'Who Does Not Want To Be Prime Minister?'

'We are going to need more technical people in government.'
'You can't expect a generalist to understand the complicated world of financial engineering.'
'I regret to say that most of our politicians have no competence to deal with these things. Nor is there a willingness to learn.'

Dr Manmohan Singh speaks his mind in an interview with Sunday Editor Vir Sanghvi. First posted on Rediff on December 26, 1996.

Manmohan Singh does not like giving interviews. Nor is he forthcoming about his own feelings. It is hard to get him -- even in private conversation -- to talk about his resignation in December 1992 or about his frustration in the last years of the Narasimha Rao regime.

He agreed to give Sunday this interview soon after he stepped down. But then, the date kept being pushed back, most recently after the fuss over his TV interview to Karan Thapar in which he was cornered into saying that he was not averse to any post the party might offer him.

He asked then for us to wait for a month or so for fear that people would think that he was giving too many interviews.

Finally, he fixed a date and agreed to give us what is his longest and most significant print interview since stepping down as finance minister.

He kept his word. Finally, he talks about the things that people have always wanted to know; the scam, the failure of reforms to continue after 1992, his resignation, the JPC, P Chidambaram's performance as finance minister and yes, whether he wants to be prime minister.

The Beginning

Let me start by taking you back over five years to the time you were appointed finance minister. You had served the government in a variety of senior posts but you were not a politician. What made you agree to join the government and therefore politics?

At that particular time our country was passing through an unprecedented crisis. And I believed that the crisis was also an opportunity to be a part of a process that would turn around the economy.

I thought that this would be really exciting even though lots of my friends advised me to turn it down. They said I was heading for trouble, that I wouldn't last there for six months.

Of course, I was not new to the world of politics. I have dealt with politicians ever since I came into the government in 1971. I have seen many prime ministers, many finance ministers.

How were you informed of your inclusion in the Cabinet?

Dr P C Alexander sounded me out. I said I was willing to accept the responsibility but frankly I did not think that anything would come of the proposal.

At that time I was chairman of the University Grants Commission and so I went to my office as usual.

Then I got a call from Mr Narasimha Rao who had just taken over as prime minister. He said 'What are you doing there? Go home and change. You have to be ready for the swearing-in.'

That's when it sunk in.

The reforms

Looking back at those five years, what are you proudest of?

First of all, the balance of payments management of our government would be, by any reckoning, a great success story.

We were able to turn around the economy in a very short space of time without any loss of real output and so little social unrest or discontent.

I said in my very first budget that we were concerned with stabilising the economy but also with addressing the long-term problems of low productivity and had a human face.

If you look around, I think ours was probably the smoothest turnaround from a crisis to a situation of sustained growth of 6 to 6.5 per cent in the last two years. Exports increased at an average rate of 18 to 20 per cent annually. Industrial production when we left, was increasing at an annual rate of 9 per cent.

Even the Sensex in June was 4000 (points). People were complaining about a credit shortage and high interest rates but confidence was high.

To what extent was the reform programme undertaken at gunpoint because of the IMF and the World Bank?

If you don't want IMF-World Bank money, you can do whatever you like. At that particular stage we had to have the support of international institutions even to stand. And these institutions are not in the business of charity. They want their money to be returned and therefore they impose conditions.

The question was whether the conditions they were imposing on us were inconsistent with the long-term interests of India.

The more I reflect on that, the more I am convinced what we did was in the long-term interests of our country. But I always recognise that India does not like discipline to be imposed upon it.

Even though they may be the right things, we don't like it if they are seen to be imposed by foreigners. But in two years we had terminated the IMF programmes. Thereafter we would be on our own.

Yes. And the reforms lost momentum and ground to a halt after two years.

But that was not because we were on our own. The reforms stopped because politics took over after December 6, 1992.

After that, it was just politics that was on everybody's minds. And an important matter like cutting the fiscal deficit did not receive as much importance as it should have.

At the end of 1993, we had elections in Rajasthan, Madhya Pradesh, Uttar Pradesh, Himachal Pradesh and Politics took over. There was not a single year when you did not have elections in Andhra Pradesh or Maharashtra or some other state.

Therefore, short-term political considerations influenced the running of the economy to a much greater extent than I would have liked.

When you say 'politics took over' are you referring only to the rise in government spending or do you mean that people thought that reforms might be politically unpopular?

Well, cutting the fiscal deficit is not popular. That is the experience of all governments in all countries. Expenditure cuts hurt certain vested interests and they don't like it.

It requires a certain long-term vision and a strong cohesive government to have the courage to persist. Unfortunately, we were not able to do so.

But it was your government! You were a senior member of the government. Didn't you protest?

I can't reveal what happened exactly in Cabinet. Within the limits of what I can say, I will tell you that I tried repeatedly to make my point.

But what happened in the final analysis was a collective decision and as a member of the Cabinet I am as much to blame as anybody else.

Assume that reforms had not ended with Ayodhya. What would you have like to see happen over the next three years?

I would have liked the fiscal deficit to be brought down to about 4 per cent. We were highly successful in the first two years but in 1993-1994 the fiscal deficit went much beyond our expectations. Then we brought it back to less than 6 per cent.

But speaking generally, I would have liked to have reduced the fiscal deficit and got the fiscal system into good shape. We should have pruned some subsidies and restructured the tax system.

I had great hopes of our financial sector reforms but they did not turn out as well as I had expected because we were unable to bring down the fiscal deficit.

If we had reduced the fiscal deficit to more manageable levels, you would find bankers running after customers rather than the present situation. Banks would have been under greater pressure to perform.

Could you explain that more fully for the benefit of the general reader?

Yes, all right.

A fiscal deficit means that the government is not able to meet its expenditure so it has to borrow money from the public. The private sector also needs to borrow and therefore if there are too many borrowers for a limited stock of money, interest rates are bound to rise.

The other way is for the government to finance its deficit by printing more money. If we had done that, there would have been reckless inflation. So, if you can't control the fiscal deficit, you have to choose between high interest rates or runaway inflation.

But you must all have seen this coming?

Of course, we did. But politicians need to get elected before they can worry about becoming statesmen. (Laughs.)

You've spoken about the unfinished agenda in terms of fiscal responsibility. But what about privatisation? What about an exit policy? Were these on the agenda?

They were on the agenda. But we faced the difficulty that we had not raised a consensus in favour of reforms before we came into office. Consequently, the Congress party itself was not sure of where it stood.

Therefore we had to approach the subject of privatisation with a degree of caution. In fact, I believe that we do not have a consensus in this country even today to go the classical privatisation route of selling off a state enterprise lock, stock and barrel.

We then evolved the idea of selling a part of the equity of a state enterprise. Our purpose was twofold.

Firstly, we raised some money. But the more important purpose was to introduce the discipline of the market in the management of these companies.

We thought that if a part of their equity was held in the market then they would be under a compulsion to pay attention to their rates of return because they would have to justify their existence to the marketplace.

Has it worked? Is the management of say, the State Bank of India, more conscious of the company's rate of return because of market compulsions?

Yes, I think they pay a lot more attention to their image and to how their balance sheets look. I think it is a change for the better.

What are your own views? Should we privatise property?

I gave my views in my Jawaharlal Nehru Memorial Lecture. It is not that managers or workers in public sector enterprises are inferior. But it is the culture. We have not found a way of balancing the concern of public accountability and functioning autonomy.

There's too much interference. The culture of interference cannot be stopped when people know that appointments are made by the government, that all major investment is referred to the ministry. The managers then try to anticipate what government would do rather than to work on their own.

I don't think there is any real alternative. Power in our country is now passing into the hands of groups who do not distinguish between private interest and public interest. We have to go through this process. And on balance, the power sharing caused by the democratic process is good. But in the short run it also makes it difficult to run any public enterprise.

The Stock Markets and the Scam

Moving away from privatisation, one of the areas in which middle class people were most disappointed in you was the stock market. What went wrong?

The main problem was the scam. And the second problem was the way we handled it. For two years, the JPC was sitting. Also the legal process is such that it takes long. That prolonged the uncertainty for far too long.

But the middle class invested because people trusted you and they took your optimism as a signal to invest. Do you regret the optimism?

But for the scam, the markets would have given the results people expected. Even then when we left, the market was close of 4000 (points).

If we handled the scam in this way, it would have been much better. In most other countries when you come across irregularities -- let us say, the collapse of Barings -- the first thing to do is to find a quick settlement.

In our country, you have all these controversies. Parliament gets in on the act. Uncertainty is prolonged. People don't take the decisions they should. And it hurts economic activity.

You've attributed the scam to systemic failure. What exactly does that mean?

The scam was going on from 1986. It was characteristic of a very segmented market. There was too much control but these controls simply were not very effective.

You forced banks to devote 60 per cent of their resources to below-market rate lending to government. Naturally they would then be under pressure to find ways and means of keeping their heads above water.

In the mid-1980s, public enterprises were allowed to raise money in the market. Many of them operated without any discipline and raised money far in excess of their needs. And here were the banks who promised them attractive returns if they diverted the money -- in violation of existing rules -- to the stock market. From 1986 to 1991, the average rate of return on the stock market was around 40 per cent.

Therefore the scam was a product of a highly controlled, segmented financial system. It was like water finding its own level.

A lot of people saw the scam as a consequence of the liberalised market...

But actually, it was caused by the opposite. It was caused by too many controls. We didn't take a single decision about the financial markets till March 1992. And the scam was well under way by then.

Did you have any idea of the scam before it broke?

Honestly, in the first eight months, I was totally obsessed with macro-management. Everyday we face the prospect of bankruptcy. Then, these complex negotiations with the Fund and the Bank took up most of my time.

Then, by March when the scam came to notice, I spent the next two years coping with that and facing the Joint Parliamentary Committee. (Laughs).

The resignation

You resigned when the JPC report was submitted. You've never really explained why you did that.

Even though the JPC could not find any way to blame me personally for anything, they held the finance ministry responsible.

I think they did not give adequate recognition to the fact that we were in a grave crisis and most of my time was devoted to this crisis. Frankly speaking, I feel they should have recognised that the scam was not because of anything I did. It had been going on from 1986.

When we came to know about it, we took prompt action. We confiscated the properties of those involved. The CBI was brought in.

Despite all this, the JPC found it necessary to blame the finance ministry.

I felt that as it was a unanimous report, it was my moral duty to tender my resignation even though they could not find one instance to blame me personally.

Were you in any way disappointed by the response to your resignation? The prime minister took two days to get back to you after you submitted your resignation.

No, there was no response for seven days. (Smiles.)

No, I meant that he spoke to you after two days. But yes, it took him seven days to actually say something. And for those seven days, the country was not sure whether we had a finance minister. Why did you eventually withdraw your resignation?

When the prime minister said that I continue to enjoy his confidence, I felt I had made my point. There was no need to push the point any further.

But you hadn't resigned because of any dispute with him. Why should it matter that he made a public statement about his confidence in you?

There was a JPC report and at that time I felt that the Congress members should have recognised that there was nothing that I particularly did that contributed to the scam.

So it was important for the prime minister to make it clear that I still enjoyed his confidence and that I was not an embarrassment to the party or the government.

I was engaged in this massive effort to rescue our country -- working 22-24 hours a day -- so I could not take interest in every aspect of the running of the country's financial system. If they were not going to recognise that, then I did not want to be a source of embarrassment to the prime minister.

The Last Two Years

Moving on, the last two years in office, when the momentum of reforms had slowed down, must have been a source of frustration.

Yes, certainly. The momentum of reform slowed down. Subsidies were allowed to rise. Expenditure went up. For a finance minister committed to reform, it was a very unhappy time.

You have talked repeatedly about the fiscal deficit and government spending during those two years. What do you think should have been done?

Frankly speaking, I think we should have evolved a more coherent policy for economic reforms. It was essentially a case by case liberalisation. In the power sector, problems like Enron and now Cogentrix would have been avoided if we had evolved a more holistic approach.

For instance, in the power sector, it was not enough to invite private industry. If the state electricity boards continue to lose Rs 2,500 crore (Rs 25 billion) per annum then it is a route of bankruptcy. We needed a holistic approach which allowed us to address the problems of the public sector as well.

That's all very well in theory. But the reason there was no holistic approach was because the political establishment was never really committed to liberalisation. It agreed to the reforms because the house was on fire. But once the fire was extinguished, everybody lost interest.

Well, there is an element of truth in that. And that's what you find today. Because the balance of payments situation was improved there is no enthusiasm for tackling the long overdue problem of low productivity in our country.

It is only a crisis that concentrates the mind. That is the weaknesses of our system.

The legacy

Looking at the state of the economy today, would it be fair to say that your government must accept much of the blame?

No, I don't think that this is at all fair.

The prime minister has said that his government inherited an economy that was heading towards this situation.

I think they inherited a very healthy economy. They inherited an economy in which inflation was under control, the rate of growth was 6 per cent, exports were going up and foreign exchange reserves had shot up. The only problem was, as I have said, that we should have cut back on the fiscal deficit.

Are you saying that there is a crisis of confidence now?

It is not only for me to say it. The heads of CII and FICCI have made public statements to this effect. Everybody is saying it. There is no doubt that investors and business people lack confidence in the economy at present.

And you don't accept responsibility?

As far as confidence goes, I've told you that the Sensex was at 4000 points when we left in June. Despite the tight credit policy, business people were not pessimistic or uncertain about the future. Rather there was an air of optimism.

I think that when you talk about inheriting an economy that is in bad shape, you should remember the economy we inherited in 1991.

Inflation was at 16 per cent and rising, foreign exchange reserves were at their lowest, the rate of growth had come down and the world was ready to give up on India.

How does the world feel about India now?

As far as I can see, the general view abroad is that India has given up on the reforms, that they have stopped.

Foreigners are affected by the same uncertainty as businessmen in India.

The new finance ministry

If you don't accept the responsibility and you say that the economy is in a mess, what you are effectively saying is that it is due to the mismanagement of the economy by this government.

I would not like to be drawn into that. I don't want to say the finance minister is wrong or lecture him on what I would have done.

Why not?

I have a lot of respect for Mr Chidambaram. He faces a very difficult task and at this stage, instead of criticising him and making his task more difficult, I think we should be more supportive.

The finance minister's is the loneliest job in the country.

You can't really say that the economy is in a mess and then absolve everybody from the blame.

I think the problem is one of political uncertainty. Business people are not sure where this 13-party coalition stands on many of the issues or on the policies that it will follow. The Left says one thing, the finance minister says another.

You can't run the economy effectively when there is this kind of uncertainty.

There are other uncertainties too. We can't find a government for our largest state. People are not sure how the political situation will develop over the next year.

Apart from the uncertainty, there is an unwillingness and inability to invest. Some people tried to raise money through GDRs and failed. Others counted on the domestic stock market and found that the climate was not favourable for a new issue.

At the same time, banks are cutting back on lending. So even if you want to invest, there is no money.

Do you think that the finance ministry can't see this?

The problem is not that they don't know what to do. It is that they are not able to do it. On so many issues, such as petrol prices, the finance ministry has been willing to take hard decisions but the political compulsions of a coalition such as this one are that they are not able to go ahead.

That is why the world thinks that reforms have stopped. And you know, they will not wait for us.

 

The future

Do you see yourself as a politician?

I am in politics.

That's not the same thing.

What's the difference?

You were in politics as a technocrat. You were appointed to do a specific job.

I think we are going to need more technical people in government. You can't expect a generalist to understand the complicated world of financial engineering and derivatives.

I regret to say that most of our politicians have no competence to deal with these things. Nor is there a willingness to learn.

I remember when I was a student, James Callaghan, who was Britain's shadow chancellor of the exchequer, came to Nuffield College for one year to study economics. He took tutorials along with us.

There is no such enthusiasm for learning here. But if you go to East Asia, you find that politicians there are very technically competent and have the necessary expertise. Our politicians are at a disadvantage there.

What about the IAS? Doesn't the same principle apply?

India runs because of the IAS so I don't want to belittle their contribution. But as the world gets more technical there is more and more need for specialists. Generalists have a more limited role to play.

I think that we need professional inputs. IAS officers also need specialised training.

Coming back to politics. Are you a politician?

I suppose the answer is yes.

Would you like to be finance minister again?

No. I don't think one should go back.

Any other portfolio?

Yes. Several. I think I would do a very good job as human resources development minister. I would enjoy that ministry.

I would like to handle energy. The creation of a telecommunications framework for India also excites me.

But I'm most excited by human resources and by education.

So, you are a full-time politician now.

I've always said I am in politics.

Is that why you joined the attack on Narasimha Rao?

I have clarified this. I am not part of any group in the Congress and nor do I want to be. What I said was that there was no system in the Congress whereby we could cope with the charges that were leveled against many leaders.

This is not healthy for a party and so we should have some way of responding. That was what I meant by the Caesar's wife remark.

All right. The million dollar question which I've saved for the last. Do you want to be prime minister?

Who does not want to be prime minister?