The long road to liberalisation

INDIA’S FINANCE MINISTERS: Stumbling Into Reforms (1977 to 1998)

Author: A K Bhattacharya

Publisher: Penguin Business

Pages: 536

Price: Rs 999

The second volume of the “India’s Finance Ministers” series with a subtitle “Stumbling into Reforms (1977-1998)” undoubtedly matches, I would say even surpasses, the first. The time period was perhaps the most exciting in post-independent India’s economic history. A new generation, with arguably much greater economic aspirations than those involved in the independence movement were taking over, the Congress had been damaged, and by now it was quite evident that the public sector would not be able to deliver on the promise of economic growth.
 

The return of Indira Gandhi and the subsequent takeover by Rajiv Gandhi saw one of the periods of highest economic growth initially, but these and associated investments were powered by dollops of debt.  Loose policies contributed to the distress that eventually birthed the reforms in 1991. And then the excitement of the reforms and post-reform years followed.
 

But let me start from the beginning of this period. H M Patel (finance minister from 1977 to 1979) had many years earlier deftly handled the partition-related division of assets. Though later exonerated, the Jagmohan Mundhra scandal had impacted his reputation. He later joined the Swatantra Party which merged with the Janata Party. With active support from Morarji Desai he brought in I G Patel to the Reserve Bank of India, retained Manmohan Singh in the finance ministry, attempted to change the five-year plans to annual rollover plans which also looked at implementation issues and not merely allocation of resources. He tried to increase the savings rate by attempting to discourage “ostentatious” consumption, announced India’s first demonetisation of high-value currency, and tried to sell gold reserves to reduce its price, among other not so great measures. But despite what must have been a fairly difficult time in a government with many independent power centres, he managed in 1977-78 to present a Budget of Rs 15,500 crore and a deficit of only Rs 72 crore, which increased to Rs 414 crore the next year on account of cyclone- and flood-related damages across India.
 

Though an important member of the Swatantra Party, his actions do not always show up as those of an economic liberal. Among other acts we would term as quite market-unfriendly, he increased the list of industries under small scale to 500 from 180, the highest bracket for income tax to 69 per cent (including cess) at the margin and created a negative list of sectors where no foreign collaborations would be permitted.
 

Who, then, was H M Patel? A liberal managing the politics in a government with many power centres?  Or an efficient administrator driven by conventional wisdom of the times? Unfortunately, the author is unable to answer that question. But what is clear is that limits on private industry were not just the product of the Nehruvian era.  It is also clear that historical personalities are not so easy to classify as socialist or liberal, right of centre or left.  But did those involved in the more recent demonetisation learn from the experience of the Janata Party’s in the late seventies?
 

H M Patel’s story is one among many. There were 11 finance ministers between him and 1998. Each of them had a unique personality, yielding stories rich in texture, not easily classifiable the way simplistic media projections do these days. In Charan Singh, R Venkataraman, Pranab Mukherjee, V P Singh, Rajiv Gandhi, N D Tiwari, S B Chavan, Madhu Dandavate, Yashwant Sinha, Manmohan Singh, and P Chidambaram, India has had some fascinating personalities as finance ministers, grappling with their own partymen, a Reserve Bank of India that was purportedly independent but then not, or for that matter prime ministers who were sometimes supportive, sometimes not so.  The volume does justice to each of them, and then some more.

The author is able to cover many of these stories to great effect and share some fascinating insights into the process of policymaking in the highest quarters. A huge takeaway for this reviewer is that if you look hard enough many major actions and reforms that occurred later were made possible due to actions that may have been considered minor or even irrelevant many years earlier. However, there should have been more on the dealings with Opposition parties, and an investigation into what the finance ministers were oriented towards as individuals, where their inherent preferences lay, what they grappled with, within and not just without.
 

But all told, the second volume of the Finance Minister Trilogy gets a double thumbs up from this reviewer. The author is also able to provide us with a deep insight into some of the most important actions taken many years ago, and he does so without any judgement or verdict. The style is extremely dispassionate, simply reporting what happened and as it happened. And that makes it very useful for all, whichever side of the political-ideological spectrum the reader may be. A must read for all students of modern economic history, for libraries, and for policy wonks who may want to learn from the failures and successes

of the past.
 

The reviewer works with CSEP, New Delhi. A K Bhattacharya is editorial director at Business Standard