The Accidental Prime Minister: The Making and Unmaking of Manmohan Singh (28 page)

The psychological impact of the slowdown on market sentiment was even greater because investors, at home and abroad, had come to take India’s economic rise during 2003-08 for granted. Even though the Congress party rubbished the BJP’s ‘India Shining’ campaign and sought to compensate for it with its spending schemes, it too assumed that the Indian economy was on a roll. The rising rates of investment and savings and rising exports were seen as drivers of sustainable growth. So much so that some of the early signs of the ‘policy paralysis’ that came to haunt UPA-2 were not taken too seriously. One of them was the slowdown in the national highways construction programme. The Vajpayee government ensured speedy implementation of the programme. However, some in the UPA, influenced by the Left and a few NAC activists, came to view road construction as an elitist activity meant to please automobile owners, and work on the highways slowed to a crawl. Moreover, the BJP’s disinvestment programme aimed at selling off, or reducing, the government’s stake in public sector enterprises, was halted, and despite creating a new Investment Commission headed by industrialist Ratan Tata, there was no consistent strategy to increase capital expenditure by the government.

None of this made much of a difference to investor perceptions about India’s growth prospects as long as the economy was on a roll. Even the transatlantic financial crisis of 2008-09 had limited impact, initially, on growth. Economist Shankar Acharya, who joined Dr Singh’s team at the finance ministry as chief economic adviser in the early 1990s, was one of the few consistent critics of the government’s fiscal and economic policies. Even before the transatlantic crisis hit the economy in 2008, Shankar would keep warning the government that many of its spending and other policy decisions would cost the economy dear. Each time Shankar’s column appeared in the
Business
Standard
I would mark it to the PM. But for a long time Shankar was viewed as a pessimist who was needlessly ringing the alarm bells. In the end, and not just due to the global economic slowdown, Shankar was proved right.

When the UPA-2 government became paralysed by a political storm in 2010-11 over explosive financial scandals, many of the inherent weaknesses of the economy, built up due to the creeping populism of UPA-1, surfaced and took their toll. By then Dr Singh had lost control over fiscal policy and much else. In March 2012 he was not even aware till the day before the budget was to be presented that his finance minister Pranab Mukherjee was going to introduce a new corporate tax policy, with retrospective effect, that would have disastrous consequences for investor sentiment.

For a man whose professional reputation was built by his role in battling the hyper-inflation of the mid-1970s, reining in the fiscal deficit in the early 1990s and restoring growth momentum to the economy around 2005-06, Dr Singh, by the end of UPA-2, was still battling inflation, still trying to get the fiscal deficit down and still pushing for a revival of the growth momentum.

‘India is destined to recover its due status in the world, but this process will be speeded up if we do what we must at home and build bridges of mutual interdependence with the world.’

 

Manmohan Singh at the India Today Conclave
February 2005

 

Whenever he wanted to draw attention to the limits of Central government, in particular prime ministerial power, Dr Singh would quote Telugu Desam founder-leader N.T. Rama Rao’s famous remark that ‘the Centre is a conceptual myth’. The Indian Constitution defines the powers of the Centre and the states but the balance between them has shifted from time to time depending on the nature of the political dispensation. India has gone through both centralizing and decentralizing phases with prime ministerial power waxing and waning.

While in times of a crisis or an emergency—including economic crises, war and natural disasters—the Central government can mobilize and deploy its power in ways that override the power of the states, in normal times the Centre’s real power derives only from its control over fiscal resources, and the security and intelligence apparatus. Even then, a prime minister is constrained by the Cabinet form of government in which he is, at best, a ‘first among equals’. Coalition governments impose further restrictions on prime ministerial authority. In the case of the UPA, the PM’s authority was further curbed by the nature of powersharing between the Congress party president and the PM.

For all these reasons, and given that the economy was in reasonably good shape in 2004, and there was no major challenge on the military side, Dr Singh decided to focus his attention on foreign policy. This was one area in which prime ministerial prerogative was paramount. The external affairs minister does not have the kind of freedom of action that a finance, home or defence minister can hope to enjoy, even in normal times. That is in part because most foreign policy initiatives flower at the level of the head of government or head of state.

Dr Singh’s only problem in choosing foreign policy as the area where he would put his stamp was that his external affairs minister was a retired diplomat with a mind of his own. Natwar Singh not only had clear views on major foreign policy issues but also believed that Dr Singh was a political greenhorn and a novice in foreign affairs. He also probably assumed that his long-standing proximity to the Nehru- Gandhi family placed him a peg above Dr Singh in the dynasty-based Congress party’s nebulous hierarchy. However, Sonia Gandhi never allowed any one person to assume he or she was the last word on any issue. During her journey to power, she turned to a range of partymen, including Karan Singh, Mani Shankar Aiyar and Mani Dixit, for foreign policy advice, even though it was Natwar Singh, and sometimes Dr Singh, who would accompany her to meetings with visiting heads of government. Similarly, on the economic policy side, her key aide was always Dr Singh but she would lend her ear to Pranab Mukherjee and P. Chidambaram, among others.

In the end, Natwar Singh, who lasted about eighteen months as external affairs minister, proved to be more supportive of the PM than we had assumed he would be. But the PM also had to make a conscious and determined effort to befriend Natwar and at the same time exert his authority. The episode, reported earlier, in which Natwar Singh exceeded his brief on the matter of India sending troops to Iraq, offered Mani Dixit a good opportunity to assert the PMO’s role in foreign policy. A second, if less important, opportunity for the PM to assert his individual authority overruling diplomatic advice was provided a few days later when Ronald Reagan died. Dr Singh wanted to go to Roosevelt House, home of the US ambassador, and sign the condolence book as a gesture of regard to the late President and goodwill towards the US. Reagan was generous in his dealings with both Indira Gandhi and Rajiv Gandhi. But the foreign service officers in the PMO advised him against going to the ambassador’s home and said the condolence book would be brought to him.

Noticing that Dr Singh was torn about whether he should follow his own instincts or the advice of his diplomats, I reminded him how Jawaharlal Nehru would at times drive down to see John Kenneth Galbraith at Roosevelt House just for a cup of coffee and quiet conversation. In fact, when Robert Blackwill was the US ambassador in Delhi, he would sit his visitors down for coffee in the far right corner of his living room, saying, ‘Let’s have coffee where Nehru and Galbraith used to.’ Dr Singh decided he would go to Roosevelt House and sign the condolence book. On his way home for lunch from Parliament, his carcade took a detour and drove there at short notice, surprising everyone.

Slowly but steadily, Dr Singh began to assert himself in the field of foreign affairs and policy. He mostly conceded limits to his authority in shaping domestic policy, given that his council of ministers had loyalties to other centres of political power. But he jealously guarded the foreign policy turf and ensured his writ would run at least in this sphere. By September 2004, when he travelled to New York to address the UN General Assembly, he was firmly in the saddle.

 

 

Dr Singh was, of course, not a novice in foreign affairs. As secretary general of the South Commission based in Geneva, he had the opportunity to deal with world leaders and familiarize himself with world affairs. As finance minister in the early 1990s, he engaged actively in economic diplomacy to strengthen India’s external economic profile. Taking charge as India’s finance minister in the midst of a major external payments crisis and at the end of the Cold War, Dr Singh was forced to grapple with the challenge of handling an external crisis in the midst of a rapidly changing geo-political and geo-economic environment. His experience in dealing with the US, Japan and Singapore in particular, and with the Europeans, was firmly etched in his memory and he would often recall events from that period. He had closely bonded with his counterparts in countries belonging to the Organization for Economic Cooperation and Development, and many of them, now in retirement, would seek appointments to meet him either in Delhi or in their home capitals whenever Dr Singh visited them.

In his very first budget speech in Parliament in July 1991, Dr Singh linked India’s global standing to the country’s economic performance. In doing so, he enunciated a new approach to Indian foreign policy for the post-Cold War era. After spelling out his strategy to deal with an immediate crisis—a balance of payments and fiscal crisis—Singh firmly anchored his economic initiatives in a wider strategic setting, viewing them as the foundation for ‘the emergence of India as a major economic power in the world’.

Six years later, recalling this speech in an interview published in the inaugural edition of a new international affairs journal,
World
Affairs,
Dr Singh underlined the foreign policy implications of the ‘new economic policies’ unveiled by the Narasimha Rao government. There was no doubt in Dr Singh’s mind that the liberalization of the Indian economy was part of a new orientation taken in the context of the collapse of the Soviet Union, the rise of China and East Asian economies and India’s own economic rise in the 1980s.

Indeed, Narasimha Rao himself viewed his foreign policy initiatives in those terms. In one of his first media interviews, Rao told
Sunday
magazine in September 1991, ‘Now the Cold War is over. There is an element of cooperation instead of confrontation. It is a new situation. And we have to respond to that. So certain policy orientations will take place to ensure that our national interest does not suffer.’

In 1991, this ‘national interest’ was defined essentially in economic terms, given the crisis at hand and the need to pull India back from the brink of bankruptcy. However, it was not merely the compulsions of crisis management that forced a rethink on foreign policy priorities. Many economists had anticipated the crisis and there was a long period of rethinking on economic policy priorities preceding the 1990—91 crisis. This rethinking was triggered by the development experience of East and Southeast Asian economies and that of China, which had launched its own ‘Four Modernizations’ policy a decade earlier.

In the interview he gave me for the
Economic
Times
in February 1991, three months before he assumed charge as India’s finance minister, Dr Singh did speak about the relevance of the East Asian growth experience for India and the need to reorient domestic economic policies. He returned to this theme in his last budget speech in February 1995 when he said, ‘It is this vision of a resurgent India taking her rightful place as an economic powerhouse in Asia, which has inspired our economic policies.’

In relating India’s economic capabilities to its global profile and influence, Dr Singh was in fact drawing on early ‘Nehruvian realism’. In his first major speech on foreign policy, Jawaharlal Nehru told the Constituent Assembly in December 1947: