Singh and the Sensex

The Sensex rose steeply in early 1992. From 2,000 on January 15, it had touched 4,000 by the end of March. That was also the period when the Harshad Mehta-induced securities scam hit the markets and the Sensex began losing whatever gains it had notched up in the preceding weeks.

The securities scam had also engulfed the PV Narasimha Rao government at that time in a major political crisis. When a Joint Parliamentary Committee was set up to probe the securities scam, the Narasimha Rao government's finance minister, Manmohan Singh, was attacked for not having regulated the stock market and the banking system well enough to prevent the securities scam.

Mind you, Manmohan Singh had already become a hero by then, not just by his impeccable integrity, but also by his adept handling of the unprecedented crisis that hit the Indian economy in the early 1990s. But that reputation did not help him. He had many detractors within the government and outside, who were demanding the finance minister's resignation in the wake of the securities scam.

But then Dr Singh was not only a seasoned economist, but also a pragmatic administrator, who had learnt well the lessons from his many years in government service. Among other things, he knew how to deal with official files.

As the JPC found out, almost every official file containing any reference to Harshad Mehta had a note scribbled by Manmohan Singh which invariably stated how the FM was concerned about the issues raised there and how urgent corrective actions needed to be taken. Here was a finance minister who never failed to urge remedial action. How could then the JPC recommend any adverse action against the finance minister?

It was a tough situation for Manmohan Singh's detractors in the JPC. After hectic parleys among themselves, they managed to locate only one instance of apparent indiscretion on the part of Manmohan Singh.

While the Sensex was on the rise in early 1992, Dr Singh was once asked in Parliament if he was worried over the sharp movements in the Bombay Stock Exchange's benchmark index. His reply was that as finance minister he did not lose his sleep over the daily changes in the Sensex.

Nobody should have faulted him for that statement. Indeed, why should a finance minister worry about the Sensex's movement especially in a country where only a tiny percentage of its population invests in the capital markets?

A finance minister should be more worried by inflation or fundamental flaws in the way capital markets are being run and regulated or by an economic slowdown. But the opposition members of the JPC latched on to that Sensex-related statement of Manmohan Singh to launch its attack against him.

The draft report of the JPC had a sentence that suggested that the country's finance minister could not afford to sleep when the Sensex was experiencing those sharp movements. Congress members of the JPC tried hard to influence the JPC drafting committee to get that sentence removed from the final report. They had good reasons to get agitated over that issue because Manmohan Singh had made it clear that he would resign if the JPC report contained any indictment of him as finance minister.

Extremely hurt by the JPC's suggestions, Dr Singh told this writer in an interview that he was sure that history would not remember him as a "sleeping finance minister". Manmohan Singh did put in his papers. But PV Narasimha Rao persuaded the finance minister to stay back in the government.

Recounting this long story today is important to understand why Manmohan Singh, the prime minister, is extremely reluctant to make any statement on the current stock market developments. Indeed, Dr Singh has always refrained from commenting on the stock market movements even under the gravest of provocations.

There were no comments from Dr Singh when the Sensex lost about 800 points a few days after the United Progressive Alliance government was sworn in with him as its prime minister in 2004.  In the last few weeks of turmoil in the financial sector in the developed world, Dr Singh has remained reticent, allowing the RBI Governor and his finance minister to take necessary steps to infuse additional liquidity into the financial system. His statement in Parliament on Monday did not refer to the Sensex even once.

There may be yet another reason why Dr Singh has refrained from commenting on the Sensex. The stock market can never be an aam aadmi concern of the UPA government.

As prime minister, Dr Singh is obviously more worried about growth, inflation and rural jobs. These issues will matter more for the government particularly now when the Congress is preparing to face a general election in a few months.

A fall in the Sensex might upset the small number of urban voters. But rising prices will affect millions of rural and urban voters across the country. So, ignoring the Sensex cannot hurt him politically. On the contrary, ignoring inflation might harm him. Manmohan Singh seems to be aware of this.