minister Pranab Mukherjee gets ready to leave the North Block later this
week, his successor will be confronted with five critical tasks initiated
by him — cut Subsidies to reduce expenditure; fast-track FDI reform to
bring in hard currencies; insurance and pension reforms; get infrastructure
spending to deliver the goods; and kickstart tax reforms through goods and
service tax (GST) and the direct taxes code (DTC).
whether the job is taken up by Prime Minister Manmohan Singh, aided by his
two trusted lieutenants — C. Rangarajan, the former RBI governor, and
Montek Singh Ahluwalia, plan panel deputy chairman — or by a politician
such as home minister P. Chidambaram or commerce minister Anand Sharma,
these five jobs are crucial to India’s future economic course.
1.Subsidies: Mukherjee has
been working with states to make them give tax concessions on petrol and
diesel and match the reliefs with similar cuts in central taxes, thereby
reducing the government’s fuel subsidy burden. State levies on petrol and
diesel range from 15 per cent in Puducherry to 33 per cent in Andhra
Pradesh. Karnataka, Maharashtra, Tamil Nadu and Bengal also have high fuel
taxes. Besides, the taxes are ad valorem, meaning the amount goes up with
states to cut taxes by up to 25 per cent. The bold measure obviously requires
adroit political manoeuvring to get off the ground.
Urea subsidy is
another area the new Czar at North Block will have to train his guns on.
prices every year for the next three years and eventually introducing free
pricing in fertilisers will help the government to check its huge subsidy
bill and also save farms from being turned into wastelands by the overuse
of heavily-subsidised urea.
2.FDI Reforms : The depreciation
of the rupee, which has lost around 24 per cent of its value in a year, is
snowballing into a major area of concern. Though India has one of the
largest forex reserves, it needs to shore up its investment as a large part
of the foreign exchange is in the form of debt. To bring in a fresh wave of investment,
the government wants to not only open up FDI in retail, defence and
aviation but also revive stalled insurance sector reforms.
3.Pension and Insurance reforms : Even if the FDI
cap on insurance can’t be raised because of political compulsions,
Mukherjee’s other proposals reforming the insurance sector, can lift market
sentiments and rake in hard currency. Chief among the reforms is to allow
Lloyd’s to open a trading floor in Mumbai, permit foreign reinsurance firms
such as Swiss Re and Munich Re to enter India and give a green signal to
public non-life insurance companies to raise capital by selling minority
4.Spending : Earlier this
month, the Prime Minister had held a meeting of infrastructure ministries
to try and push them into meeting their spending commitments. But in truth,
this job is done best by two people – the finance minister, who holds the
purse strings and sits in on all meetings on permission for projects, and
by the Planning Commission deputy chairman, who appraises the projects. To
rev up growth it is just as important to spend money on infrastructure projects
which can pep up the economy as it is to stop spending on wasteful
5. Tax Reforms: Implementation
of the goods and services tax will be on the top of any finance minister’s
priorities. This tax reform measure, which will help to unify India’s
markets and increase its GDP by 1-1.5 per cent, has been held up because of
opposition from BJP-ruled states and to an extent by Bengal.
The direct taxes
code, will, however, be a simpler task as most of the hard work has already
been put in by Mukherjee’s team and now just requires some fine tuning.
In 1974, when a 39-year-old Pranab
Mukherjee was appointed minister of state in the key ministry of finance,
he met a studious-looking economist who was three years older than him and then
the ministry’s chief economic adviser.
Mukherjee and Manmohan Singh worked together on the first tentative
revenue reforms in the late ’70s after the former was made junior minister with
independent charge of revenue and banking and Singh appointed finance
In 1982, when Mukherjee came back to
North Block as finance minister at the young age of 48, he remembered Singh who
had by then shifted to Yojana Bhavan as member-secretary. Mukherjee recommended
Singh for the job of Reserve Bank of
The recommendation from Mukherjee, who
counted then Prime Minister Indira Gandhi as his mentor, was accepted. Singh got
Decades later, in 2004, Mukherjee joined
Prime Minister Singh’s cabinet as minister, first for defence and then for
external affairs before eventually returning to his old portfolio of finance in
From tackling the Telangana crisis to
the spectrum scandal, Mukherjee became his party’s man for all seasons — so much
so that by 2012, he headed some 25 Groups of Ministers and Empowered Groups of
However, by 2012, Singh had probably
started getting a little wary of his former boss, who had a different take on
some issues. Sources said Singh often felt cramped by Mukherjee.
Mukherjee is now set to depart his North
Block office to try and take up residence in the house atop Raisina Hill, giving
Singh, widely regarded as the father of India’s reforms programme, a chance to
retake his original ministry and try to shape the economy in his own way.
Mukherjee said as much to reporters, who
wanted to know how the government would tackle the economic slowdown, after the
announcement of his candidature for President.
“The Prime Minister himself is an
eminent economist and under his leadership we will overcome this crisis,”
India’s Constitution is vaguely worded
on the powers of the President, which has often led to tiffs between Prime
Ministers and politically driven Presidents (such as the ones between Jawaharlal
Nehru and Rajendra Prasad and between Rajiv Gandhi and Zail Singh).
analysts believe that perhaps this very vagueness may lend Mukherjee more
powers than usual to solve India’s myriad problems, in working together with
Becoming President at a time the country
is going through a period of crisis could also give Mukherjee more influence
than he would have had in an earlier decade. An added advantage is that he could
use the prestige of his office to draft Opposition parties’ support.
With the economy in slowdown, he could
play a lead role in resolving the deadlock between the government and the
Opposition on key pieces of legislation such as the land acquisition, insurance
and pension bills, the goods and services tax and the value-added tax.
Usually, the President’s office does not
get down to resolving legislative imbroglios. But with the economy in the
doldrums and Parliament numbers often proving elusive for the ruling alliance, a
pro-active President may well be the answer to the frustrating wait for reforms
Constitutional experts say that the
rules of business do not preclude the President from acting as an elder
They cite how the Supreme Court had
ruled that the President is not a mere figurehead but a moral authority who may
stay in touch with the Prime Minister on matters of national importance and
The other day, I was part
of an adda session where those
present were lambasting our political leadership for the mess that is India. Others
blamed the `steel frame’ or the babus who
run the system and yet others, business leaders who helped corrupt the two.
Of course, the very idea
that we are in a mess is not new. Even when India was on top of the world with
9 per cent GDP growth , we were simultaneously in a mess. High levels of
corruption, poor infrastructure, social and political unrest in some parts of
the country, huge urban-rural income divides remained side by side with `Shining
India’. The only difference is that now things look worse – as coupled with all
the ills of a typical developing economy, we now have a slowdown in our boom-time
story, with its attendant sene of despondency.
This makes the search for
the culprit even more interesting. If one can really pin-point him or her,
curing India may be that much easier?
At all times there will be dishonest
politicians, business leaders and bureaucrats as well as honest ones. This is a
triad which has ruled all countries since time immemorial. There are just two
more social pillars which count in forming or reforming national societies – the
regulatory judiciary which assures rules of the game are followed and the press,
which acts as a conscience keeper.
The main differences
between a `good period' and a `bad period' for any society lies in - i) the degree
to which the triad has been corrupted and ii) the degree to which this system's
regulators - judges/judicial
magistrates/ quasi-judicial officers including economic regulators have emained
free and fair.
I am told JRD Tata had in
the 1950s and 1960s spurned offers by his lieutenant and others to use bribes
and favour exchanges as a way of getting around the `License Raj' which was
stifling his empire's growth. In this, he was unlike most of the other big
business houses of this country. Tatas remained one of two big houses in the
country, till the Ambanis came along. Corrupt politicianss or bureaucrats were not
unknown in those decades, but their numbers were perhaps within tolerable
limits. The judiciary, despite being political appointees, were similarly, more
or less fair and honest.
One prime reason for all
this was that Indian society as a whole looked down on corruption, conspicuous
consumption and flashy lifestyles.
Society started changing
its stance towards corruption in the 1980s, becoming more willing to accept and
compromise. The old rules of the `License Raj' were seen as outstanding
examples of how to corrupt the system and people who `actually got around them'
and build enterprises were lionised. It was no longer fashionable to be poor.
Rather the reverse - showing off wealth - was a must do. In Delhi University,
students from certain states, openly talked of the dowry one could expect if
one cleared the civil services or managed to bag a seat in prestigious
management schools. One interesting but tell-tale fact in the dowry ranking was
that a railway clerk earned a higher dowry than many officers! Obviously, by
then Indian society had started accepting that some of its members could be
revelations of kickbacks in the Bofors scam (which now seem like chicken-feed)
and subsequent scams seems to have encouraged greater corruption levels down
the line. The idea being if the high and mighty can feed off the system, why
not the rest.
By the 1990s, when we
started dismantling the old, much reviled `License Raj', Indian society was
more than willing to embrace the market. Socially, a man or a woman was
appraised, not on the basis of his learning or his qualities of head and heart,
but rather on his spending power and/or the influence he could peddle.
One example was that
politicians and bureaucrats who did not really need a red or blue beacon on
their cars, started hankering for it (I have still not understood what society
gains from giving anyone other than ambulances and patrol cars those prized
lights, and it has always remained a big question why a minister needs a
beacon, when his police escort car has one and clears the way for him in any
Bringing in `The Market'
also meant bringing in transparent rules and regulations which the West had
developed over centuries and which we had forgotten through the
`pseudo-Socialist era'. However, we were reluctant to embrace those rules as
were the western businesses who flocked to Indian shores. They `compromised'
We are still to bring those
rules in, in full measure. Attempts like the amendments to Companies Act which
could bring fairplay into the running of our firms, have been deliberately
diluted. Many of the economic regulators who have been set up, either did not have
the legislative teeth to go about their business or had the misfortune to be at
times led by officers who were unable or unwilling to root out wrongdoing in
I cannot comment on whether
some of them were compromised or not. But suspicions do linger in some cases,
which means the rules which governed these regulators were less than transparent
and allowed greater than usual discretionary powers of commission and more
Questions also come to the
mind on the system by which regulators were selected. Perhaps, we should look
very seriously at the leader of the opposition, Mr L.K.Advani's, suggestions on
a collegium which could select the Chief Election Commissioner. This collegiums
could perhaps also be given the chance to select the principal economic regulators,
given the fact that their rulings affect the lives of millions of ordinary
Indians! (A ruling by the airport regulator could well make aircraft tickets
costlier or cheaper e.g the recent ruling on differential development fees
charged from passengers flying out of Delhi.)
The point that one may make
is that the regulatory environment is far from perfect and this compounds the
turmoil being witnessed in India where new economic rules and systems are
replacing the old. Under
such circumstances not only the marketplace but also society at large remains
The good thing about the
2000s is that Indian society seems to have got fed up with this environment of
total laissez faire, with its attendant chaos. Good, for one thing, this less
than perfect system is hardest on the poorest and the weakest, on whom it preys
Remember, in every scam
someone is becoming rich at the expense of someone else and that someone else
is the weakest and poorest member of our society.
When Special Economic Zones
and mining leases are given away to business tycoons at a fraction of the cost
which they should command, the compensation package for the farmers and tribals
ousted is that much lower.
Similarly, in a more
convulated way, when steel barons are allowed by politicians/bureaucrats/ top
bankers to get away from their interest payback commitments despite having
siphoned away millions by overstating capital expenditure, it is the poorest bank
deposit holder who loses out the most. His fixed deposit fetches less as the
bank faces higher NPAs and reduces borrowing costs. He also faces the double
whammy of inflationary pressures as the money written away remains circulating
within the economy, raising prices.
Society, without thinking
all this through, has instinctively shown its preference for transparent rules
of the game, along with market capitalism. Without being told so, society has understood
that this is the best way to check corruption and inefficiency. The Anna
movement is in itself may not be much to be spoken of, given its many
downsides. However, it brings to the fore people's expectations of better and
more transparent regulations, which in turn checks what ails India.
What I would have liked to
say at that adda, which I referred to
in the beginning, but did not manage to say, is : Let's stop criticising one or
the other member of the triad, listen to the common man in the street and take
this opportunity to try kick in responsible rules which could actually improve