A K Bhattacharya: The importance of making choices

NEW DELHI DIARY

There is nothing surprising about this. But it's nevertheless worth pointing out that the protagonists of the economic policy-making apparatus of the Manmohan Singh government are almost the same people who had masterminded the economic reforms programme of the PV Narasimha Rao government in the early 1990s.

In other words, several of those who played a key role in framing economic policies then are occupying equally important positions in the Manmohan Singh government today.

Their functions have of course changed. The biggest change is in respect of Manmohan Singh himself""finance minister then and Prime Minister now.

P Chidambaram, Montek Singh Ahluwalia, C Rangarajan and Y Venugopal Reddy are the other names that come to mind. This change of responsibilities has also meant a change of equations between each of them.

That is a big change and the big difference between then and now. Any failure to recognise this change can lull an analyst of government affairs into deriving a false sense of comfort in the mistaken notion that, after all, it is the same team that is in charge of the government's economic policies and if that team in the 1990s could work smoothly, there is no reason why it would not function now with the same cohesion.

This issue has arisen because of some incidents in the last few weeks that seem to suggest that cohesion among the top government functionaries is conspicuous by its absence. Let us look at three such instances.

One, the Planning Commission recently mooted a proposal to use a small portion of our burgeoning foreign exchange reserves to finance infrastructure projects. Like many other experts and economists, the finance ministry too had deep reservations about the proposal.

But the Prime Minister's Office (PMO) set aside the finance ministry's doubts and asked the Reserve Bank of India (RBI) to examine how the proposal to allocate a part of the foreign exchange reserves could be used to fund infrastructure projects.

Two, the RBI had recently floated a paper on how foreign investment in the financial sector should be regulated. As the central bank, it had imposed tough norms on such investments.

The finance ministry had different views and made public pronouncements to the effect that seemed to ignore what the RBI had proposed in its paper and on which a final decision was pending. The PMO intervened once again in a bid to resolve the differences of opinion between the regulator and the finance ministry.

Three, the RBI governor last week made a public statement that by implication endorsed taxing the portfolio investments being made by the foreign institutional investors (FII) in the Indian capital market.

The same evening the finance minister clarified that the government had no plan to tax FII inflows and the RBI governor had not meant what he had stated. The RBI governor also modified his public statement to dispel the impression that his original statement had created.

These are not stray incidents. There is a pattern that seems to suggest that members of Manmohan Singh's top economic team are not seeing eye to eye with each other. It is not that they have to agree with each other on every issue.

But surely there should be a mechanism by which their differences should be resolved internally without being made public and becoming a cause for speculation. It is Manmohan Singh's primary responsibility to step in whenever such a situation of conflict arises.

The immediate damages caused by such differences of opinion may be contained by subsequent clarifications, but their long-term impact on the reputation as well as efficacy of the government is undeniably adverse.

In fact, one of Manmohan Singh's major achievements during his tenure as finance minister was that he got to know his team very well and strengthened the equations among the team members, so that differences of opinion among them got sorted out internally before being made public. Those who could not be "co-opted" into the team either drifted away or were parked in other jobs.

At the ministerial level, P Chidambaram, who was then commerce minister, quit the government after the securities scam. Y Venugopal Reddy, who was then joint secretary in the finance ministry and oversaw India's transition to full convertibility on the current account, moved to the commerce ministry as additional secretary.

Manmohan Singh had only one slot for an additional secretary in the finance ministry and had to choose between N K Singh, also a joint secretary then, and Dr Reddy. The choice fell on Mr Singh. Dr Reddy returned to the finance ministry later in charge of the banking division, but that was for a short stint before he quit the IAS and joined the RBI as deputy governor.

Manmohan Singh as finance minister could bring about cohesion in his team largely because he made his choices and took quick decisions on who his team members would be.

As Prime Minister, Dr Singh is now required to make his choices with the same clarity and decisiveness that he displayed in the 1990s. Till then, differences among his key team members stationed in Yojana Bhavan, North Block and Mint Road will continue to cause a lot of harm to his reputation as an able and mature administrator.

akb@business-standard.com