Imagine P V Narasimha Rao telling the International Monetary Fund (IMF) in 1991 that he would go for a referendum on the question of whether the country would accept the economic reforms suggested by the Fund in return of the stand-by loan it would consider giving to a country that was on the verge of defaulting on its international payments obligation! Put simply, this is what Greece Prime Minister George Papandreou tried to do last week.
He was not sure if the opposition political forces in the Greek Parliament would support his government on the bailout package worked out by the European Union (EU). So, he set the cat among the pigeons! The moment he announced that he would go for a referendum on the question of the bailout for Greece, which also meant that the country would have to accept several tough economic austerity measures, there was panic all over, including the EU headquarters as also among Greece’s opposition parties.
Everybody knew that without the bailout there would be utter chaos in Greece and indeed that chaos would soon spread to other countries in the euro zone. Soon thereafter, the government and the opposition parties reached an understanding and Papandreou announced that he had scrapped the plan for a referendum. Eventually, there was not even the need for a vote in Parliament. The EU bailout package for Greece was safe and intact.
Rao’s government in 1991 was in a somewhat similar situation, though not one as precarious as Greece. So, why didn’t he do what Papandreou managed to achieve last week? One, Rao was perhaps a greater believer in the reforms programme to bail the Indian economy out of its crisis than Papandreou has turned out to be. Rao believed in 1991 that the time had come for India to say good bye to the licence-permit raj that had constrained the Indian economy’s growth potential. That was also why he had brought in Manmohan Singh, an economist with long experience of economic administration, as his finance minister.
Two, Rao was aware then that whatever his government was doing to bailout the economy from a balance of payments crisis might not have been politically acceptable to the opposition parties, but none of them – not even the Left – would pull his government down on that issue. Finally, and this is the most important difference, the Indian governance structure does not require an elected government to seek prior parliamentary approval of any international agreement that it wishes to sign. In many countries, including those in Europe and Greece, a government’s commitment to an international agreement is always subject to its Parliament’s approval.
Thus, Narasimha Rao could safely go ahead with his government’s negotiations with the IMF for an agreement on the stand-by loan. This is a flexibility that all governments enjoy and all political parties, when they are in the opposition, grumble about. Remember how the same Narasimha Rao government went ahead and signed the Uruguay Round agreement at Marrakesh in 1994, even though there was a strong wave of protests against the deal that eventually led to the creation of the World Trade Organisation and the launch of a new international trade regime. Pranab Mukherjee, commerce minister at that time, signed the agreement on behalf of the Indian government at Marrakesh and then the treaty was placed before the Indian Parliament for its ratification.
Mind you, this is a governance structure that always suits the ruling party, giving it flexibility to decide on international agreements or sign bilateral or multilateral treaties. For instance, it does not need Parliament’s prior approval before making necessary changes in its double tax avoidance treaty with Mauritius, or for that matter any other country. Indeed, the political class in India has studiously avoided making Parliamentary approval obligatory for many new rules or schemes it has put in place in recent years.
There was a time when the government was debating whether any disinvestment of its equity in a public sector undertaking should be first cleared by Parliament. That debate did not last very long and the rules on this remain unchanged. The government of the day can go ahead and divest its stake in a public sector company without Parliament’s approval.
At the time of framing the fiscal responsibility and budget management legislation, there was a proposal that any change in the target of deficit covered under the law should be allowed only after Parliament’s approval. However, this proposal, too, was rejected and the deficit targets are set and revised through notifications, which can be issued by the executive, without any reference to Parliament as long as the levels are within the broad limits fixed in the legislation.
The question, after what Papandreou did in Athens last week, is whether India is better off with a system in which its government has greater flexibility and freedom in deciding on issues concerning international agreements. Or should these be subjected to greater scrutiny by Parliament?
