Twice India’s finance minister, first in 1990-91 during the Chandra Shekhar government, then in 1998-2002, under the Vajpayee-led NDA regime, Yashwant Sinha presided over the critical phase of the Indian economy in 1990—just before India went to IMF—and is also credited with India’s current tax structure. His advice to UPA-II in the midst of the current economic crisis is: call for early elections. If that happens, it will prove the other critical point he tries to make in his phone interview with Pragya Singh—that this government has lost all credibility.
Critical as you are of the government’s moves, what would you have done to arrest the slide of the rupee?
What we are witnessing is a crisis of confidence. Confidence does not return in a jiffy. Quite clearly, this government has lost the plot; every measure of theirs has backfired. They have been treating the symptom, not the disease, while markets expect steps to resolve problems. As long ago as 2004, I had warned, in the Rajya Sabha, to be careful of interest rates, that rising inflation will be a problem. But they were in seventh heaven while things were good. They destroyed the economy.
Are you saying that the current account deficit (CAD) is manageable, and leadership is the real problem?
The CAD is dependent on many factors, but we (the NDA) were lucky. We even had a surplus for a while. Towards the end of the regime, it did rise again, but if we have a CAD of around 2 per cent, I will still say, live with it. At today’s levels, it is a cause for concern. The present government let the CAD keep climbing on, telling people it’s a sign of a growing economy. Ultimately it’s near 5 per cent, when in 1991 it was only 2.5 per cent. Agreed, we have much more forex now. But the quantum of short-term debt combined with the withdrawal of US stimulus, which will reverse the flow of funds from India, is a dangerous combination. It is this that has led to a crisis of faith. Every market-watcher is saying the government knew all along and took no steps.
What alternative do you offer?
The first task is to restore confidence: that this government will have to do. Lots of people, including myself, are also saying the solution is fresh elections.
We are headed for elections anyway....
Yes, but that election is still eight to nine months away.
Are you suggesting a test in Parliament?
There is no way that can happen. Because, you see, which Member of Parliament will want to curtail his longevity? It is the government that has to decide (election dates). In 1991, Manmohan Singh was the finance minister in a new government. In 1998, we were a new government. In 2013, we have an old, tired, decrepit government facing this challenge.
Why not a show of strength when it matters most?
No, I have no wish to add to the panic. I don’t want to be responsible for adding fuel to it.
And restoring confidence—is it possible?
No amount of pep talk will erase what is going on in the economy. You see, those trading in the market are fully aware of its realities. They are not distant observers like you or me. So, it’s not a question of Manmohan Singh, P. Chidambaram or Yashwant Sinha giving them a pep talk. Hard, underlying fundamentals are the problem.
So, nothing can inspire much confidence?
Let me tell you, in 1998, we faced a similar crisis. We compounded our economic woes with a nuclear test that led to sanctions, which added further to the gloom and doom. However, we issued resurgent India bonds and ended up getting billions of dollars of forex. That one measure led to the return of confidence—so, it has been done in the past.
As the author of many of India’s reform measures, do you regret the processes you unleashed, at least in part, as finance minister at a critical juncture?
The government and the PM were adamant that their fiscal expansion was only a response to the global financial crisis—but we say it had more to do with elections. Now, even these people admit that it led to an unsustainable increase in inflation, an increase that caused the RBI to change its monetary policy. Now we have increasing interest rates, we’re getting squeezed tighter, and there is no investment either—naturally—so they have created a vicious circle of low growth, high inflation and low investment. Any economist knows this sequence all too well.
But could we have acted differently in the circumstances?
In 2008, they said they met the global financial crisis, blunted it, through fiscal expansion. Now we have another crisis, but they have reversed the remedy—fiscal contraction. They have reduced plan expenditure by Rs 1 lakh crore. Either their first measure was correct, or the second—both cannot be. When were you right is the question. Even today, the food security bill will be a huge burden.
But if you don’t agree to the bill, you’ll be seen as a kind of enemy of the people?
That’s right—they project us in that light if we oppose it. That’s why political parties fall in line. But these are freebies—free electricity, free water, free food. Give everything free and people will be happy, but they don’t know the hidden reality. The burden of knowledge is on people who don’t have the bliss of ignorance.
What do ordinary people want then, in your opinion? Other than high-paying MNC jobs?
They don’t want MNC jobs. Those are for people who have expertise, skills and education. Most of us will stay where we are, as we are. Most people also don’t know that the government is giving with one hand and taking away with the other.
Do you regret your role in the way India’s economy has progressed?
I feel very sad, seeing with my own eyes, what has happened to the dream we saw. I feel very sad.
This government has not lost the plot as Yashwant Sinha seems to think, it’s simply doing its primary job: looting as much as it can.
Pradip Singh, Stafford, UK
Dear Mr Yashwant Sinha, your party has been making claims that they left power with a comfortable forex position. Was all that money from FDI or FII and promissory notes from tax havens channelled into manipulating markets? Yes, the cad wasn’t this wide and the import of luxury items wasn’t liberalised by cutting customs duties. But when you say that pensions reforms and FDI in retail are a must, is it a solution or just a temporary measure? Your party does not even have a position on the gas price hike.
FDI = Fixed Deposit in Italy.
Yashwant Sinha is acting holier than thou. It’s well-known that the Jharkhand cadre of IAS and IPS have been packed with people of dubious reputation, thanks to Yashwant Sinha and George Fernandes, who were the respective ministers of finance and defence. They allegedly helped rehabilitate most of the corrupt officers from undivided Bihar to Jharkhand. One had fled with a crore as the MD of a finance corporation and the other had not got a promotion for 6-7 years in Bihar because of serious corruption charges. Both ended up as chief secretaries of newly-created Jharkhand. Sinha, in fact, had lined the finance ministry with Kayasth officers from Bihar and Jharkhand cadres. His ministry was jocularly referred to in the corridors of power as the Braj Kishore Path, a reference to a caste leader of Saran district.
Sanket Biswas, Calcutta
Yashwant Sinha, who holds both first and second place in the list of India’s worst finance ministers is hardly qualified to give opinions on the current economic crisis (‘This govt has lost the plot’, Sep 2).
Yashwant Sinha is spot on in his argument that "what’s happening today is the culmination of a process that started in 2008". Chiddu as now was in-charge of the Finance Ministry in India then too, but with the 2009 elections on the horizon, the Congress party was only interested in winning it gnoring all the warning signals in a worsening economy. They were so drunk and complacent with power and the feel good factor in the Indian economy even in the wake of worst ever credit crisis in the USA/West since 1929, that they let the consumption led "boom" totally get of control as Sinha has highlighted which has now resulted in a nearly five-fold rise in CAD today.
Pranab Da who won the best FM of Asia award in 2010 tried to control this spending spree but was helpless against directives coming from 10, Janpath i.e. Sonia Gandhi. NREGA was Sonia's and her lapdog NAC's grandplan which alone spent nearly 1.26 lakh crores from the national exchequer to provide rural employment, but according to CAG report which came out in April this year NREGA was an abysmal failure.
Now we have this Food Securaity Act, FSA in short, from our Mai-Baap government and its Italian Bahu, barely just 6/8 months before another round of state and national parliamentary elections. And it is going to be another big spender which may or may not win the Congress party the 2014 election, but is definitely going to be nigh impossible to sustain it by the next govt of India ...
Was it not a great American Abraham Lincoln who presided over his country through its worst constitutional, economic, military and moral crises once said "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time." ?
He was right. You can't. India at the moment is going through the similar crises, but perhaps it is possible to fool all Indians all the time ... as its GOP has done consistently ...
Jai Sonia Mata di ...
22 D Ramki,
These ideas are good ones, and hopefully someone in the future, ( who actually runs the economy and does not have ideological baggages ) will implement them.
I still dont understand how this economy can survive with the HUGE hole in it, called the 'Gender Budget'.
@ KDM - "We must increase our exports whether goods or people"
I agree with you, Kishoreda. Maybe exporting you would be a very good idea, lol. Just kidding. The UPA and secularism need staunch supporters like you.
Misogynist >> Whats YOUR idea of how the financial drain can be plugged?
This question was posed tosomeone else, but let me try to put some points:
The three biggest import items of India are : Crude Oil, Coal, Edible oil.
* Make India 100% self sufficient in edible oil through national yellow revolution . 10 billion US Dollar of import saved
* Immediately approve all coal mining projects and do everything to cut our coal imports to zero. Another 20-30 billion dollars forex saved.
* Crude oil is bit challenging - but if india is 100% meeting its power demands, no need for diesel gensets. Next, electrify all our railway lines, that will save 15-20% of crude oil imports
* Next ensure that farmers run tubewells out of electricity or solar power. Stop using imported diesel to deplete our water table. Encourage drip water irrigation, discourage usage of groundwater and cultivating water depleting crops in dry areas.
* Give subsidy for public transportation and give subsidised fuel to bus operators and indian railways and heavily tax all private vehicle usage.
* Encourage people to tour Indian vacation spots instead of fly to mauritius and spain for their holidays. Irrational entertainment taxation is responsible for this..
* Lastly - lot of forex is frittered by people trying to educate their kids abroad. SRK sends his kid to a boarding school in UK. Why dont govt encourage these foreign educational institutions to put a campus in india? Govt should exempt them from RTI and reservation, and even BR Ambedkar would surely agree that the intent of social justice is to give opportunities to depressed castes and not to deny opportunities to the upper castes.
All these ideas are feasible and realistic. Only thing is none of the PAID CORRUPT Media wants to talk on this since it hurts their self interest. There are lots of lobbies that depend on making India a forex scarce trade deficit nation. When will our media dare to expose them?
KishoredasMunshi >> In layman terms we have been living beyond our means. We must increase our exports whether goods or people. Goods earn hard currency and people send back home remittances which could be used to purchasing crude. Govt should make it easier for people to work abroad. Govt should also encourage export of value added products not commodities because commodities are cheap.
1. Why Sinhaji was kicked out and Jaswantji brought in ?
2. He is pontificating on the current economic state of India, why did not he carry out the structural reforms when he was FM ?
Mr KishoreDasMunshi, in 2002, when NDA was in power, India was net exporter of COAL.
India has 5th biggest coal reserve in world and 2nd biggest in Asia.
Today we are 3rd biggest coal importer in world, and that is such a huge drain on our forex reserves. Why?
Why are we wasting foreign exchange in making the coal miners in Indonesia and South Africa rich, when we can give the same money to the tribals who sit starving in the jungles of Jharkhand or West Bengal?
Why si that UPA govt has completely mismanaged the trade balanced, made us depend so much on foreign crude oil or foreign coal?
Gold imported into India does not disappear, it is lying somewhere and some government can any day tax and retrieve.
But Coal , Petrol etc imported is burnt on import and use. It is money wasted for ever.
Can you dare explain as to why after 55 years of CON party rule, india is so much dependant on other nations for all essential imports?
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