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India's Finance Minister: Stumbles on Reforms (1977-1998)

AK Bhattacharya

penguin random house

536 pages, 999 rupees

There is often debate about whether economics drives politics or whether politics trumps economics. As the author is well known, AKB's second volume on India's finance ministers is helpful to some extent. Economics drives politics to some extent, but the reverse relationship is stronger.

What both volumes have in common is that FM is not an independent person or entity. Often, there is a tendency to say that certain FMs have done a better job in presenting budgets compared to other FMs. But what AKB reveals in this book, just as interesting as the first one, is that all decisions are centered on the prime minister. All the big moves that the FM announces in the Budget are motivated by the PM. And even if there is great discomfort with that decision, FM doesn't really have a choice. Unsurprisingly, Sardar Patel could do nothing about demonetisation, which was keenly desired by the then Prime Minister Morarji Desai.

We also learned that RBI Governor KR Puri had to resign in 1977 as he was part of the Indira Gandhi regime and was not friendly to the new Morarji Desai government. Thus, politics influenced his RBI governorship appointments and tenures dating back to the 70s. Much later, Governor RN Malhotra resigned in 1990 before the end of his term as his advice against large government expenditures to the Yashwant Sinha-led finance ministry was not well received.

Another well-known ideological conflict was that between RBI Lieutenant Governor YV Reddy and FM P Chidambaram. The two parties differed over the pace of the rupee's “depreciation” triggered by the RBI, much to the chagrin of the FM during the 1997 Asian crisis. The FM said this to the RBI Deputy Governor in an irritated manner. Please forgive me for what you did! ”

You can also learn about Indira Gandhi's sons' interference in FM issues during this period. R. Venkataraman had a bad relationship with Sanjay Gandhi, while Pranab Mukherjee clashed with Rajiv Gandhi when he was finance minister. So we get the message that being an FM is not easy, even though the FM is the most powerful ministry into which all the government's income flows and where decisions are made on how to spend it.

Interestingly, although GST has received a lot of appreciation;, although recently introduced, germinated from an idea sown 30 years ago. The concept of VAT had its origins in the mid-80s when Vice President Singh was his FM. It was introduced in the form of his MODVAT or Modified Value Added Tax. Moreover, the fiscal responsibility and budget management that we are talking about today has its origins in his 80s in the form of Long-Term Fiscal Policy (LTFP), which had a vision for budgeting, although its scope is different. .That may have been the high point of VP Singh's tenure, but the low point was when FM went after the industry For tax evasion. It appears that FM was going after Reliance Industries, which did not get along with the Rajiv Gandhi government.

These anecdotes make this rather voluminous book an interesting read. Many facts are laid out on the table and you can learn about all the reforms introduced under different governments. Given the highly turbulent times, the book also reveals the undercurrents that drove these reforms that may be less well known to readers.

While the usual story about economic reforms begins with Manmohan Singh under the leadership of Narasimha Rao, the author argues that most of the ideas for reforms actually came from Yashwant, who briefly served as FM when Chandrashekhar was Prime Minister. – Points out that it was spread in Sinha's office. More importantly, the reform agenda was influenced by economic conditions.. With the country on the brink of bankruptcy, the government turned to the IMF for help, but reforms had to be implemented before loans could be accessed.

Manmohan Singh is praised for his economic reforms, but his tenure was also marked by turmoil in the stock market. A scam involving Harshad Mehta. The author further elaborates on the rather infamous remarks made by FM about “not losing sleep” when the stock market falls. Another hint is that once reform begins, there is no going back. Even as minority bubble governments came and went, the FMs involved continued to advance their reform agendas, albeit at different speeds.

Therefore, it can be said that a series of reforms were brought about from the mid-1980s. To begin with, it was gradual, because the transition from a fully regulated configuration to a more free architecture can only be done gradually. Then, in the 1990s, he received a boost that could be interpreted as the IMF prompting big-bang reforms. Interestingly, although the author reveals different political ideologies during his almost 15 years up to 1997, alignment with progressive policies was always present. It also shows that while progressive fiscal regimes may include loan forgiveness and cash transfers, this is a political and economic dynamic.

India edition 2nd editionFM is based on a time period close to the majority of today's population and will be of great interest to researchers as well as the general public. Naturally, I will be waiting for the author's third volume. In this third volume he is expected to cover FM from 2023 to 2024. The most interesting question is whether the FM is more independent than its predecessor, given that some reforms such as the coronavirus policy and demonetization were driven through a financial rather than a fiscal prism. right. Readers will want to read more about these modern times.

Madan Sabnavis is Chief Economist of Bank of Baroda