Dr Manmohan Singh Got A Few Things Right But Many Wrong

One of the important lessons of ageing is to appreciate the virtue of silence. There is dignity in that. Some not only, do not appreciate it but travel in the opposite direction.

I read the text of Dr. Manmohan Singh’s speech in Rajya Sabha as reported in ‘Indian Express’. He got a few things right and many things wrong.

He was right to focus on the short-term travails and chaos. That is where the government’s vulnerability lies. Well, the government is actually paying the price for the lack of capability of the machinery of the Indian state to pull something off like this on a national scale at short notice. Back in 2003, Dr. Arun Shourie had lamented that the Indian state got the odd big project right (Kumbh Mela, for example) but did not sustain it. This one is even more challenging. No surprise that there is chaos and hardship. There will be some economic costs to the nation and to the people. Hope it is negligible.

He was right not to criticise the demonetisation exercise itself. He focused on the process. That is about it. He got the rest of his speech wrong.

If he did not disagree with the objectives and if he did not wish to favour ‘this side or that side’, then why did he characterise it as organised loot and legalised plunder? Strong words but what is the basis? Did he mistakenly think that we were in 2010 when there was organised loot and both legalised and illegal plunder of national resources?

He is right that even 50 days is too long for the poor to suffer. But, in that case, was it right to let them suffer for 1830 days between May 22, 2009 and May 26, 2014? Annual average consumer price inflation was 10.1% in that period (based on CPI-IW) and food inflation was 10.5% per annum. The poor suffered enormously. The rupee plunged 50%. Businesses collapsed, telecom licenses were handed out to cronies, Supreme Court cancelled them. Mining licenses were allotted arbitrarily, Supreme Court banned mining. Economic growth, which was flying high due to the global boom pre-2008 collapsed to 5% to 6%, thanks to UPA missteps, loot and plunder. The 50-days that the current Prime Minister is talking about must be seen in this perspective.

Let me try another argument. The suffering of the people is incremental to the suffering that the State has been inflicting on an ongoing basis. Further, if the issue of corruption remained untackled, how could even one compute the suffering that would endure for much longer? By definition, that is harder and even almost impossible to estimate. Isn’t it?

Dr. Singh invoked John Maynard Keynes. Well, most economists know the context in which Keynes talked about the long run. It was in the context of the great economic depression of the 1930s and the advocacy of government remaining passive by the Austrian school. He advocated government intervention. Keynes may have been right (or wrong). It is hard to find out for it is impossible to construct the counterfactual. Indeed, many think that the non-intervening UK recovered better and faster than the American economy despite (or, because of?) Roosevelt’s interventions.

Be that as it may, in India, the situation has arisen out of government action (and not inaction) and it is handling the implementation challenges by responding to them immediately. So, Keynes’ analogy does not apply in this context at all.

Indeed, the long-run arrived for India in 2014 and the economy was nearly dead when the present government took office. It has been a struggle for it to breathe life into the economy left comatose by Dr. Singh’s government.

Dr. Singh is right that there will be economic impact in the short run and the long-run benefits are not easily identifiable or quantifiable, at this stage. That does mean that they are unlikely.

Indeed, much of India’s present economic fragility is traceable to UPA’s errors of omission and commission. Certainly, the public sector banks’ Non-Performing Assets is a UPA legacy. That is just one of many legacies of his government that India could have done without, some of which I have recounted above.

If the economic fragility persists longer, political uncertainty will follow in its wake and the Indian economic revival will end even before it began.

The government faces a very tough challenge. It has to keep up with structural reforms if it has to shut further avenues for corruption and, at the same time, mind economic growth and job creation which is not an easy task. Dr. Singh cannot be blamed for not offering any advice to the government in this regard, despite his impressive economic credentials. Unfortunately for him and for India, under his leadership, the government neither carried out structural reforms nor facilitated economic growth. So, he has no experience of either. Those were the dark ages.

Both this government and India need all the luck they can muster to avoid a return to those times in 2019. Palms folded or fingers crossed.

[Postscript: Here is Keynes’ full quotation on the issue of long-run. It is easily located in the Internet:

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again. Source: A Tract on Monetary Reform (1923), Ch. 3, p. 80.

Keynes was addressing some economists. In the case of India, no one is advising the government not to address the short-term issues nor is the government being indifferent to them.]

This piece was first published at The Gold Standard and has been republished here with permission