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Monday, 15 August 2016 00:00
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As Raghuram Rajan says, the idea of the forex swap that saved the rupee was pushed by Chidambaram


We attack politicians for not privatising but is there investor appetite for big privatisation and while the Air India bailout is a waste, compare this with R1 lakh crore+ annual savings via Aadhaar—you reform what you can, when you can


In our hurry to get juicy copy and sermonise in even the pre-Twitter era—the 140-characters Twitter offers is a luxury compared to what most headlines allow! — most journalists tend to go in for what former finance minister P Chidambaramcalled binary solutions of good and bad. Chidambaram was saying this at a discussion on former RBI Governor D Subbarao’s book in the capital last week in the context of the debate being framed as RBI God vs FinMin Devil.

While the finance minister wanted rates to be cut — a view endorsed by this newspaper! — Subbarao wanted them high to fight inflation. You can have a view on whether high interest rates will curb inflation in a supply-constrained situation or whether low interest rates will stimulate investment in a policy-paralysis environment, but as Chidambaram said, two reasonable people can have opposite views without either of them being the devil.

Given it is RBI that is portrayed as God, perhaps the best input into the futility of the binary position has come from outgoing Governor Raghuram Rajan. While Rajan is generally credited with the forex credit swaps that saved the rupee when it was under attack, Rajan graciously acknowledged the idea which bankers had given was rejected by him as chief economic advisor but was pursued by Chidambaram — and also Subbarao. Since it is clear the scheme worked, surely the political-bureaucratic (Subbarao was a career bureaucrat) class isn’t all stupid?

Indeed, while Rajan has done well to get banks to recognise dodgy loans and clean up their balance sheets—in all the book discussions, Subbarao has failed to defend his record in not spotting this or doing enough early on despite RBI inspection of bank books and its nominees on their boards—surely it cannot be anyone’s case that he could have done this without active support from the finance ministry. At one of the various Subbarao discussions, a journalist asked him if he didn’t do enough to address the dodgy loans because of finance ministry pressure on banks to keep giving loans to prop up economic growth! To his credit, Subbarao pooh poohed the suggestion.

Despite the supposed tension between Chidambaram and Subbarao or Arun Jaitleyand Rajan, the government and RBI generally work together quite well. Had Rajan not accepted Chidambaram’s counsel and not acted on the swaps, and had the rupee collapsed as looked likely, would anyone have blamed the RBI Governor? Given his position in the holy trinity of independent organisations—CAG and Election Commission being the other two—battling politicians, chances are few would!

Another discussion in the capital last week, this one on a book on prime ministerNarendra Modi by Rajiv Kumar, also gave occasion to rethink the popular view on the political class. Power minister Piyush Goyal who led the charge on behalf of the politicians did stretch the argument a bit and spoke for more than too long, but made valid points when contesting the view that there were no big bang reforms taking place.

All of us in the pink press recommend privatisation to get rid of either PSU sloth or the restrictions put on PSUs by the Constitution’s instrumentality-of-state provision—successive tenders being cancelled by courts is what cost BSNL its pre-eminent position in rural India—and certainly the R30,000 crore bailout for Air India is unconscionable, nor is it clear what is to be got by retaining MTNL whose wage costs equal its turnover.

But there is a flip side that can’t be ignored. One, are there any takers for an Air India or an MTNL right now? Two, as NSE, NSDL, Isro, NPCI, UIDAI and so many others have shown, the public sector can deliver wonders under the right leadership. Three, at a time when the private sector read it totally wrong and compromised its own as well as the banks’ balance sheets, and when PPP is all but buried, it is the same reviled PSUs that we are banking upon to get the country out of the ditch it is in.

None of this is to say that privatisation should not be aimed for or that the government is right in reopening sick fertiliser PSUs, it is just to reiterate that no one is absolutely right or absolutely wrong, reforms depend upon circumstances and the ability to do what you can when you can. Apart from the question of whether something as mammoth as a Coal India can easily be privatised, if production has risen 75 million tonnes (mt) in the last two years as compared to 31 mt over four years of the UPA, surely that’s pretty good and is a testimony to the work done like clearing of land for mining, allocating new mines and laying railway tracks (this is yet to be completed) to evacuate coal.

And once Aadhaar is fully operational, if the government is able to save even half the R150,000 crore of subsidy theft each year—this will multiply once you look at state government expenditure—that far outweighs the waste on Air India-type PSUs. Similarly, while economists recommended a big hike in diesel prices some years ago, surely the UPA’s 45 paise per month homeopathic dose—which NDA is adopting for LPG and kerosene—was more efficient; ditto for removing 1.5 crore users from the LPG list and plans to work with states to prune the kerosene subsidy.

Not being able to change the UPA’s disastrous land law, or reform labour laws, was cited as a big failure at the Rajiv Kumar book launch, but with no political party willing to back the government on the land law, it did the best it could by assuring states it would give legislative sanction to their attempts to do so—some states have already changed their laws—and a beginning has been made in legislating big changes in labour laws in the readymade garments sector.

None of this is to say the government has got it right everywhere—its agriculture policies are a mess and its anti-market credentials are visible from the plan to ban sugar futures to the restrictions planned for Ola-Uber and the less said of the mess made of the e-tail policy, the better. As a general rule, history has shown us, if markets are allowed to function, along with a vibrant private sector, they deliver better results than those from managerial reforms since the latter requires constant monitoring and manual interventions which are not always possible for various reasons.
On our 69th birthday, while we strive for more and hope Modi will start respecting markets, let’s forgo our binary approach, recognise reforms mean different things at different times, that you do what you can when you can—recall how Narasimha Rao stopped reforms after the first few years—and, above all, no one is the last word on anything. Especially not when two economists typically end up with four points of view!



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