Newsmaker: Return of the economist

In his very own retiring sort of way, former Prime Minister Manmohan Singh’s career has mimicked the volatility of the bourses, but with the expanse of years in between the peaks and troughs. From the boy who would trudge long distances to go to school, he went on to win the Adam Smith prize in economics from Cambridge University. From being out in the cold in March 1991 as then Prime Minister Chandra Shekhar’s government fell to his rise only months later as the architect of the most significant economic reforms programme yet as finance minister. One who would concede in private that he was not his own man even as prime minister, Singh displayed surprising resolve and political savvy as he overcame the Left’s obduracy and the temptation to indulge in minority appeasement to clinch the Indo-US nuclear deal, which meant that India was no longer a nuclear pariah. It contributed to the UPA’s election win in 2009.

That was the peak and then there was a deep trough. By all accounts 2014 was a washout for the former prime minister. The Congress party was decimated in the Lok Sabha polls. His government was roiled in corruption cases. For him, all that remained intact was his reputation as the weakest prime minister India ever had.

There was little to disturb the tranquil waters of retirement since then, barring the odd question on the coal mine allocation scam and what transpired between him and former telecom minister A. Raja in the 2G case. That was till demonetisation came. It brought on the sort of forthrightness that helped him outmanoeuvre the Left in 2008 and the scholarship that earned the respect of Barack Obama and others as the elder statesman in world politics when he was prime minister.

And now, once again, the slow awakening. Singh has been relentless in his criticism of demonetisation as ill-conceived and a “misguided act of coercion” that had impacted everybody, but hit the poor the most. He has been at his cutting best in poll-bound Gujarat, choosing to hit home on demonetisation, in Prime Minister Narendra Modi’s home state, systematically taking down with economic argument every claim made by the government that suggested its November 8, 2016 decision had been a success. More emotionally, he has suggested that before going in for demonetisation, thoughts ought to have turned to two of the greatest Gujaratis  — Mahatma Gandhi and Sardar Patel — and how they would have approached the issue.

It has been an unusual sight to see the former prime minister giving hell to Modi in his own backyard, when the familiar sight would have been the reverse. Unencumbered by the burden of politics — freewheeling in the subject that he knows, he has been at his acerbic best.

The attacks started soon after demonetisation was announced by Modi. Singh said GDP would drop by 2 per cent in a slowdown triggered by the ban on high-value currency. He was prescient, because that is just about what was revealed in growth figures in subsequent months. GDP grew at 5.7 per cent year-on-year in Q1, down from 7.9 per cent for the same period in the previous year. This, according to him, was a conservative figure of the way growth would pan out in subsequent months.

The impact on the ground has been helpful for his party in articulating the opposition to demonetisation. After three years in the political wilderness, the way Singh has rounded on the NDA has enabled the Congress to finally get its foot in the door to counter the narrative being dictated by the Bharatiya Janata Party, pulled along by Modi’s undiminished popularity.

In a curious turnaround, and for a man who was seen to be a victim of Sonia Gandhi’s method of political management — he minded the government while she dealt with the politics — the Congress party is using demonetisation and GST to attack the government, with Singh, in his renowned economist avatar, as the star who would give them all the talking points.

And so, it has been the return of Manmohan Singh, the economist. The nub of his arguments are in sync with the Congress party’s Left-of-centre politics. He has said that while growth figures might improve, it would not reflect the permanent damage demonetisation inflicted on the most vulnerable sections and the informal sector. The greatest challenges facing India were unequal and jobless growth, and the ‘pretentious pursuit’ of a so-called less-cash economy tended to ignore them. He tied up demonetisation with the integrity of institutions, like the Reserve Bank of India, to say — without mincing words — that he hoped demonetisation was just an economic blunder and not a harbinger of institutional erosion. Elsewhere he has called it ‘organised loot’ and ‘legalised plunder’.

To a pointed retort from Finance Minister Arun Jaitley, that it would be prudent for an economist to look beyond the immediate — that is the former prime minister should think long-term rather than the immediate negative fallout from demonetisation — Singh did so, pointing out that rising inequality was a threat to India’s economic development.

“Demonetisation may exacerbate such inequalities which can be harder to rectify in the future. In such a diverse country as ours, inequality can prove to be a far greater social malaise than in other homogenous nations,” he said.

Then, bringing to bear the elements of behavioural science on the efforts to shift to a digital economy, and directly attacking note ban for doing this by force, he said, “Any behavioural change cannot be coerced or forced. It has to be nudged and incentivised as behavioural economists have found. Widening the tax base and formalising the economy cannot be achieved through coercion or threats or raids which can be counter productive.”

The divide among economists over note ban has been stark. Singh’s words find an echo in Amartya Sen, who said demonetisation was a “despotic act” as the government broke the promise of compensation that comes with a promissory note. Economist Kaushik Basu said, soon after the November 8, 2016 decision that its effects had been disastrous on the middle and lower middle classes as well as the poor.  Contrarily, economist Surjit Bhalla, said the move is likely to be the biggest reform in India — except that while it attacks black money, it says nothing on the creation of money.

As for the former prime minister, he has refused to be anything but blunt on the government’s reforms push, pointing out that none of the stated objectives of demonetisation have been fulfilled, with cash in circulation at 90 per cent of pre-demonetisation levels. This time around, there have been few barbs at him on his economic arguments. Perhaps, in due course, he will be able to supplant the image of a weak prime minister at the head of a deeply corrupt government with something more honourable and enduring.

Ananda Majumdar