Reinventing Economic Theory

 - Dasu Krishnamoorty

Emerging from his slumberous exile, P.V. Narasimha Rao surfaced at the centrestage of the Congress plenary session at Bangalore and in the consequent flush of attention forgot he was the author of the economic reforms launched in 1991. He was ably assisted in this amnestic effort by his former finance minister and World Bank votary Manmohan Singh. The plenary session did what was expected of it after the heavily orchestrated defence deal opera. It wanted the Vajpayee government to resign, though Parliament was in session and as the supreme instrument of democracy could discuss the Tehelka tapes episode and approve a no-confidence motion or turn down a confidence motion if the ruling party were to sponsor one. What the Bangalore conclave did not bargain for was the sudden correction, very close to a u-turn, Rao and Dr. Singh made to the economic excursus they authored in 1991, tempted by a World Bank loan of US$ 50 crores. In a ten-page note he submitted to the session, Rao cautioned the troubled NDA alliance that what it was doing by disinvesting from the public sector was different from what he did to the country and its people during 1991-96. Rao said that plenary session had succeeded in re-railing the policy of liberalisation. Dr. Singh too remembered in time that the touchstone of economic reforms was removal of poverty, unemployment, and illiteracy. He also discovered that privatisation was not a panacea for all ills. Thank you, sir.

There is no point in discussing if the NDA had done better because, for all purposes, it is an ideological extension of the Congress. Its economic perceptions are the same as those of the Congress. People remember how the media, an adjunct of today's political economy, had generated euphoria among them about the lollies the economic reforms of Rao and Dr. Singh would bring them. What they did not know, however, was that the economic reforms had nothing to do with the problems of poverty or unemployment and everything to do with the compulsions of a wily politician to survive the hypothetical scenario of the BJP with a strength of 123 and the National Front with 130 seats in the Lok Sabha joining hands to oust him. The abysmally low level of foreign exchange reserves and the critical balance of payments position came in handy to invite the Brettonwoods Trojan horse to set our economic house in order. The World Bank Report on the Indian Economy of 1990 became the basis for PV's economic reforms lubricated by what has come to be known as the Fund-Bank formula.

Though this formula is known to every economically-aware person, it needs elucidation for the hoi polloi. The basic assumption of the formula is that the economy works better when prices are free to move at the will of the market forces. Non-market intervention through state subsidies and concessions runs counter to this formula and therefore must stop. It is not the business of the state to operate the economy and the sooner it withdraws and shrinks to a naught, the better it is for the economy. Since the public sector symbolises state enterprise, it should go. The other tenets of Bank-Fund faith are the unlimited freedom of movement for global capital across the continents and the supremacy of the market in all spheres. This formula rests on a tripod consisting of liberalisation, privatisation, and globalisation. It is a little-known fact that immediately before he volunteered to collaborate with Rao in engineering the u-turn the country's economy had taken, Dr. Manmohan Singh was the Secretary-General of the South Commission. Social change was the main slogan of the Congress at the elections that followed the assassination of Rajiv Gandhi. But social change runs foul of the Fund-Bank formula which demands devaluation of the borrower country's currency as a first step.

Rao and Dr. Singh went ahead with these acts of economic vandalism known as reform in the most undemocratic and opaque manner. There was no national debate on the reforms nor was the approval of Parliament obtained for the most fundamental change in the country's economic direction and focus. Not only was there lack of transparency but also lack of concern for public opinion and sentiment. When the Bank gave its nod for a can-do-without loan of US$50 crores, the Rao and Dr. Singh duo delivered the country to the Bank on a platter, giving it access to the process of budget and trade policy formulations. Dr. Singh misled Parliament by placing only one of the five Bank documents before it, withholding the other four containing conditionalities which the government should honour after it received the first tranche of the structural adjustment loan. The Bank sought these reforms after Dr. Singh had made commitments behind the back of Parliament and the people. Distortion was built into the entire reform process at the very outset with the induction of a Bank nominee as the finance minister. This story of capitulation is incomplete without a reference to the federal budget of 1992-93.

Here is how the budget exercises began and ended at that time. Dr. Singh made several proposals to the Bank president in a letter he wrote on November 11, 1991. The very next day, the Bank managed to send a 15-page note to Dr. Singh converting his commitments into conditionalities and finally in February of 1992 Dr. Singh presented them as budget proposals. The people and Parliament knew nothing about these goings-on. In short, the budget proposals were placed before the Bank bureaucracy even before they were presented to Parliament. This disrespect and contempt to people and Parliament was followed by an unsolicited preview of the eighth plan document provided to Bank officials. At that time, only the National Development Council had seen it and the draft had yet to be finalised. Yet, Sukhram of the telecom scam fame, then minister of state for planning, misled Parliament by claiming that the government had not shown any documents to the Bank officials. We have no idea if the Vajpayee government too pays such homage to the Bank-Fund twins because there is no transparency regarding decision-making process. The media claims that it is the Prime Minister's Office, which runs the government overriding everyone else.

The Bank clout was again evident in the Narasimhan report on banking reforms which was made public around the same time as Bank officials were shown budget proposals. His report was an elaboration of the recommendations made by the Bank in a confidential document entitled India: Financial Sector Report 9. It was no accident that the Narasimhan report matched with the Bank document para for para in the matter of diagnosis of and prescriptions for our economy.

One would like Rao and Dr. Singh to deny the charge that the economic establishment in the country during their time or at least at the time of surrender to Brettonwoods twins was run by persons who had at one time served the Bank on deputation by the government. Here is the list of the members of the economic pantheon all of whom had served the Bank earlier:

Dr Manmohan Singh, finance minister Montek Singh Ahluwalia, Secretary, Department of Economic Affairs Bimal Jalan, Chief of the Economic Advisory Council to the Prime Minister Rakesh Mohan, Advisor to the Ministry of Industry Jayanto Roy, Advisor to the Ministry of Commerce Arvind Virmani, Economic Advisor to the Finance Minister S.Venkitaramanan, Governor of the Reserve Bank of India Parthasarathy Som, Economic Advisor to the Department of Revenue

Deepak Nayar too was there but he later resigned. Members of Parliament had several times pointed out the dual loyalties of these officials and how the government's policy planning in sensitive ministries like finance and industry would be a major casualty as a result of Bank deputies occupying key positions. Some of them still occupy key positions in the Vajpayee government like Bimal Jalan being the governor of the Reserve Bank and Montek Singh Ahluwalia being the Finance Secretary.

The writ of the Bank-Fund twins was so powerful in Rao's time that liberalisation almost meant permissiveness. An example is how Gopi Arora, Executive Director representing the country on the IMF board, granted permission to the IMF to open an office in New Delhi in consultation with Dr. Singh but bypassing and even contravening the wishes of Prime Minister Narasimha Rao. An Indian Express report at that time said "the modus operandi of these bureaucrats and politicians is to first bring in the Bank personnel into the planning commission as advisors. Planning commission appointments are beyond the purview of the central public service commission. After a brief stint in the planning commission, they are shifted to key positions in finance, industry or even the PMO. Their planning commission stint is recognised as experience of working in the government." Though some people are charitable in saying that these officials have dual loyalty, in reality, most of them are loyal to the Bank-Fund where they would like to return to for higher dollar salaries and pensions they would get by just completing three years of tenure.

Now let us return to the midstream corrections suggested by Rao and Dr. Singh at Bangalore. True, the NDA alliance did not cover itself with glory both in the projection of problems and their solution. But Rao's claim that his party had brought the policy of liberalisation back on the rails is closer to a lie than an exaggeration. It looks as though he has suddenly developed contempt for privatisation and believes his party will share his anti-privatisation fervour. His thesis is replete with contradictions such as the plea that the public sector should remain but the private sector should meet the unmet needs of the people. In the last half a century of independent India, governments, irrespective of their political labels, have failed to meet the basic needs of the people -- of food, clothing, and jobs. The Vajpayee government has failed to take surplus food to the hungry millions, letting it rot in government silos. Its promise of downsizing never affected the higher rungs of the bureaucracy but the army of class III and IV employees. It has as miserably failed in delivering the goods to the poor as Narasimha Rao's Congress party.

Are Rao and Dr. Singh trying to disown their own child? Or is the Congress so desperate to come back to power that it wants to go back to the era of mixed economy? Dr. Singh and Rao's speeches give the impression that the Congress is testing the ground for another u-turn. Whatever tautology they employ, neither Rao nor Dr. Singh can reconcile economic reform of any variety, Congress, BJP or Left, with the good of the common people. The goal of all economic reform of the nineties and its follow-up is to fatten the coffers of a small minority at the cost of the vast majority. Economic jargon employed by the politician, the bureaucrat, the economist, and the media person can only hide this hideous truth but not suppress it. No blueprint of economic reform can carry conviction if it does not emanate from the grassroots.

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