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Economist on Manmohan Singh

May 25th, 2004 · No Comments

The Economist looks back to a momentous week in Indian politics which culminated in Dr Manomohan Singh beocming Prime Minister:

In 1991, when Congress last took office, it was in an almost identical position to the one it finds itself in now: short of a majority, and forced to depend on the support of Communists from outside its coalition. Then, as now, Mr Singh was the chief reformer, though the party was led by P.V. Narasimha Rao, a septuagenarian poet with, at the time, no known enthusiasm or aptitude for reform. All the same, the Rao/Singh government lasted five years, during which it smashed the licence raj that had smothered the economy in regulations and condemned it to the sluggish Hindu rate of growth, a term now happily consigned to history. That government started to privatise, opened India to foreign investment and began to deregulate the country’s appalling infrastructure. Over the past six years, the ruling Bharatiya Janata Party (BJP) merely continued Congress’s work, with plenty of backtracking along the way. By the time of this latest election, the BJP’s privatisation programme was restricted to selling off minority stakes in profitable businesses to eager buyers.

The real problem is that the Communists have chosen to remain outside a new government. Joining would have entitled them to cabinet representation and provided a chance to put some of the good ideas they have followed at state levelon local democracy, health care and literacyinto practice throughout India. The policies of these parties need not clash with reform. The proceeds of rapid privatisation could, for example, be invested in the sort of grass-roots human development that has worked so well in Kerala, where the Communists are strong. That would appeal to both sides of the coalition, and to foreign investors as well. Sadly, the Communists put local interests first (they are rivals to Congress in two key states), and so chose to stay out. But with luck, the result could be the same: bolder deregulation, combined with more attention to the 700m Indians who live in rural areas, far from call centres and cappuccino bars. This is precisely Mr Singh’s philosophy: that government should remove itself from all of the things it does not do well, which means pretty much anything to do with business, and concentrate its efforts on areas where markets alone do not provide the answers.

Whereas the BJP were always reluctant reformers, Mr Singh is the genuine article, a man who understands better than any other leading Indian politician the scope of what still needs to be done. This needs to include plenty more privatisation, tackling taboos such as the oil companies, the national airline and the banks. The essential but delicate task of chipping away at India’s mountain of inefficient subsidieswhich would allow vast sums to be spent instead on improving India’s physical and human infrastructurehas not even been started. Most pressing of all is the country’s fiscal mess: its deficit runs at 10% of GDP and absorbs far too much of its budget. But reducing this will be tough: neither widening the tax base nor cutting spending looks easy, especially with the Communists to convince. Still, Mr Singh has performed miracles before. When he took over as finance minister in 1991, India’s foreign exchange reserves had sunk to $1.2 billion, or three weeks of imports. When he left office in 1996, they stood at $18 billion, and the economy had grown by an average of 5.6% during those years, far better than before.

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