PM’s poor economic legacy

Apr 29 2014, 02:59 IST
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SummaryUPA’s policies bely Manmohan Singh’s reformist credentials that he earned in India’s landmark 1991 economic transition

In his second term, Prime Minister Manmohan Singh was subjected to much abuse. Poor economic management, scam-ridden ministers and officials, verbose ministers not subjected to discipline, limited and poor communication through media and public speeches, continuing with incompetent ministers … the list is endless. We have always suspected that the fault lay with the party-government relation that was introduced when Sonia Gandhi stepped down in his favour in 2004. This is now confirmed by Sanjaya Baru’s book The Accidental Prime Minister. It goes some way to confirming a famous comment about Dr Manmohan Singh that he is a “better politician than he is an economist.”

The PM’s reputation rests on his years as Narasimha Rao’s 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 PM’s 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 government’s 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

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