It is now widely acknowledged that the United Progressive Alliance’s spurt of movement recently came when it felt it had no choice but to move. But what, precisely, made it feel so cornered? Was it, perhaps, the lost Parliament session? The endless terrible headlines in the press? The alienation of the urban middle class visible in the anti-corruption movement? The prospect of defeat in another round of assembly elections later this year? The answer, of course, is none of the above. No, UPA-II eventually moved perhaps because it was worried about a ratings downgrade. Indeed, the prime minister went so far as to actually quote worries in “analysts’ reports” as central to the decision.
The UPA’s sensitivities to what foreigners are saying about it is something of a punchline by now. When the prime minister’s office responded with unaccustomed vigour to a sequence of negative reports about Manmohan Singh — in The Independent, Time and the Washington Post — there was, very properly, much amusement expressed. All those reports were considerably less sharp than anything said in the Indian newspapers or on television about the PM’s fading legacy as a reformer. But when it becomes more than just the image of the PM, and it becomes instead a question of government action on a broader scale, is the sensitivity to foreign opinion worrying?
The answer is two-fold. It is certainly true that the Indian government needs to respond first and foremost to the Indian people. It is a sign of unaccountability when the same criticisms of the Centre’s macro-economic handling — of the fiscal deficit, say — suddenly acquire greater weight when repeated in “analysts’ reports” than when the government is warned about it by members of Parliament, its own bureaucrats, or homegrown policy experts. On the other hand, in this case it seems that it is not that the government feels more accountable to, or more stung by, one set of criticisms over another; it is that the source of the first set does have some indirect influence over the government. A ratings downgrade would further delay Indian industrial recovery.
It may not, thus, be wise, to look at such pressures exclusively through a nationalist lens. That the government felt compelled to respond when the threat of a ratings downgrade became severe is a reminder that fiscal discipline of any sort is still generally imposed on a government from outside, even in countries with independent central banks. It is one great advantage of having an open economy, in fact. Indeed, the openness to global criticism is slowly introducting accountability and spine where previously there was none. Consider Coal India Limited. The management of the state-controlled company, pushed into a corner by the constant criticism of its actions by activist London-based shareholder The Children’s Investment Fund, has managed to stand up to the government on several questions to do with its supply of coal to power plants of late. This will hopefully be a precursor to greater accountability of state-controlled companies to their minority shareholders. That the first push here, as on the question of UPA-II’s reform, comes from foreigners should not dismay Indians — unless it is not followed up by an increase in accountability all round.