India’s growth story can just be partly written at home in future


K.P. Nayar

Just over a fortnight has passed since a successful “strategic dialogue” ended misgivings of perception about relations between India and the United States of America, but already stage-managed expectations are threatening to revisit bilateral ties.

The takeover of the Union finance ministry by the Indian prime minister, Manmohan Singh, has been followed in its wake by a deliberate and orchestrated effort to create the simplistic impression that, with Singh, the economist and architect of India’s original economic liberalization, in direct charge of North Block, everything is going to be fine.

The result of this ill-advised attempt is predictable: disenchantment in Washington about New Delhi all over again in many quarters and a familiar resistance and resentment in India against what may appear to Indians as typical American high-handedness.

In the last few days, prominent Indians — some in authority — visiting Washington have told some Americans in closed-door meetings to expect foreign direct investment in multi-brand retail as early as next week. Others have promised the moon, such as an immediate withdrawal of a retroactive tax announced in Pranab Mukherjee’s latest budget when he was finance minister.

Concurrently, leaders of representative organizations on Indian industry and commerce are travelling the world rousing expectations that the United Progressive Alliance government is about to unleash a new wave of sweeping reforms that will accelerate growth and open up the country to foreigners.

Such a campaign does a disservice to the prime minister: with friends like these he doesn’t need enemies. But more pertinently, it distorts the ground realities in the UPA, especially within its dominant partner, the Congress, which continues to be socialist at its core and suspicious of a bigger role for Westerners in any sphere.

Add to that Sonia Gandhi’s penchant for the status quo and her absolute necessity to put up a winning show in at least some of the state elections in the offing and what is likely is more of a window-dressing in economic management rather than any sweeping changes.

Left to himself, Singh would like to continue as finance minister in the slot vacated by Mukherjee, but it is only realistic to anticipate that it will not be left to him. Had that been the case, he would have held on to his coveted portfolio in 2004: it was fairly well known in Delhi when he was chosen as prime minister eight years ago that he also wished to present another budget to Parliament reliving his biggest legacy yet that goes back to the 1990s. He was not allowed to do so then.

Additionally, there is nothing to suggest that what could have been a public relations fiasco following his re-election as head of government in 2009 will not repeat itself while choosing Mukherjee’s successor. The messy spectacle of Singh’s man of choice for North Block, the economist, C. Rangarajan, quitting the Rajya Sabha a mere three months after the Congress turned down the prime minister’s choice as finance minister did not cause a media frenzy then because it was overshadowed by the unexpected UPA victory in the elections. At that time, UPA II was still in its honeymoon period and basking in the reflected glory of UPA I.

The truth is that, as a rule, of all the appointments that a prime minister makes, the most difficult one is the choice of a finance minister. Even in 1996, although it was clear from the start that Atal Bihari Vajpayee’s 13-day government would not survive, the longest and the most tortuous negotiations were over the choice of Jaswant Singh for North Block.

Sonia Gandhi could not have forgotten that her late husband made a cardinal error of political judgment when he made V.P. Singh his finance minister in 1984. With Lok Sabha polls only two years away, she cannot now overlook how the finance ministry-centric income tax raids on the daughter and son-in-law of the Congress leader, Chiranjeevi, in mid-May played a part in the party’s humiliating loss of the Tirupati assembly seat which the former actor had held before he was catapulted to the Rajya Sabha. The ghost of that defeat will haunt the party well into the next elections to the state legislature and the Lok Sabha in Andhra Pradesh, a state that is critical for the Congress.

In the 1990s, when P.V. Narasimha Rao’s dispensation was vigorously implementing economic reforms under the direction of the present prime minister, Rajesh Pilot and Salman Khursheed together appeared at one campaign stop in a state election, both stumping for the same Congress candidate. Pilot was then minister of state in the home ministry in charge of internal security and Khursheed had the same rank in the external affairs ministry.

At this campaign stop, Khursheed spoke in praise of economic reforms, his address replete with the discredited India-shining phraseology. Pilot, on the other hand, spoke of the need to rein in the Tatas, the Birlas and their ilk, recalling how the Congress had wrested control of the commanding heights of the economy from corporate families with the welfare of the people in mind.

What is more, Pilot, a much more astute politician than Khursheed with a finger on the pulse of the electorate, remonstrated with the latter for adopting a campaign line that was sure to cost their candidate the election. Not much has changed within the Congress since then to warrant the belief that now that Singh is in charge of North Block, he will have a free hand to make changes to economic policy of the kind that champions of liberalization are demanding of UPA II.

Why then are men from New Delhi now descending on Washington, men who are by no means lacking in intelligence or insight, telling the Americans that the worst is over and that a hundred flowers are going to blossom on the Indian economic scene, to borrow Mao Zedong’s famous 1957 phrase about China’s short-lived overall liberalization?

In part, it is because, sadly, many Indians want to tell Americans what they wish to hear. This is not necessarily because these people hope to benefit by doing so although in some instances that may well be true.

Some interlocutors do this because it stops the Americans from carping and relieves US pressure, at least temporarily, on India to act. They calculate that such false promises get the Americans off their backs in the sanguine knowledge that once they are out of Washington and back in Delhi what they said or predicted does not matter anymore.

For that reason, the visit of the Bengal finance minister, Amit Mitra, to Washington next week will be closely watched for signals that would give an idea of the course India’s politics and economics will take in the coming months. Mitra, Americans believe, will offer an unvarnished picture of what can truly be expected from India at his meetings, most of which are either closed door or off-the-record.

It defeats common sense why more Indians interacting with Americans do not berate them for their actions, especially regarding Iran, which raise the global price of oil. Instead, more often than not, many Indians are being apologetic about their government’s tardiness in reforming itself. New Delhi has a very good case to carp in return in Washington about how high oil prices are wreaking havoc on India’s economy to the point where petrol subsidies became a political hot potato recently.

At a time when the rupee is depreciating, it is especially necessary to exercise great caution in raising America’s expectations about India since a high dollar vis-a-vis the Indian currency can only result in a drive to cut imports out of necessity. That goes against US interests at a time when only exports and more job creation can save Barack Obama in the November election and the US economy in the long run.

In any case, the next chapter in India's growth story can only be partially written at home. The country is more exposed to the inter-nation financial system now than ever before. That means Singh is no longer in a position to do many of the things he did when he was finance minister under Rao. His success now, unlike in 1991-96, will depend on what Angela Merkel of Germany or David Cameron of Britain do, which can have an impact on India as well.
-Telegraphindia