Rekindling hopes: PM signals a course correction

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Arvind Padmanabhan | 02 Jul, 2012
When Prime Minister Manmohan Singh met with the senior officials from North Block earlier this week after taking charge of the finance ministry again, his speech was short and to the point. But the message that went out was loud and clear with an added but important acceptance for the first time - that there was indeed a widespread public perception of policy paralysis in the government and he wanted the situation to change as fast as possible.

In barely a few days since then, there is buzz all around that with Pranab Mukherjee now pursuing a career outside real politics as a candidate for presidential polls, Manmohan Singh has finally stepped in with the same vigour that saw him unfold India's liberal economic reforms programme in 1991, when he first became finance minister.

According to insiders, the prime minister in ways more than one was not particularly happy with the way the finance ministry was being run under Mukherjee. There was also this mismatch in terms of a liberal versus a conservative. But there was little he could do as long as Mukherjee was in the saddle.

For example, Manmohan Singh is said to have taken particularly exception to the way the tax case was being pursued against Vodafone with a retrospective change in statute, despite a Supreme Court ruling in favour of the Britain-based mobile telecom giant. The prime minister was all the more sore, since he had assured his then British counterpart Gordon Brown in a letter last year that the Vodafone will not be singled out.

"But he could not say much. There was this issue of seniority, respect, his own persona - in fact, several other factors that are hard to explain," said a former aide to the prime minister, who did not wish to be quoted, explaining the equation with Mukherjee. The former aide said there was always this lingering fact: Mukherjee as Finance minister in the late 1980s had appointed Manmohan Singh governor of the Reserve Bank of India.

But that is a matter of the past -- as evident from the prime minister's short speech June 27 before the economic advisors and secretaries to the finance ministry. It gave away how much he disapproved the extant policies. Also, by saying he had been away from the nitty-gritty of the ministry for a long time and that he wanted proper feedback now from the ministry official, the prime minister also sent a signal that he intended to retain the portfolio for some time at least.

"In the short run, we need to revive investor sentiment both domestic and international. There have been many factors that have contributed to this general negative mood," he said in a rather frank and honest admission which recognised the fact that the investor mood both within and outside the country was not really positive.

"At the current juncture, we are passing through challenging times economically. The growth rate has taken a dip, the industrial performance is not satisfactory, things are not rosy on the investment front, inflation continues to be a problem. On the external front, I am concerned about the way the exchange rate is going. Investor sentiment is down and capital flows are drying up," he said.

"Revive the animal spirit in the country's economy," he told the officials, drawing from one of his most-liked phrases penned in John Maynard Keynes' book, "The General Theory of Employment, Interest and Money" that describes it as an emotion that influences human behaviour into spontaneous action.

These candid remarks were enough to once again rekindle hopes within India Inc that economic reforms will be back on track, especially since "Team Manmohan" of 1991 was back on the saddle. Prominent members of this team then were Reserve Bank of India governor C. Rangarajan and finance secretary Montek Singh Ahluwalia, among others. They are back advising the prime minister as chairman of the Prime Minister's Economic Advisory Council and deputy chairman of the Planning Commission, respectively.

To assess the mood after Manmohan Singh took charge of the finance portfolio, the Associated Chamber of Commerce and Industry of India (Assocham) commissioned a survey a few days ago among top 150 industrialists in the country. The findings corroborated the overall change of mood. The survey found that 80 percent of the chief executives firmly believed that the prime minister will now act quickly and pursue reforms in areas like retail trade, aviation, insurance, banking and pension without further indecisiveness.

The markets, too, raised a toast. The sensitive index (Sensex) of the Bombay Stock Exchange (BSE) rose some 500 points since Manmohan Singh took charge of the finance ministry and is ruling at a two-month high.

But next few weeks will be crucial for they will determine how fast he is acting and delivering on policy front.

Otherwise the same Sensex will not blink an eyelid to crash again, and give rating agencies fodder for a negative assessment of the economy again.