The year 2008 saw the dawn of a global economic slowdown; P. Chidambaram was the Finance Minister of India at that time. The Sensex had collapsed but the popular perception was that the Indian economy would remain insulated from this crisis. That was the period which had seen remarkable growth registered by TATA and others, and it was felt that Indian economy does not need to rely on global economy. In fact India gave Western Europe a number of leads. Our businessmen made good of this crisis in Western Europe and acquired a number of foreign entities (e.g. TATA took over Landrover). According to a rough estimate, $150 billion worth of acquisitions were made by Indian industrial houses.
The second wave of economic slowdown visited us when Pranab Mukherjee was the Finance Minister. He opined that India had been affected by the global crisis which was at the heart of problems arising in India. This presents a stark contrast with 2008, which was the worst period of slowdown but none of the industrialists or our Finance Minister had said that Indiawould be affected. Pranab meant that as Europe was collapsing, we too could be on the verge. What prodded Pranab to make such comments? It was Omita Paul who was placed as Economic Advisor to the Finance Ministry. When people questioned the rationale of this appointment – Omita has no connection, whatsoever, with finance and economy – Pranab replied, ‘She is needed’.
To analyse Pranab, one has to look at numerous aspects. The first is bureaucracy: its reaction, delays in appointments, postings and transfers. The second is the delay in policy decisions. The third is his relations with the Prime Minister and other ministers. The fourth is his performance as the Finance Minister.
The Chairman of Life Insurance Corporation (LIC) could not be appointed for a year and half while the Chairman of Oriental Insurance Company was not appointed for 2 years. In 2010 Chairmen of three banks were appointed three months late. This year the Executive Directors of some banks were to be appointed but they have not been appointed even 6 months after the Board headed by the Governor of the Reserve Bank of India (RBI) which clears the names has sent the list to the Finance Ministry; the ministry had not cleared these names by the time Pranab resigned. The situation has become paralytic. Banks have been affected due to this because the banks where those posted had to go on their new postings are still waiting for them to join while they have already been relieved from their duties from their old destinations due to which a situation of double jeopardy has arisen.
So, Pranab paralysed 12 banks which are not able to take their decisions. I started inquiring as to why these appointments have been delayed and what came out was that Pranab wanted to appoint three of his favourites to three banks despite opposition from the appointment committees. Due to the impossibility of the appointment of cronies, Pranab did not approve of any of the decisions of the committee. The three men in question are Chairmen of small banks but Pranab wanted to give them the charge of three big banks.
If the number of pending bills is taken into consideration, the Finance Ministry has accumulated the maximum number out of all ministries as Pranab had no time to look into them. Many more such bills are pending with the ministry, the most notable being the Provident Fund Bill, General Anti-Avoidance Rules (GAAR), issues related to black money and the Pension Bill. All these are pending due to policy indecision.
Moreover, Chief Managing Director (CMD) of Industrial Development Bank of India (IDBI) is yet to be appointed, while two positions in Securities and Exchange Board of India (SEBI) have been lying vacant for the past 2 years. The post of Unit Trust of India’s (UTI) Chairman is vacant for the past one and a half years. Omita Paul wanted her brother, Mr. Khosla, to be appointed here. UTI has an American company as foreign partner, and there is a clause that says that the Chairman has to be appointed with the consent of all parties. The company raised an objection saying that Mr. Khosla, ‘does not have experience’. A consensus could not be reached, and Omita did not let anyone else get appointed.
The case of State Bank of India (SBI) is still more curious. O.P. Bhatt retired and Pranab made Pradeep Chaudhary the new Chairman. During O.P. Bhatt’s time there used to be one CMD and one Managing Director (MD) but Pranab made one CMD with three MDs. SBI suffered paralysis as three MDs did not have their jurisdictions cut out clearly and a global rating agency downgraded SBI. Interestingly, the rating agency did not cite any economic reasons but that the decision making of the bank has been very poor. Actually, the fault lies with Pranab Mukherjee because in the final analysis he was the one who had to take decisions.
Mr. S.S.N. Murthy was the Chairman of Central Board of Direct Taxes (CBDT) and after retirement he was promoted to the tribunal. Omita Paul’s gurubhai had to be appointed in Murthy’s place who was the Chairman of the committee on black money. Omita wanted him to have both the charges but the decision was not approved by the Cabinet Secretary.
The biggest matter in policy issues is the Vodafone case. The Supreme Court gave a verdict in which it said, ‘You have done a wrong thing to tax Vodafone in India’. The Finance Ministry reacted and imposed a retrospective tax on the company. When the Supreme Court had made it amply clear that Vodafone was not to be taxed why then was the retrospective tax imposed? On making inquiries in the Finance Ministry, it came to light that it was the decision of Omita Paul. Was this done for pecuniary considerations? This can’t be as foreign companies fromBritain and America have already given undertakings to Indian government that they would not indulge in malpractices and would carry on their work in a fair manner. Also Vodafone is already embroiled in a bribery case in the United Kingdom. As per a clause of this undertaking the directors of companies can face jail time if they are found to have indulged in bribery.
Let us look at the 2G scam. When it happened, P. Chidambaram was the Finance Minister and surely notes must have exchanged hands between A. Raja and Chidambaram. Likewise notes must have been exchanged between the Telecom Ministry and the Finance Ministry. Despite this the ministry did not take any decision, and today the Indian telecom sector is on the verge of collapse. Most of the big telcos have left the country while those with annual turnovers of Rs. 5–10 crores are on the brink of closure. Provident Fund Bill and Micro-Finance Bill, both are pending, while a decision on FDI is pending for months now. Just before going out, Pranab decided to extend the FDI while shelving the Micro-Finance Bill conveniently.
Dr. Khan gave a novel concept of development of villages in Bangladesh through micro-finance. Under the system the villagers are given credit, either by banks or companies that have been entrusted to do so by the government. This has taken peasants out of the clutches of moneylenders. Now with this credit farmers would be able to get money to open small enterprises apart from farming. The Government of India introduced a Micro Finance Bill along simlar lines. The poor states which followed this trajectory registered good growth. Within days, Andhra Pradesh passed a contradictory Ordinance.
The interesting thing is that the finance sector is a central subject and the states have no jurisdiction over it. Nobody raised any voice against it and Pranab never had the time to deal with the subject. The micro-finance sector worth Rs. 2 lakh crores died in India; as they say the chapter closed. This is a classical example of policy paralysis. The Micro-Finance Bill has been pending for 2 years. Consequently, farmers and marginalised sections in rural India have come under great duress as they have no channels to avail themselves of credit and are again slipping into the clutches of moneylenders. If the number of pending bills is taken into consideration, the Finance Ministry has accumulated the maximum number out of all ministries as Pranab had no time to look into them. Many more such bills are pending with the ministry, the most notable being Provident Fund Bill, General Anti-avoidance Rules, issues related to black money and Pension Bill. All these are pending due to policy indecision.
Let us now talk of Pranab’s relations with the Prime Minister and other ministers. It is generally believed that the Finance Minister is number two, after the Prime Minister, in the cabinet, as it is the most crucial and nodal ministry; no policy can go forth without taking into consideration the finances involved. So in a sense the Finance Minister is even more important than the Prime Minister. Though Manmohan Singh is a world renowned economist, Pranab never consulted him on any issue, especially economic issues; somehow he nurtured the idea that he is the only fountainhead of wisdom and that he was the sole troubleshooter. The two men in question here share a relationship only in the public arena; neither we nor any cabinet minister is aware of any such occasion when the two sat and put their heads together to solve long-standing problems. We are not aware of any correspondence between the Finance Minister and the Prime Minister when we know that officials from Finance Ministry and PMO do regularly keep in touch. It seems more of an ego tussle than anything else.
When Chidambaram was the Finance Minister, he used to get valuable advice from the advisors of Manmohan also, as Chidambaram was junior to the Prime Minister. Chidambaram got inputs from C. Rangarajan, Montek Singh Ahluwalia and Kaushik Basu but ever since the time that Pranab took over, the entry of these men of finance has virtually been banned. Pranab considers himself senior to Dr. Manmohan Singh. Things took a suggestive turn when just 20 days before Pranab resigned, Manmohan Singh ordered all cabinet ministers and secretaries to seek the advice of C. Rangarajan mandatorily; C. Rangarajan started taking such meetings from then on.
Is there a lack of vision behind the pathetic condition of the Indian economy? Just before he resigned, talking to a bunch of journalists, Pranab said, ‘I am an optimist that is why I have an optimism that Indian economy will revive back’. When asked how he was so sure that the economy would revive, he said, ‘I have a gut feeling’. Now, the question is whether he was running the economy on a clear-cut policy and vision or was he using his gut feeling to steer it?
In India, people invest in two things for sure returns – property and gold. A third way is investment in Provident Fund. But Provident Fund cannot guarantee an assured and increased return as is the case with gold and property.
The structure of economy has changed and people no more want to park their money and expect an interest over their savings. The economy has become multi-layered. What is invested in Provident Funds goes into the capital market and then is channeled into infrastructure. Money moves cyclically. But Provident Funds are not protected by any legislation and they also do not pay good returns. On the other hand gold and property provide equally safe avenues of investment while assuring much higher returns. If a person invests 10 lakhs in gold or property he/she expects the money to turn into 1 crore in 20 to 25 years but no such expectation visits investments in Provident Funds. The Finance Minister who does not understand this cyclical nature of a multi-layered economy will never become a good Finance Minister.
A full-time politician or an extra-smart politician cannot become a successful Finance Minister. Another glaring example of the wisdom of the Finance Ministry is the case of ONGC. First the ministry decided to take the company in the share market and then sell the shares. Almost Rs. 50 crores were given to banks like Citi Bank to facilitate the sale of shares but by 2.30 pm on the day of trading not even 2 per cent of the shares of ONGC could be sold and the government had to order LIC to buy all the shares of the company. This in itself became a scam. It is obvious that a ministry that could not handle such a simple issue cannot handle the much more complex problems of the country.
There is a fundamental difference between politics and economy. In politics one can afford to make compromises: Caste and creed can be played up or down and decisions can be made based upon these considerations. Today you are friends with one, tomorrow with another. But a single decision in economics can affect the entire global economic system or decisions might get affected by the world economy in turn. If you cannot comfort your own businessman or your own entrepreneur then who can you give comfort to? Many of the decisions have profited America, China and Africa. GAAR were taxed and people took their money out of India. Did the people keep this money in their coffers? No, they invested it in America, China and Africa or any other country. To solve this, the government decided to increase the FDI. But this decision is not correct because the argument that investments have dried up in India is wrong. The logic to give permission to FDI in retail is entirely different. This kind of decision shows as if you are giving oxygen to the economy ofIndia. Retail sector has a different logic of its own, its own problems and demands.
There can be arguments both for and against this. But FDI as a panacea for a broken economy is a wrong argument. It is as if you are providing oxygen to the whole economy but economies do not run on oxygen. The Finance Ministry did the same thing regarding GAAR as also in the case of black money. The Ministry commented that the money kept in America or elsewhere abroad is not black money. But I cannot understand what is new in this supposed revelation. Of course, the money of somebody’s relative who resides in America and has kept his money in some American bank cannot be called black money. But then what was the need to make such an irresponsible statement? Perhaps, the Finance Ministry decided to make this statement thinking it to be some hi-fi revelation of an intellectually high pitch.
Anna Hazare and Baba Ramdev have been raising the issue of black money. On the one hand the government claims that there is no black money in India while on the other it sets up a committee on black money and is busy finalising a plan for its conversion. The government is also mulling over ways to bring back the black money stashed away in foreign banks. If the protests by Anna Hazare and Ramdev are rants of madmen, then why has the government set up a committee against black money, set up an investigation and is planning a blueprint for its conversion? Why did Parliament pass a resolution to bring black money back? Is there any need to make anybody in the country understand as to what is the source of this black money? There is no such need as everyone knows that the source of black money is corruption. The source of money outside India is corruption and at the same time you are saying that there is no corruption in our government. Why are our ministers working on black money?
Don’t the plethora of controversies showcase the bad management of Pranab Mukherjee? Interestingly, the Finance Ministry opened an account on Facebook and this is managed by D.K. Mittal and Pranab himself. Somebody messaged one day ‘bas ek hi ullu kafi hai barbaad gulistan karne ko, har shaakh pe ullu baitha ho, anjaam-e-gulistan kya hoga’ (a single owl is enough to destroy a mangrove, what will happen if there is an owl on every branch). Since that day both of them – Pranab and Mittal – stopped visiting the account. The Finance Ministry has changed the tone of the Facebook page now: it just showcases photos of Pranab’s tours and visits.