The PMs reputation rests on his years as Narasimha Raos finance minister, when India turned over a new leaf from licensing to relative freedom for enterprises, a high to a low tax regime, computerisation of tax collections, freer imports and relative welcome to foreign investment. The economy took off and growth tripled in some years from the Hindu rate of growth. India became a hot spot for foreign investors. Many Indians, who had gone overseas for better employment, began coming back.
But after the 2009 win, the PMs actions suggested that he had a bottomless purse in government. It was almost as if he had forgotten the aphorism attributed to him by Sanjaya Baru in his book, that money does not grow on trees. An economist, who in his first few months as finance minister even slept in his office as he watched over the economy, determined to keep the fiscal and current account deficits down, in 2007-08 spent over R72,000 crore writing off farmer loans. Baru credits him with the idea and its justification. This money could have been mostly spent on building agricultural assets-roads, storage, cold stores, canals, rain water harvesting, etc. It would have helped generations of farmers. It could have reduced farmer distress in many future years. Other very generously funded schemes like MGNREGA added to governments deficits without adding to assets. Rising crude oil prices, declining value of the rupee, declining foreign investment and falling exports added to the burden. Exports were affected especially after the banning of iron-ore exports by the Supreme Court as response to many illegalities. All this raised deficits to record levels. Inflation crossed double-digits and remained there for over two years. Savings and investment declined, further adversely affecting growth. Employment was not growing. The problem was more for urban than rural folk. They began to vote against the Congress.
Few could recognise in Manmohan Singh as PM the person who brought macroeconomic balance from 1991 to 1996. It was easy to blame the Congress chief and chairperson of the National Advisory Council for this lavish level of financial giveaways, instead of investing in building assets for the economy.
The fact of the subservience of the PM to the Congress president was well recognised. Barus book confirms this. She chose the ministers and their portfolios and decided on who would hold senior positions in the PMO. She is even said to have had access to files meant for the PM and given directions on how to deal with the issues. Short of the title, she was the de facto PM, and Dr Singh, for all practical purposes, was there to do her bidding.
What is the economic legacy of this government to the next one. It is even more troubling than the legacy that the Narasimha Rao government inherited in 1991. Social welfare schemes have been started and cannot now be withdrawn without unrest. The Centre has no control over power and water tariffs that result in high deficits in states. Vast expenditures are required on defence. Nationalised banks have been driven to the wall because of high debts allowed by Dr Singhs government for infrastructure projects, financed by the banks. Many projects have not resulted in assets mainly because of delays in many government approvals. Theft of national resources by ministers, politicians, bureaucrats and businessmen is rampant. The same is the case with social welfare schemes.
A new government will have to speedily cut the deficit and spend on infrastructure. It must give approvals where projects are held up because of their absence. Ministers and officials must be punished for delays in approvals. Laws must be changed so that the corrupt are caught, tried and punished, speedily and severely. Foreign investment must come into infrastructure so that the burden is not just on the nationalised banks. Contracts for national resources like oil and gas, coal, telecom spectrum, etc, must be auctioned transparently and agreements on pricing reached honestly. The burden on the economy of the state-owned enterprises must be eased through privatisation. This will add to non-tax revenues, help reduce the deficit, and improve the economy because of better efficiency under private ownership and control. Statutory regulatory bodies must be staffed with independent, competent people, not just retired bureaucrats. State governments that allow electricity boards to run deficits must be penalised by withholding central government funds and not allowing nationalised banks to fund the boards whose balance sheets are unviable. Public-private contracts must not seek levelised tariffs (for projects in power, roads, metros), for more than 12 years against the present 25 to 30. All concerned ministries must commit to fixed dates for approvals and if they delay must pay adequate compensation to the developer.
These are only some urgent actions for a new government. It must infuse confidence in the public that action is being taken. This will raise expectations. Rising expectations will themselves reward us with an improving economy.
The author is former director general, NCAER, and was the first chairman of CERC