T C A Srinivasa-Raghavan: What do PMs look for in FMs?

LINE & LENGTH

Serious research in the way governments in India function is almost absent. One area for fruitful research could be the relationship between the Prime Minister and the senior ministers, especially the finance and home ministers. So here is a research proposal focusing on finance ministers.

India has had 25 of them since 1947. This includes three occasions when the Prime Minister took over the finance portfolio""each time after removing the finance minister (1957, 1969, and 1987).

Only nine finance ministers have been removed midstream by the Prime Minister. Otherwise, they have gone when the government completed its term""or was pulled down (1979, 1990, 1991, 1996, 1998, and 1999""what a decade, and GDP still grew at an average of 5.5 per cent!).

The reasons for mid-stream changes of finance ministers have mainly been because of differences with the Prime Minister or the exigencies of politics. Only once has a finance minister been removed for incompetence (1949). But, most crucially, no finance minister has ever been removed for making a dog's breakfast of public finances.

Only on four occasions has the Prime Minister actually sacked the finance minister. In 1949, it was Shanmugham Chetty, who, Jawaharlal Nehru concluded, was not up to the job. That was the last time a finance minister was sacked for incompetence.

In 1957, it was T T Krishnamachari. He enjoys the dubious distinction of being removed twice. The second time was in 1965.

The first time the reason was because of the Mundhra affair. He had asked the LIC to buy the shares in a Mundhra company. This was not for financial gain. It was because TTK was worried about the negative impact on the stock market of his high tax Budget, framed against advice, to finance the Second Plan.

In 1963, TTK came back again as finance minister. But he was asked to go in 1965 by Lal Bahadur Shastri partly because TTK made it clear that he had a low opinion of Shastri. TTK was also opposed to dealing with the World Bank and the IMF, the need for which was being emphasised to Shastri by his officials.

The next to exit was Morarji Desai in 1969. He was opposed to bank nationalisation and went just a few months before 14 banks were nationalised by Indira Gandhi. But this was not just a difference of opinion over policy. The quarrel was also over the political affairs of the Congress.

The only finance minister to go solely on a difference of opinion over policy was John Mathai in 1950. He thought it was a rotten idea to set up the Planning Commission and opposed it very strongly. But Nehru was adamant. Mathai had to go.

In 1987, it was V P Singh. He ran afoul of Rajiv Gandhi. But this time it was entirely for political reasons. Two years later that decision cost Rajiv the prime ministership and his reputation as well over the Bofors affair.

On three occasions""1975, 1979 and 1982""it was simply party political reasons that led to the change. In 1975 it was Y B Chavan who made way for C Subramaniam; in 1979 it was H M Patel who had to make way for Charan Singh; and in 1982 it was R Venkataraman who made way for Pranab Mukherji. The first two were given different ministries (home in both cases). Venkataraman was made vice-president.

The last mid-stream change was in 2002, when Yashwant Sinha was shifted from the finance ministry, though not to the home ministry as had become the norm, but to external affairs. It is still not clear why this was done because on the whole he had done a creditable job as finance minister.

Only on one occasion was the Prime Minister forced to make the change against his wishes. This was in 1979, when Charan Singh, who was deputy prime minister, held a gun to Morarji Desai's head, who exchanged the home and finance portfolios between Singh and H M Patel.

On every other occasion, however, the Prime Minister was in full control of the party and the government. He or she exercised his or her prerogative without having to refer to anyone else.

Even Prime Minister Deve Gowda saw no need to refer to anyone, least of all Sitaram Kesri, the Congress president. He lost his job as a result in April 1997.

On the one occasion when the Prime Minister was politically weak, in 1979, and lost control over the finance minister, the results were disastrous for the economy.

Charan Singh's 1979 Budget, in its tax-and-spend spirit at least, was not dissimilar to the 2005 one. Like the 2005 Budget, it too didn't have the Prime Minister's full approval.

But most importantly, never has a finance minister been sacked for falling down on the most important aspect of his job"" that of maintaining the country's finances on a sound footing. Performance on the job does not appear to be a criterion for judging the worth of a finance minister.

Be it poorly-thought-through taxes, or a penchant for over-estimating revenues and under-estimating expenditure, or whatever else that has an impact on public finances, no Prime Minister has allowed it to bother him or her.

So unlike other countries, a finance minister here can create as many problems as he wants to for the economy, the firms and the individuals. It just doesn't matter.

Without attributing causality (more research is required here) it is interesting to note that macroeconomic crises have always occurred either during, or just after, the tenures of especially wilful finance ministers.

In 1956, TTK refused to listen to the experts and India had a forex crisis. In 1965 he again refused to do so and India underwent another crisis in 1966.

During 1979-81 the crisis was caused by the wilfulness of Charan Singh and his amazingly foolish Budget. The 1991 crisis was the result of Rajiv Gandhi's policies of 1987, wherein short-term external borrowings and the Budget deficit both increased hugely in that year and in 1988. But no finance minister has been asked to go for causing""or creating the conditions that could cause""a crisis.

This leads to the interesting research question: since competence does not matter, what does a Prime Minister look for in a finance minister?

People think that political weight is an obvious factor for choosing a finance minister. In fact, the opposite is true.

An analysis of 22 finance ministers shows that only three (Morarji Desai, Charan Singh, and V P Singh) were genuine heavyweights. All went on to become Prime Minister, albeit for short periods.

A plausible conclusion: if a Prime Minister has a lightweight finance minister, he can afford to replace him with another lightweight. It will cost him nothing.