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Rediff.com  » Business » How FMs made a difference in India

How FMs made a difference in India

By Business Standard
January 29, 2007 12:10 IST
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One of the noteworthy features of the nearly 16 years since the reform process was kicked off in 1991, is that 17 annual central Budgets will have been presented by just four finance ministers; if you ignore the one year given to Jaswant Singh, it is just three.

The previous 16 years saw no fewer than 11 men occupy the imposing, wood-panelled office in North Block, and only one of them (Pranab Mukherjee) got beyond two Budgets. In contrast, Manmohan Singh and Yashwant Sinha presented five each, and this will be P Chidambaram's sixth - but short of Morarji Desai's record of eight budgets.

Why is this worthy of note? Because, if you ignore the aberrations on the margin, India's fiscal policy through the entire reform period has been marked by a consistency of approach, and general movement in one direction - though at varying speeds.

Aided by formal advice from leading economists (notably Raja Chelliah and Vijay Kelkar), tax policy has moved towards three simple objectives: low rates (to reduce tax evasion), a broad tax-paying base (for system legitimacy), and convergence of tax rates (for simplicity and to avoid classification disputes). Fiscal policy has also pushed towards reducing the deficit, switched to the value added tax system, computerisation of tax administration and the creation of a data-base.

Now further reform is being attempted through the integration of taxes on goods and services, with attendant changes in state taxation. It is a creditable record of sustained movement in the right direction - and endorses the view that the reform process has broad national approval, cutting across political divisions.

It is interesting that this change has been achieved mainly by three finance ministers of the reform era who have been "professionals" and who have therefore understood the needs of a modern economy. Dr Singh was an economist and economic administrator, Mr Sinha had belonged to the Indian Administrative Service, and Mr Chidambaram was a lawyer with a Harvard degree in management.

There have been others like them before (C Subramaniam, HM Patel, R Venkataraman), but we also had Charan Singh, Narayan Datt Tiwari and Madhu Dandavate.

Other than being "professionals", all three have also been political lightweights - that Dr Singh has become the Prime Minister does not negate this. In comparison, finance ministers of the earlier period were often political heavyweights: Morarji Desai himself, VP Singh, Charan Singh, YB Chavan and so on.

The latter-day preference for professionals rather than political heavyweights may have something to do with political history: at least four finance ministers made a bid for the primeministership, and three succeeded: Desai, Charan Singh and VP Singh.

The failed bid was by Mr Mukherjee, who tried to suggest to Rajiv Gandhi in 1984 that whenever a prime minister died in office, the No. 2 in the outgoing cabinet (himself, at the time) had been made the interim prime minister till the Congress Parliamentary Party met and elected a new leader. That was of course the last anyone heard of Mr Mukherjee in the Congress for the next half a decade. So it is understandable that no prime minister in recent years has chosen a political heavyweight as finance minister.

The odd man who stands out in this survey is Jaswant Singh. He was a reluctant appointee as finance minister, he had no understanding of economics and finance, and he was a senior politician but without a political base in the BJP - but he proved to be a big picture man with the good sense to turn to professionals for advice.

The Kelkar reports have defined the direction of fiscal policy since. It is hard not to conclude that India has been lucky in the finance ministers it has had.

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