25 years on, Manmohan Singh has a regret: In crisis, we act. When it’s over, back to status quo 07-03

SILENCE SPEAKS AFTER 25 YEARS, AND WHEN IT DOES, PEOPLE RUSH TO COLLECT THE GEMS FALLING IN THE FORM OF WORDS.....................

Dr. Manmohan speaks on 1991 reforms, that not only changed the course of Indian economy, It also changed the world opinion about India.

Please read Dr. Manmohan Singh's interview to Indian Express......

Today, July 1, marks the 25th year of the historic devaluation of the rupee that set in motion the irreversible process of opening the Indian economy. The Indian Express speaks to those who unlocked the power of change to ask what then – and what now.

TOMORROW will mark 25 years since the opening of the economy began with the devaluation of the rupee on July 1, 1991.

And yet the process of economic reforms in India continues to be trapped in the circumstances in which it began: act only when there is a crisis. That’s one of the key takeaways for its prime architect, then Finance Minister and former Prime Minister Manmohan Singh.

Reflecting on the reforms that he, working with Prime Minister P V Narasimha Rao, set in motion, Singh opened up to The Indian Express, in a rare conversation earlier this year, as he mapped the road ahead: opposition from within, role of the Prime Minister’s “political management,” fear of “blood and tears,” and the crying “need to revisit old orthodoxies.”

Edited excerpts:

1991 and the Budget of July was a watershed in India’s economic and political history. There was so much done. Industrial de-licensing on Budget day, trade policy, exchange rate management and much more. How do you look back on that period? Were those ideas or solutions known already to policy-makers or were they imposed by multilateral lenders as critics claim?

I don’t see much originality in those. These were ideas which were being discussed inside the government and outside, too. All I did was put them all together in a coherent whole, when I got an opportunity. The Budget for 1991 set out the roadmap that we wanted to adopt for the next two to three years. It gave SEBI legal status. Before that, SEBI was no more than an advisory body. The banking system needed reforms and I announced the setting up of the Narasimham committee on financial sector reforms. Then, there were tax reforms.

Edited excerpts:

1991 and the Budget of July was a watershed in India’s economic and political history. There was so much done. Industrial de-licensing on Budget day, trade policy, exchange rate management and much more. How do you look back on that period? Were those ideas or solutions known already to policy-makers or were they imposed by multilateral lenders as critics claim?

I don’t see much originality in those. These were ideas which were being discussed inside the government and outside, too. All I did was put them all together in a coherent whole, when I got an opportunity. The Budget for 1991 set out the roadmap that we wanted to adopt for the next two to three years. It gave SEBI legal status. Before that, SEBI was no more than an advisory body. The banking system needed reforms and I announced the setting up of the Narasimham committee on financial sector reforms. Then, there were tax reforms.

Trade policy reforms were critical, weren’t they?

Yes. There was some work done earlier I think by Montek Singh (Ahluwalia).
P Chidambaram was very supportive. Without him, the trade policy would not have moved as fast as it did.

Is it true that the trade policy reforms were finalised in a matter of just two days?

That’s certainly true, as we were in a hurry. Chidambaram and I went to meet Prime Minister Narasimha Rao and the Prime Minister turned to me and said, ‘What do you think?’ and I said, ‘I entirely endorse it’. That was the end of it, and the Prime Minister put his signature on it.

What was the level of opposition to reforms? How did you surmount it?

There was a lot of opposition in the country and within the party (Congress). But Prime Minister Rao’s political management made it possible to overcome all that. I was a loner and had no group. Even in the Congress Parliamentary Party meeting, when the Budget was being discussed, there was a lot of opposition and the only people who supported me, (were) in favour of what I had done, were Nathuram Mirdha and Mani Shankar Aiyar.

One of the steps taken was on exchange rate management. What strategy did you have in mind?

We had to tackle the exchange rate at the start because there was a lot of speculation on the rupee’s future. And if we had not acted creatively then, the whole system would have been impacted with dire consequences. We did the exchange rate adjustment in two steps. The first step was to test the waters: what the public reaction would be, the reaction within the government and reaction from the opposition. So although there was opposition to the move, it was manageable. So I said by July 3 (1991), we must complete the full thing. C Rangarajan was the Deputy Governor (of RBI). Even then there was opposition. And Prime Minister Narasimha Rao had doubts over the second instalment of the exchange rate adjustment and told me, in fact, to stop it. But when I called up Rangarajan, he said that he had already shot the goal. Therefore, that was the end of it. He had already announced the new exchange rate. What we had announced was not any formal devaluation. We said that it was a market-driven adjustment.

That government had to mortgage gold because of the BoP crisis. What are your recollections?

By the time the government took over, one instalment of gold had already been mortgaged and dispatched abroad. I allowed the second one to go without much fanfare. That really shocked the country… the mess that the economy was in. I used that occasion to honour the commitment of the previous government to mortgage gold but at the same time, I sensitised the country on how serious the economic situation was, and that if we do not want to go down the disastrous path, reforms were the only answer.

What about sequencing of reforms — real sector first, financial sector later?

On financial sector reforms, we relatively had only a vague idea. It was only after we appointed the Narasimham committee to do banking reforms that we got going. In the first Budget, we also mentioned granting legislative status to SEBI and abolishing the Controller of Capital Issues. Some reforms we thought through committees. I appointed Raja Chelliah also to work on tax reforms. That couldn’t be done in a month. So we bought time. By the time I announced the second Budget in 1992, those recommendations were taken on board. We introduced VAT and started the process of reduction in Customs duties.

Wasn’t there resistance to new stock exchange?

The National Stock Exchange was strongly opposed by Bombay stockbrokers and captains of industry. I thought some competition is good. The exchange has given a very good account of itself.

One of the biggest changes was in allowing foreign investment in a closed economy.

I was going to England and I knew the city would be interested. So I had prepared for that route of reforms. It was also in London, if I remember, and I may be wrong, that I announced the opening up of the Indian markets to foreign investment. Over a period of time, we built it and moved cautiously and opened up a lot later.

Were you surprised by the improvement in many macro economic indicators after a year?

The economy recovered faster than we (had) thought. When I took over, I said that the next three years will be nothing but blood and tears. Ultimately, I said that I had confidence that the economy would emerge victorious from this crisis but there were no shortcuts. And the economy recovered faster. Inflation came down, the Balance of Payments situation turned around sooner than I anticipated.

What about ideological differences at the start of the reform process?

Well, when you are in a hurry, you don’t worry too much about ideological issues that will come in the way. I knew that if it did not work, I could have been the scapegoat. I was prepared for that.

How was the famous Bombay Club opposition to the reforms tackled?

The Bombay Club and traditional industrialists were opposed to it. I talked to a number of people — industry, politicians, people in state governments. I talked to the press also often then, and we slowly managed to overcome the resistance. In the very first week itself, there was opposition to the reforms agenda. So I managed to secure the support of P N Dhar, K N Raj, I G Patel and R N Malhotra. They came out with a statement supporting the reform process. I think the Left was against it.
Again, without A N Verma, the principal secretary to the Prime Minister, the support from the civil service would not have been as strong as it turned out to be. I wanted the PM’s Secretariat to be consciously involved in pushing the reform process.

Looking back now, how much of a change have those reforms signified to Indian industry 25 years on?

Certainly, Indian industry is much more confident. They are the children of the 1991 reforms. We removed wealth tax in the 1991 budget. That is one way in which the children of those who had wealth could put money honestly into their enterprises. Now they all feel that we did a good thing.

The fact is that some of the reforms launched in 1991 were being considered in the aborted Budget of the Chandra Shekhar government. What are your thoughts on that?

What I am saying is that what we did wasn’t original. There were ideas which were in the air. Several discussions had taken place but the political system was not responsive to implementing those reforms.

Halfway through, the government was hit by the 1992 stock market scam. How much of a setback was that?

It only gave a handle to the opponents of reforms to blackmail us. Fortunately, they didn’t find anything wrong in what I had done. They said that I should have been more active. In hindsight, there is always scope to do better. Even then, I submitted my resignation to the Prime Minister saying that since the constructive responsibility is that of the finance minister, I think it is appropriate that I resign. I gave the Prime Minister my letter of resignation, which he kept for six to seven days and sent it back later saying, ‘You continue’.

The 1990s were also marked by a convergence of like-minded policy advisors in the government and engagement of outside experts and economists to advise the government. How was it done?

I wanted to sensitise the people of India on the need to revisit old orthodoxies. It was therefore helpful when we got a group of young and learned people to back the process that we were embarking upon. So I got Nicholas Stern involved; Jagdish Bhagwati and T N Srinivasan; Vijay Joshi from Oxford. As early as 1973, I got Bimal Jalan from ICICI to join the government. Then, when I was the finance minister, I got Montek Singh to the finance ministry, brought in Shankar Acharya as chief economic advisor, Ashok Desai as advisor, Rakesh Mohan in the Planning Commission and Arvind Virmani in the Planning Commission.

Why was it difficult to do that subsequently?

Earlier, we could do all that because the Indian Economic Service was small and nobody felt threatened. So I could bring in a lot of young professional economists. But later, the IES felt that their opportunities for career advancement and promotions were being denied.

And similarly, lateral entry in the government was such a formidable challenge, wasn’t it?

But we managed to bring in Raghuram Rajan. I spotted him and first engaged him as an honorary advisor to the Prime Minister. Then when the position of the chief economic advisor fell vacant, we got him there and he told us that when the time for the RBI Governorship comes, he should be considered for the job. I was able to honour that commitment. P Chidambaram agreed with me, and that appointment turned out to be a creative one.

Having been a Governor of the RBI yourself, how do you see the differences between the central bank and the government?

There have always been differences between the finance minister and the RBI Governor. But in our time, the relationship was smooth. Rangarajan was a superb technocrat and I had known him for 20 to 25 years. During our time when I was the finance minister, we entered into a historic agreement with the RBI on doing away with automatic monetisation of the deficit. Rangarajan wanted it and I endorsed it. It was one way to ensure that financial policy was supportive of what we wanted to do. When I was the finance minister, I got on well with the RBI Governor.

But didn’t you offer to quit as RBI Governor when the government decided to take away the powers of the RBI on licensing of foreign banks?

I had strong feelings on that. Ultimately, the government saw reason and it didn’t happen. As RBI Governor, I felt strongly that the step would be detrimental to the status of the RBI.

Was your term as finance minister professionally satisfying?

Well, I came to India soon after a bypass surgery. When the offer came to become finance minister, my friends advised me not to take it up as it could kill me, they said. So I said, ‘how does it matter if I die in the process of serving one’s own country, it is alright’.

Twenty-five years later, with the economy now way bigger, and with a greater acceptance to opening up, why is it difficult to carry out reforms?

I think in a crisis, we act constructively. When it is over, status quo takes over. But I think it is remarkable that even if the process was put in place by a Congress-led government, the next United Front government, led by H D Deve Gowda and I K Gujral, carried forward the process. In fact, Chidambaram presented what came to be known as a ‘dream budget’. Then came the BJP government which also continued the reform process. 

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Mr.Arun Jaitely' Tributes to Dr. Manmohan Singh 05-27

From One intellectual to another.

Thanks Mr. Arun Jaitley, for the scholarly insight into political life of apolitical scholar Prime Minister Dr.Manmohan Singh.

World will remember Dr. Manmohan Singh, P V Naramsimha Rao, & India for the bold and pragmatic reforms during nineties .

Given the political conditions, I don't think any scholar will ever venture into politics. We can celebrate Dr. Manmohan Singh as the last scholarly Prime Minister India ever had.

May god give Dr. Manmohan Singh and his family, a healthy & peaceful retired life.

न किसी की आँख का नूर हूँ, न किसी के दिल का क़रार हूँ
जो किसी के काम न आ सके, मैं वो एक मुश्त-ए-ग़ुबार हूँ

न तो मैं किसी का हबीब हूँ, न तो मैं किसी का रक़ीब हूँ
जो बिगड़ गया वो नसीब हूँ, जो उजड़ गया वो दयार हूँ
न किसी की...

Kindly keep the bad stuff out of your comments.

Now on to Mr. Jaitely's Insights 

Looking back at Dr.Manmohan Singh 13TH May 2014

The voting for the 2014 General Elections is over. 

The result is awaited. We have only the Exit Polls and our own analysis as a base to speculate upon. Dr. Manmohan Singh has announced that he would be stepping down as Prime Minister irrespective of the result and the mantle of the Congress Party leadership in Parliament would pass on to the next generation. I have had an opportunity of observing the Prime Minister Dr. Manmohan Singh from close quarters for the last ten years. In the last five years as Leader of Opposition I virtually have heard his every intervention in Parliament and dissected each one of his performances. I look upon him at the conclusion of his ten years tenure. 

Unquestionably Dr. Manmohan Singh was a very good Finance Minister. He got a lot of support from his Prime Minister, PV Narasimha Rao for initiating the economic reforms in 1991. For a Congress Party government which had always professed the virtues of regulation a reformist approach was creditable. 

Shri PV Narasimha Rao has never been given the level of credit which he truly deserved.

 I am sure history will reassess him. I had recently suggested to the Prime Minister that I personally would be interested in reading his memoirs particularly those relating to the period 1991-96. The footprints he left behind as a Finance Minister during this period will be remembered for a long time. 

Dr. Manmohan Singh became a Prime Minister on account of certain circumstances which compelled Smt. Sonia Gandhi to withdraw her name from the reckoning. He was literally a Prime Minister announced by Sonia ji. He had to function within that limitation. 

There were two strong qualities of Prime Minister that I discovered. Firstly, whenever you discussed a serious subject with the Prime Minister he came out as a man of scholarship . He was what we call to as “a Syana aadmi”. His words were measured and he would reflect before making a comment. Secondly, his personal integrity was always above board. With an element of scholarship he was always be well read and well prepared on any subject that he dealt with.
And yet, when he addressed the country, he never came out as a leader. The reason for not coming out as a leader was clear. He never wanted to rock the boat. He knew that he was vested with limited power and on all major decisions he had to keep the party and its first family in good humor. 

Thus when the reform process was blocked on account of decisions of the National Advisory Council or when Rahul Gandhi tore apart the papers of objectionable ordinance, the Prime Minister was perceived as a non-leader who had to accept everything without his opinion mattering significantly. It was his inability to overrule people which affected his functioning. He did not have the last word. Had he overruled his Finance Minister on the retrospective tax law knowing fully well the consequences of a retrospective taxation, the Prime Minister would have stood out. 

If he had stood up and cancelled the Coal Blocks allocation once the fraud was revealed or cancelled the 2G licenses himself rather than wait for the Court to do it I have no doubt that history would have recorded him very differently. It was the inability to speak up within his own party that may compel the historians to take a different view of the man. 

As curtains draw to a close and a ten year long period of providing leadership to the Government of India, the Prime Minister goes out with dignity and grace. He will remain an elder statesman and a man of credibility to guide the nation. Only if he had stood up at the right time and disagreed he would have been regarded with still a greater honour. 

I wish the Prime Minister a very good health and many more years of public service. If he were to write his memoirs and I will always want to read the chapter which deals with 1991-96 period.

BJP on a roll in 3 of 5 states, but Delhi hazy: Exit polls 12-05

BJP on a roll in 3 of 5 states, but Delhi hazy: Exit polls

Seen sweeping Chhattisgarh, Rajasthan, Madhya Pradesh; Congress may reach the victory mark only in Mizoram; AAP's bright debut may mean hung House for Delhi

If exit polls are anything to go by, the Bharatiya Janata Party (BJP) is likely to come to power in at least three — Rajasthan, Madhya Pradesh, Chhattisgarh — of the five states where Assembly electionshave just ended, leaving the Congress huffing and puffing to reach the victory mark in Mizoram alone.

For Delhi, the polls on Wednesday veered between a hung House prediction and a slim majority for BJP. No poll saw the Congress even close to returning to power in the capital.

That the Congress was looking at a trouncing was clear. But it wasn’t all good for BJP, either. The party’s seat tally, except in Rajasthan, was seen coming down, implying there was no BJP wave yet. Given that the state elections were seen as a test for the party’s prime ministerial candidate, Narendra Modi, this could be significant.

According to the exit polls, the Aam Aadmi Party (AAP), contesting its maiden election, may win between 6 and 31 seats in the 70-member Delhi House.

Rajasthan, Madhya Pradesh, Delhi, Mizoram and Chhattisgarh had gone to polls earlier.

Exit polls suggested the most unequivocal victory for BJP in Rajasthan, displacing the Ashok Gehlot-led Congress government in the state. The polls gave BJP between 130 and 140 seats in the 200-member Assembly — this would break its own earlier record of 116. For BJP, Rajasthan was followed by Madhya Pradesh, where the incumbent state government was seen likely to get between 121 and 128 seats in the 230-member House. Though this is much less than the current 143 seats the party had won in 2008, the Congress’ gains might be below par, the polls showed.

In Chhattisgarh, the polls give BJP a very slight edge of one or two seats over the Congress, but all polls say the Congress will not be able to reach the victory mark, despite improving its vote share and performance substantially.

Signals from Delhi, however, look confusing. With no party reaching the majority mark, Delhi looked set for a spell of central rule, followed by another round of elections, possibly coinciding with the Lok Sabha polls. This is because AAP has already declared it will not help any party come to power. But BJP was hopeful of reaching the halfway mark with the help of ally Akali Dal and ‘invisible friends’, party leaders said.

At least two exit polls revised BJP’s seat tally upwards as the night wore on, suggesting the party might be within striking distance of reaching the halfway mark in Delhi.

In Mizoram, the Congress was seen getting 19 of the 40 seats to emerge the single largest party, but still one seat short of forming a government. According to exit polls, it was projected to lose a whopping 13 seats. The Mizo National Front was seen getting 14.

Going by the exit polls, the victory for BJP may not be as comprehensive as imagined earlier. But it is equally clear that the Congress is suffering the effects of a factional organisational set up and a serious leadership deficit: For, it has been unable to dislodge BJP in Madhya Pradesh. Most exit polls say BJP’s vote share in Madhya Pradesh will rise between two per cent and five per cent, suggesting it will beat anti-incumbency. Similarly, in Chhattisgarh, too, there is hardly any dent in BJP’s vote share.

If the exit polls turn out to be accurate, it will bode ill for Parliament’s winter session, which begins on Thursday. That’s because little work would be done and BJP would demand the government’s resignation. Any hope of BJP’s cooperation in the passage of government Bills would also be ruled out.

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Government Shuts Down as Congress Misses Deadline 10-02

Government Shuts Down as Congress Misses Deadline

Senate Rejects House Bill to Delay Part of Health Law; Obama Gives Notice to Workers

President Barack Obama told the country’s military in a video from the White House early Tuesday that he would lean on Congress to reopen the government as soon as possible.

WASHINGTON—After three years of ducking crises with last-minute deals, Congress finally ran out of ways to patch over its differences. Unable to meet a midnight Monday deadline for funding the government, lawmakers allowed it to shut down.

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Associated Press

President Barack Obama speaks at the White House on Monday evening.

The White House ordered   federal agencies to suspend a vast array of activities   shortly before midnight, after a day of frantic legislative volleying left Senate Democrats and House Republicans at an impasse overgovernment spending and the 2010health-care law. The next steps to resolve the stalemate remained unclear.

House Speaker John Boehner spoke to reporters on Capitol Hill shortly after the government-shutdown deadline took effect, saying it wasn’t House Republicans’ intention to shut down the government, and that the House had voted to keep the government open. Photo: Reuters

In response to an impending government shutdown, President Barack Obama said on Monday that it could be prevented if the House follows suit with the Senate and funds the government without controversial demands.

Markets that have slipped recently face a test Tuesday, given that a larger deadline for Congress—over the need to raise the nation's borrowing limit—is less than a month away.

Government Shuts Down

With no budget deal reached in Congress by the midnight deadline, the government shutdown was felt throughout the country Tuesday, from closed museums and national parks to the furloughing of employees deemed non-essential.

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Mike Segar/Reuters

A sign announced the closure of the Statue of Liberty, a U.S. National Park, in Battery Park, New York, .

Many federal workers reporting to their agencies Tuesday morning will undertake a half-day of shutdown preparations before more than 800,000 employees in the government's workforce of about 2.9 million are sent home. While essential functions  such as law enforcement and air-traffic control will continue, a large number of federal activities, among them Internal Revenue Service audits and surveillance for flu outbreaks, will be suspended.

"Unfortunately, Congress has not fulfilled its responsibility. It has failed to pass a budget and, as a result, much of our government must now shut down until Congress funds it again,'' PresidentBarack Obama   said in a video message to military and defense personnel around the world.

He added that personnel in uniform would remain on duty. "The threats to our national security have not changed, and we need you to be ready for any contingency,'' he said.

On Capitol Hill, a day of rapid-fire legislative maneuvering between Senate Democrats and House Republicans over the terms of a short-term spending bill collapsed late Monday. House Republicans said they planned to appoint a set of negotiators to work out a budget resolution with a small group with senators. But the GOP move came with no concessions on the party's central demand—that Democrats agree to scale back the new federal health law—and it brought lawmakers no closer to reaching a budget deal.

Congress finally ran out of ways to patch over its differences. Unable to meet a midnight Monday deadline for funding the government, lawmakers allowed it to shut down. Colleen McCain Nelson reports. Photo: Getty Images.

Senate Majority Leader Harry Reid  (D., Nev.) rejected the move, saying he wouldn't enter negotiations until the House agreed to reopen the government by extending its funding for several weeks. "We like to resolve issues, but we will not go to conference with a gun to our head," Mr. Reid said on the Senate floor.

Republicans denounced Senate Democrats for refusing to negotiate. "Our hope this evening is we will be able to put reasonable people in a room," said House Rules Committee Chairman Pete Sessions (R., Texas).

The first partial federal shutdown since 1996 came amid a fight that was less over spending levels than over the federal health-care law championed by Democrats, the Affordable Care Act. Driven by a set of combative Republican conservatives, the GOP-led House moved a series of bills to fund federal agencies for several weeks while delaying the start of the health law or stripping it of funding.

The Senate rejected each one, saying Democrats wouldn't negotiate changes to the health law as a condition of funding the government.

It was a clear indication that in an era of divided government, Congress is proving increasingly unable to fulfill its basic job of setting budget and spending priorities.

Markets in Asia on Tuesday morning sold off modestly as the deadline for a U.S. government shutdown passed, while the dollar declined slightly in Asia trading. Stocks sold off across the globe on Monday.

The coming days will likely be marked by intense political maneuvering, with both sides trying to seek political advantage. Polls suggest the GOP would bear the blame for any repercussions, but Republicans believe that Democrats will face political risk as well, because they are defending a health-care law that remains unpopular in many quarters.

In their final exchange, in the waning hours before Monday's deadline, the House passed by a 228-201 vote a short-term spending measure that would have funded agencies through mid-December while delaying for one year the law's requirement that most individuals carry health insurance or pay a penalty. It also would have limited government subsidies for lawmakers' own health-care premiums and those of their staffs. The Senate rejected it shortly afterward, 54-46.

After 1 a.m., with the shutdown of agencies already triggered, the House voted again to support the same proposal, returning it to the Senate with a measure that would set up a negotiating committee. The vote was 228-199.

To limit the impact of the shutdown on the Pentagon, Congress passed and Mr. Obama signed legislation just before midnight that would ensure that all members of the military be continued to be paid for the duration of the shutdown, even as hundreds of thousands of other government workers will be furloughed without pay.

Republican lawmakers on Monday had been faced with a choice. With the Senate rejecting changes to the health law, they could have pushed once again for the Senate to change its mind, or deferred their fight against the health law to another day and passed a funding measure shorn of health-law provisions.

After a 90-minute meeting of the House GOP on Monday afternoon, Republicans decided to press again with another attempt to curb the health law.

While Republicans rallied behind their hang-tough strategy, through the day there were clear signs of growing anxiety about political fallout to the party from a shutdown.

"It is moronic to shut down the government over this," said Rep. Devin Nunes (R., Calif.).

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AFP/Getty Images

House Speaker John Boehner, center, walks to a House Republican meeting Monday.

Even before the new move was advanced, some Republicans were urging GOP leaders to drop the fight over the spending bill.

"We have tried robustly on the spending bill, and it hasn't borne fruit," said Rep. Doug Lamborn (R., Colo.). He said the GOP could use other tactics to fight the health law, but "for this week, we may have to give up."

Others said they were eager to press the fight against the health law. "Obamacare is slowing the economy down even more than a government shutdown would," said Rep. Marlin Stutzman (R., Ind.), before a closed-door GOP meeting on Monday. "It's creating chaos for the American people."

The tea party and other conservatives have for months pressured congressional Republicans to try to undercut the law before Tuesday, when a crucial milestone will be passed—the launch of a new system of health-insurance marketplaces for individuals to buy policies.

Sen. Ted Cruz   (R., Texas) led the unsuccessful fight in the Senate to pass the House's initial legislation to eliminate money for the health law while funding the rest of the government.

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Bhagwati versus Sen: What's going on? 07-25

Bhagwati versus Sen: What's going on?

7 things you should know in the Bhagwati vs Sen slugfes

Yet, minor disagreements between them have amplified into a shouting match — well, a one-way shouting match, with Bhagwati repeatedly attacking Sen in public and in print, and Sen expounding on his point through interviews and op-eds, largely without mentioning Bhagwati or his views.

In a way, this isn’t surprising: Bhagwati has long disapproved of Sen. Also, both have competing, co-authored books in the market. In his latest broadside against Sen, Bhagwati managed to mention his book frequently, insisting in it, he had proved how Sen was anti-growth, a point many reviewers surprisingly failed to mention.

But that doesn’t entirely explain why the dispute has really taken off. One reason, of course, is Sen has spoken about food security, released a book on Bihar and expressed a preference that NarendraModi not become prime minister. This immediately meant the luminous intellectuals of the internet, and those in the respectable media that followed their lead, immediately assumed he somehow represented the Congress.

Meanwhile, Bhagwati’s co-author, Arvind Panagariya, had praised Gujarat’s growth in several pieces. That immediately made Bhagwati Modi’s best friend and any further difference between the two could be conveniently slotted into the pre-prepared Modi-versus-Congress mould apparently compulsory for news stories today.

If there’s anything worth taking away from what has become an increasingly unseemly and uninformative spectacle, it is the sobering realisation that academics continue to be divided over the simple mechanisms of how growth can be achieved — purely through deregulation, as Bhagwati would argue, or with a simultaneous push to education and health, as Sen wants.

Here’s the basic checklist on who said what, whether it was true, and the real differences and similarities between Sen and Bhagwati:

Do Bhagwati and Sen have similar stature as academics?

Sen won a Nobel Prize for his work on social choice and welfare but Bhagwati is a path-breaking trade theorist. Sen’s PhD students have included Kaushik Basu; Bhagwati’s, Paul Krugman.

In fact, Bhagwati is far more an economist’s economist than Sen, who at Harvard, for example, had an office at the philosophy department, not in the economics department. Sen is unique in that he is also one of the most respected living academic philosophers and a close associate and fellow teacher of both the left-of-centre John Rawls, the leading philosopher of the 20th century, and libertarian icon Robert Nozick.

Is Sen close to the Congress and Bhagwati to the BJP?

Actually, Sen was awarded the Bharat Ratna by an NDA government in 1999, though some sections of the Bharatiya Janata Party want it taken away now because he has said he doesn’t think Narendra Modi should be PM; a belief in Modi’s spotless virtue is not known to be a necessary qualification for the award.

Bhagwati, meanwhile, has fellowships named for him at Columbia University, paid for by the Indian taxpayer — set up in 2010, at the direction of the UPA government (it is unusual for such to be named after a member of the university’s faculty). Both Bhagwati and associate Arvind Panagariya—who holds the, yes, Jagdish Bhagwati Chair in Indian Political Economy at Columbia—have frequently talked about their long interaction and friendship with Prime Minister Manmohan Singh.

So, in a word, no! The desire to impose a politically partisan lens on an academic disagreement shows how shallow and debased is the understanding of economics in the Indian public sphere, as well as how devoid of thought-provoking content is the actual political debate between the Congress and the BJP.

Is it really Sen versus Bhagwati?

No. It’s Bhagwati versus Sen. Sen has almost completely avoided commenting on Bhagwati’s views, although Bhagwati has become increasingly personal and petty in his attacks on Sen.

Sen broke his Bhagwati-as-Voldemort rule in a recent letter to The Economist. The liberal British magazine had run a review of Sen and Jean Dreze’s new book; the reviewer happened to mention Bhagwati in passing, without specifying that he, Bhagwati, was right and Sen was wrong. This was a red rag to Bhagwati, who wrote Sen only paid “lip service” to growth. This was too much for Sen, who wrote, explaining he did his PhD on how to stimulate growth, and the first collection of his essays, published in 1970, was titled Economic Growth. In fact, Sen is perhaps the greatest living scholar of the original philosopher of the free market, Adam Smith.

Sen must regret his moment of weakness, because Bhagwati then wrote an article for Mint that basically returned, even more harshly, to his complaints about Sen. Bhagwati’s books are littered with disparaging remarks about Sen; indeed, reading between the lines of his last book reveals even more such remarks, some of these from resentments that date back to the early 60s, when both were young professional economists in New Delhi.

Is Sen anti-reform? Is Bhagwati anti-public funding of schools?

No, and no. Sen has often and publicly argued in favour of greater liberalisation, ending red tape, labour law reform, and cutting fuel, power and fertiliser subsidies. It may be convenient for both his friends and enemies to paint him as some kind of socialist but he isn’t. Meanwhile, Bhagwati has also argued for a second track of reform in social sector areas, though he would prefer public money be spent on, say, school vouchers that let poor parents pay for private schools.

Has either of them soured on the India growth story and blamed the UPA?

No. Both are unfazed by the fall in India’s growth rate. Sen argues it has fallen as much as its competitors; Bhagwati has blamed tight monetary policy and the freeze-up in clearances following outrage over scams, adding many government proposals could reverse the slide. Both of these are, pretty much, what the government also claims.

So, what’s the real difference between Sen and Bhagwati’s policy prescriptions?

Merely a difference in emphasis! Sen would like more public funding (as distinct from public provision) of basic goods; Bhagwati argues this is secondary to focusing on growth.

Why? Sen says growth depends on creating a dynamic workforce capable of learning on the job, which needs health and education. Bhagwati believes laissez-faire growth will raise incomes sufficiently for the workforce to be able to invest in their own health and education. Of course, both these mechanisms can be true. In fact, both probably are true, which means the differences are even smaller than is claimed — just a question of which can work faster and more effectively. One path can hardly be abandoned for the other; both mechanisms will need government attention. Nor is either major political party likely to act on only one mechanism, at the cost of the other.

So, why all the fuss?

As I said: duelling books; people who don’t bother to read the duelling books but instead read headlines written by journalists who haven’t bothered to read the duelling books, or only partially understood these, and the eternal quest in the Indian media to make absolutely everything relate to Narendra Modi versus Rahul Gandhi.

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Please read this also,

The debate between two eminent Indian economists, Jagdish Bhagwati and Amartya Sen, has thrown up lively discussions as well as acerbic jibes. It has also taken political tones, with sharp reactions from various parties. Jagdish Bhagwati, professor of economics and law at Columbia University, tells Nayanima Basu he is not anti-redistribution, adding the crucial issue is where the money would come from. If this issue isn’t tackled, the poor would only be harmed, he says. Edited excerpts:

Critics say your debate with Sen is polarising an issue that shouldn’t be polarised. The debate, they say, is based on outdated notions of growth. Growth could be investment in capital, as well as investment in human resources.

Since when did investment mean it had to be in physical capital? Also, there are some instances in which we can eat our cake and have it, too. Thus, you can spend money on education as consumption, while it also serves as investment. But again, we must not overdo this.

A member of Parliament (MP) had once said, “Are we going to eat GDP?” You emphasise growth. What about redistribution?

The MP sounds so idiotic that maybe he should be fed on a GDP diet! If he cared to understand the arguments at hand, he would know there was no way significant redistribution could have been undertaken with results when there were too few rich and too many poor. We would just have been redistributing poverty, as it were. So, we had to grow first and then spend money on health, education, etc, for the poor. This is what policy economists call the ‘sequencing problem’. If Mr. Sen contends otherwise, he has no serious argumentation and evidence to support his assertions, even in his latest book with Dreze.

So, the issue is not that I am for growth per se and Sen is for ‘redistribution’. That is just a self-serving canard by the likes of Mr. Sen. I am for redistribution (spending revenue for the poor), but unlike Mr. Sen, I do not pretend somehow money would materialise by our wishing for it, as in some of our mythological tales! There lies irresponsibility, not wisdom. And, since it will harm the poor, instead of helping them, as I have argued with and without professor Panagariya, this is an immoral position, rather than the “progressive” position Mr. Sen would have his uncritical readers believe it to be.

Can’t both, GDP and redistribution, go hand in hand, instead of giving precedence to one?

That is the sort of wishy-washy thinking that obfuscates the issue. Of course, a limited amount of redistribution can be financed even without growth; but how far could we have gone with it in the 60s and 70s? At the end, there is no alternative to growth, which will raise the revenues earned, at any given rates, to make it feasible to finance the social expenditures our planners and politicians such as Pandit Nehru always wanted.

Sen also claimed countries such as Singapore educated people first; this led to growth later. That shows how ignorant he is. If you educate people and there are no economic policies that provide increased jobs, the education wouldn't suffice for growth and prosperity.

Singapore had inherited high literacy, but that helped only because outward orientation in trade led to huge exports, which enabled equipment with embodied technology to be imported. This equipment’s productivity was exceptionally good because of the high literacy, though it would have been high enough even without literacy. Literacy alone could not have led to results unless it fed into outward orientation.

China didn’t have the same level of literacy. But again, the phenomenal growth rate was due, not to literacy (which was good but not exceptional), but to privatisation of the collective farms and to the exceptional export performance of the Guangdong province.

The whole debate between you and Sen has taken political tones, with many accusing you of batting for Narendra Modi. Sen is obviously bashing Modi.

It is nonsense to say I am batting for Modi, when I have often said I wouldn’t vote for Modi or Rahul Gandhi, assuming they are the eventual candidates of the Bharatiya Janata Party and the United Progressive Alliance (respectively) in the forthcoming elections, unless I see their platforms and unless they are forced by public opinion and the media to hold US-style debates. If Sen is bashing Modi purely on the basis of his prejudices, that is his privilege. But it also betrays lack of integrity and judgement. I have no doubt the UPA leaders, all of whom I know well, will be astonished by Sen’s declarations.

You said Sen paid only lip service to growth. But his PhD was on stimulating growth.

Who did not build or talk about growth models even then? But can Mr. Sen really maintain he was talking explicitly about growth as an instrument for reducing poverty? Or that he was on the right side with gusto in the discussions on growth-enhancing policies such as trade openness, DFI (direct foreign investment), reduction in the massive proliferation of public enterprises and elimination of innumerable senseless interventions. One model does not a policy make.

The debate also saw personal remarks, which surprised many, as these came from eminent economists.

It is silly to fuss about personal remarks. You cannot discuss policy differences without citing your opponent’s writings. That is not getting personal. It is your safeguard against people who would otherwise claim you are creating a straw man.

If the exchange becomes animated, it is good; it will wake people up! If you want to see a debate descend into personal invective, I recommend you see how British intellectuals dish it out to each other, often hitting below the belt. Nothing we have had in the debate between me and Mr. Sen qualifies us as being in that tradition.

What do you think of the coming World Trade Organization ministerial in Bali, which aims to push for a deal on trade facilitation, while India wants the deal on food security to go through first?

What is wrong with letting trade facilitation go through? That is good for everyone, including India.