The Singh And Singh Budget Model Of “Real Reforms”

This article was first published on Jan. 23, 2021.

Raghav Bahl has dug into his memory trove to write personal accounts about six of India’s powerful post-liberalisation finance ministers. This mini-memoir is written in two parts, with the first one featuring Jaswant Singh and Manmohan Singh, while the second part dwells on Yashwant Sinha, P Chidambaram, Arun Jaitley, and Pranab Mukherjee.

Every year, for one day, India’s finance minister hogs more limelight than the incumbent prime minister to become the primus inter pares or first among equals. That solitary day among 365 is Budget Day, now usually on the First of February.

India’s had seven powerful finance ministers in the post-liberalisation era, but only one among them, Dr. Manmohan Singh, became prime minister. So, he’s experienced both emotions, putting former Prime Minister Narasimha Rao in his shadow, but also withdrawing into the penumbra of politically savvier finance ministers, Pranab Mukherjee and P Chidambaram.

Manmohan Singh, P Chidambaram, Pranab Mukherjee, at Rashtrapati Bhavan. (Photographer: Pankaj Nangia/Bloomberg)

Except for the current Finance Minister, Ms. Nirmala Sitharaman, who I am yet to meet in North Block, I’ve had the privilege of several tête-à-têtes with all her predecessors since 1991. In this short trip through memory lane, I want to recount two of the most yaadgaar (i.e., dramatic, memorable) moments.

So, who do I recall with an exclamation mark? Until I had begun to re-choregraph my memory, I would have imagined it would be Manmohan Singh or P Chidambaram or Arun Jaitley, because of the sheer heft and length of their stints in office. But lo and behold, I surprised myself by picking on the man who had the shortest tenure of less than two years through these three decades – the late Jaswant Singh!

Deepak Parekh (left) and Murli Deora (right) with Jaswant Singh. (Photograph: Milind Deora/Twitter)

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The Non-Economist Who Wanted To Liberate With Military Precision

Jaswant Singh was first appointed Finance Minister on May 16, 1996, in the ill-fated 13-day government of Atal Bihari Vajpayee. I remember a breathless engagement where he was charmingly caustic, throwing a military greeting at me.

Jaswant Singh: Aaah, Mr. Bahl, the cheerleader for M/s Rao and Singh (for those who may not know, he meant Prime Minister Narasimha Rao and Finance Minister Manmohan Singh).

I (mildly on the defensive): Not a cheerleader sir, but I do support, ideologically, the free-market reforms they authored. In our statist, bureaucratic set-up, it was a breath of fresh air until, of course, they got scared and stalled their own momentum.

Jaswant Singh (dismissively): Those were very grudging, faltering “reforms” (he virtually spat the word). I have very little time for two-handed economists, you know those who say, “on the one hand this, but on the other that” (ahem, clearly a jibe at Manmohan Singh and his protégé, Montek Singh Ahluwalia). You will now see what real reforms are…

Alas, destiny had other things in store just 13 days later as the government resigned.

But when he became finance minister again in the third Vajpayee government in July 2002, he dazzled the economy with truly light-touch reforms.

He pushed for the government to withdraw from everywhere except social and infrastructure sectors - gosh, that was music to my ears. He did an audacious bail-out of the bankrupt Unit Trust of India, cleverly privatising the state-controlled behemoth. He was convinced taxes should be linked only to productivity. “I want to put money in the hands of consumers to increase demand in the economy. For that I must cut taxes”. I especially remember his sweeping, unconventional pre-budget tax cuts of January 2004—customs duty hacked by five percentage points, air-travel tax eliminated by 15%—which pulled the economy up to an 8% growth trajectory, creating the perfect take-off which allowed the successor United Progressive Alliance government to ride three years of 9% GDP growth.

Now I understand why I attach an exclamation mark to his memory. I resonated so completely with his plan that the underpinnings of a resurgent economy were private consumption and investment, the outright sale of public sector companies, and lower taxes.

File photo of Sonia Gandhi, Jaswant Singh, AB Vajpayee and Mulayam Singh Yadav. (Photograph: PTI)

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Before Jaswant, There Was Another Singh Who Was King!

A lot of people will be shocked, perhaps justifiably, that Manmohan Singh should feature ‘below the spine’ in this piece. After all, he defanged the debilitating economic crisis of 1991 with breath-taking policy moves. Recall that India had to pledge 67 tonnes of gold to stave off a default on sovereign debt. We were downgraded to junk status, with barely any foreign exchange left to pay for critical imports or service foreign debt.

Now just imagine the usually restrained Manmohan Singh doing a “hop, skip, and jump” (which is what the reckless operation was code-named). On Monday, July 1, 1991, India’s pegged rupee was devalued nine percent by government order – yes, I will say it again, nine percent in one chop to the neck.

It was a straw-clutching move to stop a run on rapidly dwindling foreign currency reserves.

The front page of the Indian Express on July 2, 1991. (Photo Courtesy: Archival / The Indian Express)

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But a nervous market began to panic even more. So, two days later, on July 3, 1991, the rupee was devalued another 11% – yes, another eleven percent - but with a promise to stop. That calmed the market and stanched the outflow. Eventually, two years later, India put its tightly controlled currency on a “managed float”. As economic shocks go, this one had turned out to be bold and beautiful. Postscript: we are holding nearly $600 billion of foreign currency reserves now.

Singh also took another uncharted action to harness the American dollar and create an equity cult in the country. India’s closed, clubby, and scam-prone stock markets were thrown open to foreign investors. The sheltered, fragile rupee was made partially convertible on the capital account. Two new institutions, the Securities and Exchange Board of India and the National Stock Exchange, were empowered and inaugurated to clean the Augean stables.

Soon, India’s remarkably digitised stock market, perhaps the most modern in the world at that time, won over the foreigners. India’s equity cult was born.

Yes, Manmohan Singh did a million other things to liberalise our hopelessly controlled/trussed-up economy, but he did it to save a sinking ship. He was forced to act by a fatal crisis. As finance ministers go, his impact was infinitely greater than anything Jaswant Singh could have done. But on the other hand (he will hate me for using a “two-handed phrase”), Jaswant Singh was keen to liberate a healthy economy out of conviction. That’s why I remember him with an exclamation mark!

Raghav Bahl is Co-Founder – The Quint Group including BloombergQuint. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.