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February 22, 1999


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The Rediff Business Interview/Yashwant Sinha

'Foreign investors' perception of India is extremely important'

Yashwant Sinha has the worst of a bad bargain. In most governments, the finance minister is both the de facto and de jure No 2 in the Cabinet. Sinha is only technically the PM's No. 2. He has to carry the can for the economy's non-performance as well as act as the apologist for the behaviour of some sections of the government. He knows he can be overruled by at least three members of the Atal Bihari Vajpayee Cabinet, because he's only a middle-rung leader in the party. And yet, it is his performance that will make or break the Vajpayee government.

Sinha pours his heart out in this tell-all interview with Aditi Phadnis, the most candid yet, that offers glimpses of his anger, desperation and hope.

What did you really tell your party? Did you really say that India was facing a situation similar to the collapse of 1991 when we had to mortgage our gold?

This is absolutely wrong. What I told the party was that after seven years of liberalisation, whether we like it or not, the Indian economy has got very closely intertwined with the world economy. And that not just foreign direct investment but foreign institutional investment and NRI funds played a very important role in shoring up the Balance of Payments position.

I also told party MPs that the whole international scene had undergone a qualitative change since 1991 when we'd faced our most important BoP crisis. What we faced in 1991 was a current account crisis. What we see today, in East Asia, Latin America and Russia, is a capital account crisis.

Because of this, the magnitude of the crisis is often mind-boggling. Take Brazil. Despite over five-billion dollars in foreign exchange reserves, they had to go and knock at the doors of the International Monetary Fund because they started bleeding at the rate of over one billion dollars a day!

Worse, crises of this kind are occurring, not because the fundamentals of an economy have weakened, but because of sheer sentiment.

Today, with one punch on a key, people are transferring billions of dollars from one market to another. And nobody gives a damn about what happens to the economy of the country.

So the BoP situation suddenly seems to have become irrelevant. Suddenly, the rules of the game have changed. The current account deficit developed over a period of time. It took some time, so you could put your policies in place, you had time to manage international agencies. There was some storm warning. But the speed with which the capital account crisis is developing is unimaginable. It can happen over a period of days.

So what I told my party was: the sentiment of the foreign investor, his perception of India today, is extremely important.

This was in the nature of a warning to your party?

It was more in the nature of an explanation. This fundamental change in the Indian scenario is something that even the cognoscenti do not fully realise: that we are part of a world which is extremely erratic, at times extremely irrational and which is most certainly uncaring and ruthless. We have to pick our way in this situation.

Those who oppose liberalisation say that we were saved from total ruination because India had not integrated fully into the global economy, and that distance and isolation is, maybe, a better policy.

This is wrong. We can debate whether we need foreign investment or not and in which sectors. But India needs foreign trade, right? And you cannot have foreign trade if you walk out on the rest of the world. It is not merely a question of supply or interchange of goods or service. We have a very large number of people in the Gulf, Europe, the USA and East Asia. Can we afford to abandon them?

China is often cited as an example: that it is not a member of the WTO and yet is managing to keep afloat. But what most people don't realise is that China has, bilaterally, accepted all those commitments and more than are enjoined upon by the WTO.

But obviously this message is lost on India, because in spite of the tacit consensus on the corrections that India's economy needs, all the economic bills your government introduced in Parliament failed to pass muster. The Congress laid down the Patents path that subsequent governments followed. Yet the bill couldn't go through. And surely only the most paranoid would believe that the insurance bill will result in the infringement of India's sovereignty?

There are two reasons for this. One is the determined ideological opposition of a handful in both houses of Parliament.

Cutting across party lines?

In Parliament, it is the parties belonging to the so-called Third Front: The Left parties and the (Rashtriya) Loktantrik Morcha.

Many in your own party are opposed to it.

Nahin, they are not outside the parliamentary discipline. They might hum and haw in meetings of the parliamentary party. But when push comes to shove, they have always agreed to back the party.

But this contributes to the general atmosphere of obstruction. We're talking of the signals that Parliament sends out.

But it isn't that. It is a determined Opposition, even though in a minority, which will raise questions of procedures, which will filibuster and delay things. But it has not and will not be able to block the bills. What really blocked the legislation was mere muscle power. If you don't like something you sit in the well of the House and don't let it go through. And this is not just true of the economic legislation, it is also true of the Women's Reservation Bill, the Vananchal Bill.

The Patents Bill was passed by the Rajya Sabha at 2230 hours. An amended copy was to have been made available to MPs the next morning. It was to go to the President of India. All this just couldn't be done in time.

That's even worse. Your government couldn't pass bills because of inefficiency!

No, there wasn't enough time. As far as the insurance bill was concerned, though I introduced it in the House in the teeth of a determined opposition, even the Congress wanted it to go to a House committee. So, the bill couldn't have been brought in and passed in this session anyway. We just wanted to introduce the bill and get a parliamentary committee to examine it.

So, on the insurance and patents bills, the government is being judged a little harshly.

What about the amendment in the Company Law Bill that allowed buyback of shares? Why did an ordinance have to be issued?

That was an unfortunate episode because there should have been a quorum in the House and it is the responsibility of the ruling party to see that there is a quorum. I have no hesitation in admitting that there was a failure.

Tomorrow: The finance minister's outlook for the Indian economy in 1999

Courtesy: Sunday magazine


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