A K Bhattacharya: Back to the past

RAISINA HILL

The policy mindset appears to have gone back to the old groove.

Finance ministers in India have always been sensitive to sharp movements in the Sensex "" the benchmark index that captures the broad trends in the stock market.

P Chidambaram is no exception. When the Sensex crossed 6000 a few months ago, Chidambaram expressed his concern saying that he would be worried when the Sensex crossed 8000. And when it crossed 8000, he modified his reaction to say that the current stock valuations gave some justification to the Sensex rise.

Yet, the finance ministry has been dutifully keeping a watch on the non-banking finance companies and the co-operative banks to see if they have been using their funds to fuel the bull run.

You can't fault either the finance minister or his officials in North Block for behaving in this manner. Manmohan Singh as the finance minister in the 1990s had to pay a heavy price for making what could be construed as a perfectly sensible statement in an economy that was being liberalised and where a stock market regulator was in place.

In response to a question in Parliament on the sharp rise in the Sensex in 1992, Manmohan Singh had said that he would not like to lose his sleep over fluctuations in the stock market.

That answer proved that Manmohan Singh had underestimated the nuisance value of politicians and politics in the Indian context. It was that statement which became a contentious issue: Should a finance minister be so unconcerned about stock market movements that he should not lose his sleep over them?

The draft report of the Joint Parliamentary Committee that probed the securities scam made an adverse comment on Manmohan Singh's lack of concern about what was happening in the stock market.

Several Congress members of Parliament rallied around him and worked hard to get that adverse comment removed from the JPC report, but all their efforts were in vain.

Manmohan Singh tendered his resignation on that issue. It was of course a different matter that P V Narasimha Rao as prime minister managed to persuade his finance minister to stay on in the job.

Today, Chidambaram cannot afford to ignore what happened to one of his predecessors. Even if he were to make a perfectly justifiable and reasoned statement on the current Sensex rally, politicians from the opposition benches would not lose an opportunity to accuse him of having failed to take corrective steps if for some reasons the Sensex crashed and some players got caught flouting the rules.

The finance minister would be made to explain his failure and every opposition leader would demand his resignation. Nobody will bother to understand that in a stock market, investments are naturally prone to risks and there is the market regulator to take care of any irregularities. What can the finance minister or the finance ministry do?

Clearly, things have not changed even after 15 years of economic reforms. Why only talk about the Sensex movement? The drama over disinvestment brings out the same story. The P V Narasimha Rao government had introduced disinvestment of minority stakes in public sector undertakings.

These shares were being sold to state-owned financial institutions through the auction route. It was hoped that such disinvestment would gradually pave the way for privatisation or strategic sales of government stake in PSUs. And that is how it progressed during the National Democratic Alliance (NDA) regime under Atal Bihari Vajpayee.

Some PSUs were even privatised. But today, privatisation has been shelved. What is likely to come in its place is the sale of government stake in PSUs to state-owned financial institutions in small lots and through the auction route.

Sales of PSUs cross-holdings in each other are also being encouraged. In short, we are witnessing the repeat of what the Narasimha Rao government did 15 years ago as the start of the privatisation process.

A similar thing has happened to petroleum product pricing. The administered price mechanism (APM) that provided the framework for government-controlled pricing of petroleum products was dismantled in 2002.

The NDA government even made a beginning by allowing oil companies to decide on fixing petroleum product prices. It was not a happy experience as instead of the oil companies, the petroleum ministry began deciding on the prices. But today, the process has been completely rolled back. The government has appropriated the full rights to decide on petroleum product prices.

The list of such policy reversals can be longer. But the message officials in different economic ministries are getting is that the economic policy mindset that had shown some signs of changing in the mid-1990s has gone back to its old groove. The clock seems to have been turned back.