Will Jaswant Singh be a successful finance minister?
July 4, 2002
A tiny rally in the 30-share sensitive index - the Sensex - of the Bombay Stock Exchange that quickly fizzled out is being touted as a positive reaction to Jaswant Singh's return to the finance ministry. That is quite ridiculous. In fact, even 'cautious optimism' is an exaggerated description.
The market is being watchful, and by not reacting negatively to Singh's appointment seems willing to give him a fair chance.
After all, Singh was an extremely successful Minister for External Affairs and handled the tough situation in Kashmir with a great deal of panache. He is sophisticated, competent, enjoys a lot of personal goodwill and is close to the prime minister.
Moreover, Yashwant Sinha's replacement was probably the only certainty in this reshuffle. And ever since a columnist dubbed him 'unlucky,' superstitious market men have wanted him out.
Will Singh be as successful in finance as he was in external affairs? It is difficult to say. He inherits a bad situation. The morale of the industry and the investors is badly battered, several blue chip financial institutions are tottering on the brink of ruin and the economy is desperately in need of a big shot of adrenaline.
Also, the finance ministry is completely bereft of top bureaucrats who could have provided continuity in policy-making. Add to this the fact that Singh is passionate about international relations but reluctant to take over the finance portfolio, and you have a dismal picture.
On the other hand, Jaswant Singh has the reputation of being a no-nonsense person who will have the support of the prime minister in policy-making and choosing his team.
Then again, if one were to go by track record - even if it is a just a13-day stint in finance - things look bleak again.
Singh is still remembered for two actions during those days. First, he piloted the renewal of the sovereign guarantee to Enron's controversial power project during the government's dying minutes in power.
This placed India and Maharashtra in a terrible negotiating position from which they are still to extricate themselves. It also helped the controversial Dabhol project to muscle its way back, at thrice the size and a fictitious cost reduction.
Second, he is believed to have initiated a couple of cases against Reliance Industries. One always welcomes a finance minister who is willing to act against powerful corporate houses. But the action would have been more effective had Singh also gone after other industry groups who have defaulted on large borrowings from banks and financial institutions running into several billions of rupees.
Instead, even the cases against Reliance have all fizzled out without any action.
Let us look at what is really expected from Jaswant Singh during his second and more substantial stint at the North Block. Most media reports say that restoring investor confidence is the primary expectation from Mr Singh. They attribute Yashwant Sinha's exit to frequent scams in the capital market, the destruction of Unit Trust of India and the large non-performing loans (exceeding Rs 1,000 billion) of banks and institutions.
But the finance minister's effectiveness would depend on the team of babus that he chooses to work with, especially since he will start with a brand new team that will probably grow into the job along with him.
The post of finance secretary has been vacant for sometime as C M Vasudev, Secretary Economic Affairs, is all set to go to the World Bank. Revenue Secretary S Narayanan is the senior most babu in the ministry having survived incessant rumours about his transfer. It remains to be seen if Jaswant Singh moves him to finance secretary or brings his own man in.
The grapevine has it that Singh may look beyond the Indian Administrative Service and bring in an outsider. The post of the chief economic advisor is also vacant after Dr Rakesh Mohan's exit and Dr Jaimini Bhagwati (Joint Secretary, Capital Markets), an IFS officer and about the only bureaucrat with a deep academic knowledge of the capital markets, has also moved on to a World Bank posting.
Having said that Singh's performance will depend on his team, he has the big advantage of holding joint charge of the finance ministry as well as the Department of Company Affairs. It straightway doubles his effectiveness in dealing with financial scams and corporate mischief, by eliminating the never-ending skirmishes between the finance ministry and the DCA.
This will also make it easier for him to pilot the long overdue amendments to the Securities and Exchange Board of India Act, the Industrial Development Bank of India Act, and the Unit Trust of India Act through Parliament.
Mr P Chidambaram was the last to hold such a dual charge and he is considered one of our most effective finance ministers.
That brings us to Singh's biggest constraint as finance minister - one that he himself had recognised long ago.
In a chat with rediff a few years ago, he gave Mr Chidambaram a B-minus rating as finance minister, because he was 'not a free agent' and was constrained by the programme of 13 different constituents of the United Front government.
By that yardstick, we will have to keep our expectations really low. Singh is doubly constrained. First, by the conflicting pressures within the three constituents of the saffron alliance (the Vishwa Hindu Parishad, the Rashtriya Swayamsevak Sangh and the Bharatiya Janata Party); and second, by the disparate agendas and priorities of the 24-party National Democratic Alliance.
In the same chat, Singh had said that cutting the size of government and reducing wasteful expenditure and shrinking government debt would have been his priorities, if he were the finance minister. Singh has inherited all these problems - only they are bigger and scarier.
He had also said that he would have focussed on increasing the number of taxpayers in the country. That too has become more urgent since honest taxpayers are a furious lot today having suffered the triple blow of an erosion in savings (courtesy UTI), reduction in savings rates, and increased taxes.
If Singh is serious about expanding the tax base, he would have to attack corrupt tax officials, who are completely uninterested in enhancing revenue collection for government.
All things considered, Jaswant Singh does have some crucial advantages, but he also has far bigger problems. One would also do well to remember that if the opinion of the capital market was indeed a factor dictating the choice of the finance minister, then the prime minister and his brand new deputy would have done more than merely swap portfolios between finance and external affairs.
They would have brought in the most obvious choice for the job - Arun Shourie. He is not only the most honest, efficient and successful minister in the government, but also an economist and has a fantastic record at the divestment ministry.
Shourie's appointment would have electrified the bourses and sent the Sensex sizzling up by at least a 100 points. Instead, the prime minister allowed himself to be dictated to by petty, swadeshi, king makers and vested interests, rather than national interest. But then that is what the saffron parivar politics is all about.