by Sanjaya Baru
One initiative in the field of education that Dr Singh felt truly passionate about was his effort to increase and widen scholarships given out by the government. The biggest ever expansion of government- funded scholarships in India has happened during Dr Singh’s tenure.
The government instituted new and better-funded scholarships for students from scheduled caste and scheduled tribe families. There was a threefold increase in scholarships for Muslim students. There was a severalfold increase in scholarships for girls and a new scheme of merit-cum-means scholarships was introduced for post-matric students, with twenty million students benefitting by the end of UPA-1.
It is telling that the only initiative Dr Singh was willing to lend his name to, as prime minister, was a student scholarship instituted at his alma mater St John’s College, Cambridge. The Manmohan Singh Scholarships are awarded for both undergraduate and doctoral studies. Every year, the awardees get to meet the PM and he is always very happy on such occasions.
The PM’s personal passion for scholarships came from the fact that his life, as he once put it, was made by scholarships. Given his modest background, he would never have secured the kind of college and postgraduate education he did without scholarships. It was scholarships that enabled him to study both in India and then at Cambridge and Oxford.
Some of Dr Singh’s warmest smiles have been captured at events where he is handing out a scholarship certificate or an award for excellence in education to bright young students. Nothing made him happier than to see himself in the eager face of a young middle-class student.
Dr Singh was always conscious of the fact that what enabled UPA-1 to step up spending was the unprecedented growth of economic activity in the period 2003-09. For fifty years before Independence, from 1890 to 1940, the national income of British India grew by just a little over 0 per cent. Between 1950 and 1980, national income grew at 3.5 per cent per year. Between 1980 and 2000 the rate of growth picked up to roughly an average of 5.5 per cent per year. The near 9 per cent rate of growth recorded in 2003-08 was unprecedented. Many explanations have been offered for this sharp improvement in India’s growth performance. Clearly, the global economic and strategic environment was favourable to India. At home, the national savings and investment rates went up sharply and so did agricultural output and income generated by a buoyant services sector. Finally, the stability of UPA-1 and the fact that Dr Singh’s team of economic policymakers, including P. Chidambaram, Montek Singh Ahluwalia and C. Rangarajan, inspired investor confidence at home and abroad combined to generate positive expectations that further fuelled growth.
This acceleration of economic growth generated the revenues required to finance the government’s social development programmes, including Bharat Nirman, NREGA and spending on health and education. Without the 8 to 9 per cent growth during this period the government could not have sustained its spending programmes. It is this fiscal foundation that sustained the strategy of ‘inclusive growth’ in UPA-1. What if the rate of economic growth were to slow down? What if the fiscal situation got out of hand? This always worried the PM. But as long as the going was good, and in UPA-1 it was, no one really worried about the return of the fiscal constraint on growth. Thanks to high growth, UPA-1 managed to adhere to the timetable of deficit reduction imposed by the Fiscal Responsibility and Budget Management Act until 2009. Some of the PM’s advisers, like Rangarajan, worried that this period of rising income growth was not being used to improve government finances on a more sustainable basis and feared the consequences of such ‘fiscal irresponsibility’, but in UPA-1 there were few takers for such caution.
When I left the PMO in August 2008, the performance of the economy was not a matter of any great worry, with five years of unprecedented high growth behind us, though a high fiscal deficit and inflation rate remained important concerns. The big picture gave confidence. India’s national income, Chidambaram proudly claimed, had crossed the one-trillion-dollar mark in 2008.With high investment rates India was seen as catching up with the Asian ‘Tigers’ and on its way to match China’s impressive performance.
International conferences in New Delhi and Mumbai would discuss India’s emergence as a global power, and Dr Singh could get away with sermonizing to business billionaires about the need for a social conscience. At the annual meeting of the Confederation of Indian Industry in May 2007 he made bold to suggest a ten-point ‘Social Charter’ for business, including affirmative action in employment, attention to workers’ health and shunning of conspicuous consumption and excessively high remuneration for top management. While the business media chided Dr Singh for this socialist advice, business leaders took it sportingly since their overall mood, driven by healthy corporate bottom lines, was still positive.
Against this background, when the Lehmann Brothers crisis hit Wall Street in mid-September 2008 and the transatlantic economies went into panic mode, the Indian government acted fast to boost investor confidence. Despite setbacks like the terror attack on 26 November 2008 in Mumbai, in which 160-plus people were killed at hotels, restaurants and the railway station, the government was able to boost confidence in India’s relative insularity from the global financial crisis. The PMO’s quick response to the Satyam scandal, in which a major software services company admitted to cooking its books, enabled India to protect the company from collapse and boosted investor confidence in government policy. Even though Chidambaram had moved from finance to home in the aftermath of the terror attack in Mumbai, which led to the departure of the much-criticized incumbent, Shivraj Patil, the finance ministry was still alert to international developments and responded calmly. A new governor at the Reserve Bank of India was still cutting his teeth but was able to work closely with Delhi and manage the fallout.
India’s capable handling of the global crisis was positively commented upon around the world and Dr Singh’s interventions at the meeting of the newly constituted Group of 20 (G-20) heads of government in Washington DC in November 2008 were much appreciated. These developments raised India’s global profile and also the PM’s. The UPA, therefore, ended its term with a satisfactory record of performance on the economic front. If there was one area of concern, it was fiscal. The government’s many welfare and development programmes, the various subsidy schemes and the farm loan waiver imposed a huge financial burden on the government that would increase with time. For someone whose favourite aphorism was ‘money does not grow on trees’, Dr Singh presided over a government that had begun to spend money as if it was growing on trees.
This became the Achilles’ heel of economic management in UPA-1 that came to haunt the government in UPA-2. For all his talk about fiscal rectitude, and despite his record as finance minister in 1991-93 when he did manage to sharply bring the deficit down, as PM, he presided over a regime of fiscal irresponsibility, given the pressure on the government to spend on a variety of programmes.
This despite the fact that he not only shared a good working equation with Finance Minister Chidambaram in UPA-1, compared to the very formal relationship he had with Pranab Mukherjee in UPA-2, but also took much keener interest in budget-making. He would insist Chidambaram sit with him and finalize the finance minister’s annual budget speech. Pranab, on the other hand, would not even show him the draft of the speech till he had finished writing it.
While Chidambaram and he shared a common worldview on economic policy, the two did have their differences and some were important ones. At a meeting convened to discuss a reduction in energy subsidies in 2007 the PM assumed he would have the finance minister on his side. While he had no problem getting Petroleum and Natural Gas Minister Murli Deora on to his side (a sharp contrast to the argumentative Mani Shankar Aiyar who preceded Deora in that ministry), he was surprised to hear a lecture from Chidambaram on middle-class sensitivity to the price of cooking gas.
The fiscal irresponsibility of UPA-1 was to eventually hit investor sentiment. It also contributed to inflation during the UPA’s second term. Clearly, i
n UPA-1, while Dr Singh had delivered on his promise of boosting growth and making it more inclusive, he failed to deliver on ensuring the fiscal sustainability of growth. It is this fiscal overreach that came to haunt UPA-2 as growth slowed down. It was a slowdown that nobody anticipated.
The psychological impact of the slowdown on market sentiment was even greater because investors, at home and abroad, had come to take India’s economic rise during 2003-08 for granted. Even though the Congress party rubbished the BJP’s ‘India Shining’ campaign and sought to compensate for it with its spending schemes, it too assumed that the Indian economy was on a roll. The rising rates of investment and savings and rising exports were seen as drivers of sustainable growth. So much so that some of the early signs of the ‘policy paralysis’ that came to haunt UPA-2 were not taken too seriously. One of them was the slowdown in the national highways construction programme. The Vajpayee government ensured speedy implementation of the programme. However, some in the UPA, influenced by the Left and a few NAC activists, came to view road construction as an elitist activity meant to please automobile owners, and work on the highways slowed to a crawl. Moreover, the BJP’s disinvestment programme aimed at selling off, or reducing, the government’s stake in public sector enterprises, was halted, and despite creating a new Investment Commission headed by industrialist Ratan Tata, there was no consistent strategy to increase capital expenditure by the government.
None of this made much of a difference to investor perceptions about India’s growth prospects as long as the economy was on a roll. Even the transatlantic financial crisis of 2008-09 had limited impact, initially, on growth. Economist Shankar Acharya, who joined Dr Singh’s team at the finance ministry as chief economic adviser in the early 1990s, was one of the few consistent critics of the government’s fiscal and economic policies. Even before the transatlantic crisis hit the economy in 2008, Shankar would keep warning the government that many of its spending and other policy decisions would cost the economy dear. Each time Shankar’s column appeared in the Business Standard I would mark it to the PM. But for a long time Shankar was viewed as a pessimist who was needlessly ringing the alarm bells. In the end, and not just due to the global economic slowdown, Shankar was proved right.
When the UPA-2 government became paralysed by a political storm in 2010-11 over explosive financial scandals, many of the inherent weaknesses of the economy, built up due to the creeping populism of UPA-1, surfaced and took their toll. By then Dr Singh had lost control over fiscal policy and much else. In March 2012 he was not even aware till the day before the budget was to be presented that his finance minister Pranab Mukherjee was going to introduce a new corporate tax policy, with retrospective effect, that would have disastrous consequences for investor sentiment.
For a man whose professional reputation was built by his role in battling the hyper-inflation of the mid-1970s, reining in the fiscal deficit in the early 1990s and restoring growth momentum to the economy around 2005-06, Dr Singh, by the end of UPA-2, was still battling inflation, still trying to get the fiscal deficit down and still pushing for a revival of the growth momentum.
9
The Manmohan Singh Doctrine
‘India is destined to recover its due status in the world, but this process will be speeded up if we do what we must at home and build bridges of mutual interdependence with the world.’
Manmohan Singh at the India Today Conclave
February 2005
Whenever he wanted to draw attention to the limits of Central government, in particular prime ministerial power, Dr Singh would quote Telugu Desam founder-leader N.T. Rama Rao’s famous remark that ‘the Centre is a conceptual myth’. The Indian Constitution defines the powers of the Centre and the states but the balance between them has shifted from time to time depending on the nature of the political dispensation. India has gone through both centralizing and decentralizing phases with prime ministerial power waxing and waning.
While in times of a crisis or an emergency—including economic crises, war and natural disasters—the Central government can mobilize and deploy its power in ways that override the power of the states, in normal times the Centre’s real power derives only from its control over fiscal resources, and the security and intelligence apparatus. Even then, a prime minister is constrained by the Cabinet form of government in which he is, at best, a ‘first among equals’. Coalition governments impose further restrictions on prime ministerial authority. In the case of the UPA, the PM’s authority was further curbed by the nature of powersharing between the Congress party president and the PM.
For all these reasons, and given that the economy was in reasonably good shape in 2004, and there was no major challenge on the military side, Dr Singh decided to focus his attention on foreign policy. This was one area in which prime ministerial prerogative was paramount. The external affairs minister does not have the kind of freedom of action that a finance, home or defence minister can hope to enjoy, even in normal times. That is in part because most foreign policy initiatives flower at the level of the head of government or head of state.
Dr Singh’s only problem in choosing foreign policy as the area where he would put his stamp was that his external affairs minister was a retired diplomat with a mind of his own. Natwar Singh not only had clear views on major foreign policy issues but also believed that Dr Singh was a political greenhorn and a novice in foreign affairs. He also probably assumed that his long-standing proximity to the Nehru- Gandhi family placed him a peg above Dr Singh in the dynasty-based Congress party’s nebulous hierarchy. However, Sonia Gandhi never allowed any one person to assume he or she was the last word on any issue. During her journey to power, she turned to a range of partymen, including Karan Singh, Mani Shankar Aiyar and Mani Dixit, for foreign policy advice, even though it was Natwar Singh, and sometimes Dr Singh, who would accompany her to meetings with visiting heads of government. Similarly, on the economic policy side, her key aide was always Dr Singh but she would lend her ear to Pranab Mukherjee and P. Chidambaram, among others.
In the end, Natwar Singh, who lasted about eighteen months as external affairs minister, proved to be more supportive of the PM than we had assumed he would be. But the PM also had to make a conscious and determined effort to befriend Natwar and at the same time exert his authority. The episode, reported earlier, in which Natwar Singh exceeded his brief on the matter of India sending troops to Iraq, offered Mani Dixit a good opportunity to assert the PMO’s role in foreign policy. A second, if less important, opportunity for the PM to assert his individual authority overruling diplomatic advice was provided a few days later when Ronald Reagan died. Dr Singh wanted to go to Roosevelt House, home of the US ambassador, and sign the condolence book as a gesture of regard to the late President and goodwill towards the US. Reagan was generous in his dealings with both Indira Gandhi and Rajiv Gandhi. But the foreign service officers in the PMO advised him against going to the ambassador’s home and said the condolence book would be brought to him.
Noticing that Dr Singh was torn about whether he should follow his own instincts or the advice of his diplomats, I reminded him how Jawaharlal Nehru would at times drive down to see John Kenneth Galbraith at Roosevelt House just for a cup of coffee and quiet conversation. In fact, when Robert Blackwill was the US ambassador in Delhi, he would sit his visitors down for coffee in the far right corner of his living room, saying, ‘Let’s have coffee where Nehru and Galbraith used to.’ Dr Singh decided he would go to Roosevelt House and sign the condolence book. On his way home for lunch from Parliament, his carcade took a detour and drove there at short notice, surprising everyone.
Slowly but steadily, Dr Singh began to assert himself in the field of foreign affairs and policy. He mostly conceded limits to his authority in shaping domestic policy, given that his council of ministers had loyalties to other centres of political power. But he jealously guarded the foreign policy turf and ensured his writ would run at least in this sphere. By September 2004, when he
travelled to New York to address the UN General Assembly, he was firmly in the saddle.
Dr Singh was, of course, not a novice in foreign affairs. As secretary general of the South Commission based in Geneva, he had the opportunity to deal with world leaders and familiarize himself with world affairs. As finance minister in the early 1990s, he engaged actively in economic diplomacy to strengthen India’s external economic profile. Taking charge as India’s finance minister in the midst of a major external payments crisis and at the end of the Cold War, Dr Singh was forced to grapple with the challenge of handling an external crisis in the midst of a rapidly changing geo-political and geo-economic environment. His experience in dealing with the US, Japan and Singapore in particular, and with the Europeans, was firmly etched in his memory and he would often recall events from that period. He had closely bonded with his counterparts in countries belonging to the Organization for Economic Cooperation and Development, and many of them, now in retirement, would seek appointments to meet him either in Delhi or in their home capitals whenever Dr Singh visited them.
In his very first budget speech in Parliament in July 1991, Dr Singh linked India’s global standing to the country’s economic performance. In doing so, he enunciated a new approach to Indian foreign policy for the post-Cold War era. After spelling out his strategy to deal with an immediate crisis—a balance of payments and fiscal crisis—Singh firmly anchored his economic initiatives in a wider strategic setting, viewing them as the foundation for ‘the emergence of India as a major economic power in the world’.
