With S C Garg’s removal from the Finance Ministry, the markets are certain that the issue of sovereign bonds will not happen, and there are doubts over the surcharge on the super-rich too.
These were amongst the more visible elements of the Budget, however. If the government has second thoughts about them, where would that leave Finance Minister Sitharaman?
Just days after this government was sworn in, the former Governor of Reserve Bank of India (RBI), Bimal Jalan, had convened a meeting of the six-member panel on RBI’s economic capital framework. The members, however, had some difficulty in adjusting their schedules with that of the meeting date but Jalan convinced them that it was necessary since the Finance Secretary had asked for that particular date.
On the day of the meeting, all the members except the Finance Secretary turned up. A crestfallen Jalan was told that a high-level meeting at the Prime Minister’s Office (PMO) had prevented Subhash Chandra Garg from attending. Except, the PMO too apparently declined any knowledge of any such meeting.
It is worth recalling that the present lot of senior officers in the PMO were several rungs junior to Jalan when the latter was the finance secretary. Did Garg overstep? It is not known if the former Rajya Sabha MP (Jalan was nominated by the Vajpayee government) made his displeasure known to new finance minister Nirmala Sitharaman.
It is a moot point, as to what precipitated the decision of the government to order a sudden transfer of Garg from North Block on Wednesday. It is also not clear at this stage, why the officer has taken this order as a cue for him to resign.
One of the hallmarks of the Narendra Modi government is that no senior government officer is either projected or reprimanded in public. They are given a long rope by the political establishment.
This is as it should be since it allows them to fulfil their task behind the scenes without being pointed out as the fall guy. It is up to the ministers to face the music from the public and Parliament. Senior officers have also not been usually transferred without serving at least two years in a department.
By all those yardsticks, Garg’s transfer seems like a rare public evidence of ire within the political establishment about his role. His decision to take voluntary retirement solidifies that perception even further.
The timing is, however, right as Parliament has just passed the Finance Bill 2019-20 marking the end of the Budget process. But as the Finance Ministry has a long and highly stressful year ahead, the departure of the Finance Secretary just after the Budget, when he is nowhere close to retirement, clearly means he has lost the support of the political executive.
Prime Minister Narendra Modi must be acutely feeling the absence of the steady hand of former finance minister Arun Jaitley at this stage. What Sitharaman lacks is political capital, which Jaitley has in abundance. Such capital or heft is necessary to keep the ship steady in the ministry.
Since finance ministers, because of their mandate, work like a “minority of one” in the cabinet, when they do not have the political heft, they have to often borrow it from across the road — the Prime Minister’s Office. This makes decision making difficult. Manmohan Singh, Yashwant Sinha and P Chidambaram’s terms at North Block were peppered with episodes when they were unable to make their decisions override objections from either the markets or concerned interest groups and had to thus beat a retreat.
The exceptions were Jaswant Singh, Pranab Mukherjee and recently Arun Jaitley, each of whom were political leaders in their own right.
Even with the presence of Prime Minister Narendra Modi, the markets and just about anyone else took care to notice what Jaitley said. Even when he fell sick, his blogs set off strong discussions unlike any other ministers’ blogs. They could create the space for the finance minister to carry out tough measures.
It is no surprise that major decisions were carried out in their terms — the UTI split, the decision to allow Indians to carry foreign exchange abroad, the handling of the liquidity crisis post the 2008 meltdown, the Ulip controversy, merger of railway Budget and change in Budget dates as well as introduction of GST and demonetisation (though the latter was more a Modi blueprint).
This is because it is a given that one or more of their decisions will invite hard criticisms. It is then that the political strength of the finance minister is drawn upon to smoothen those criticisms. When the minister does not have it, as is now, it makes the markets and industry, jittery.
It is not surprising that with Garg’s departure, the markets have made up their minds that the issue of sovereign bonds will not happen and even the surcharge on income tax of earnings is on its way out.
These are critical elements of the Budget and their removal will only make Sitharaman’s position with the state finance ministers in subsequent months in the GST Council, in the handling of the award of the 15th Finance Commission award and just about anything else less assured.
The economy needs a strong helmsman at North Block even though it is quite clear that Prime Minister Modi will pay far more attention to matters financial in this term.