom, I had to rescue it from
being pulled down in the ebb tide. And I did so, as the reserves of $60
billion, the strong balance of payments and the low level of inflation attest.
I would suggest that Mr Desai has managed to weigh the balance sheet against me
only by cleverly deleting some positive entries.”
This illustrates a point I have
made before – that Mr Sinha has been presented in a poorer light than he could
have been. After the last budget I wrote:
“The budget speech did an extremely poor job of
selling the finance minister. However much one may disagree with one’s
minister, however little one may think of him, it is the duty of his civil
servants to present him in as favourable a light as possible. Since the budget
has so little substance, it was important to have made the most of its style.
“I would have positioned the finance minister as a
patriot and a populist. He did once raise his voice and say he would find
limitless money for defence. I would have had him start with that sentiment -
saying that the country continued to face a grave emergency from externally
sponsored terrorism, that it had to be tackled by the army, and that he, the
FM, was going to make sure that defence lacked nothing. That would have led him
to say that the defence of the country required sacrifices, that the sacrifices
had to be made by those who could afford them, and hence that he had decided to
tax the rich. That would have taken him into the 5 per cent income tax surcharge
and the tax on dividends. I would have highlighted the new tax on beauty
parlours, health clubs, fashion designers and event managers, saying that while
the rich deserved their luxuries, he was ensuring that their enjoyment
contributed to the common good. Then I would have followed up by saying he knew
times were hard, growth was limping, and the poor needed relief. Hence the
lowering of duties on tea, petrol and diesel…”
This brings me to Mr Sinha’s last
point: that I am prejudiced, not against just him personally, but against the
BJP. Actually, I am prejudiced against all political parties, and my prejudice
index jumps up and down according to their deeds and misdeeds. But I am read
for the words I weave, not for my prejudices.
Mr Sinha was elected by a huge
majority; and I greatly doubt that any of his electorate was dissuaded from
voting for him by what I wrote. The game he is in is quite different from the
one Business Standard is in. He should play his, and leave it to us to play
ours. Better still, he should get an adviser who would show him how to make the
media hang on his words.
