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?
Not at all—what’s happening today is the culmination of a process that started in 2008. The CAD at the time was around 1.2 per cent, and reserves were high. Everything was hunky-dory. Now, whether from complacence or hubris, the government let go of the fisc that year. It climbed from 2 to 6 per cent. There was spending of Rs 3 lakh crore, all of it on consumption, and the revenue component of the deficit climbed from 40 to 80 per cent.
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.