Successful finance ministers succeed largely for two reasons: one is the ability to translate the political-economic policy framework of the party in power into results; and the other, more important, reason is full backing from the Prime Minister, come hell or high water.
This is why Nirmala Sitharaman, who presented a full complement of five budgets and an interim one, can be compared favourably with Manmohan Singh, and P Chidambaram, both of whom got similar tenures.
What they lacked was full prime ministerial backing towards the end of their terms. Chidambaram was shifted to the home ministry in November 2008 before he could present an interim budget ahead of the 2009 general elections. Pranab Mukherjee replaced him and made things worse.
Sitharaman will be the first finance minister after Manmohan Singh to complete her full term, with just over three months to go before the next government takes over in May 2024. None of the others, Pranab Mukherjee, Yashwant Sinha, Jaswant Singh, P Chidambaram or even Arun Jaitley, managed to do that. Jaitley’s last “interim” budget was presented by Piyush Goyal in 2019.
Under Narasimha Rao, Manmohan Singh got full freedom to reshape the economy and carry out deep reforms between 1991 and 1992, which was partly the result of our external bankruptcy, when the International Monetary Fund was breathing down our necks.
But once the immediate financial crisis ended, and political realities came back into view, the reformist appetite waned from 1993. And Manmohan Singh was soon forced to make compromises.
When he left North Block in 1996, India was stuck with high levels of inflation unrelated to any external shock. He also failed to spot the Harshad Mehta scam in 1992, having famously said that he did not lose sleep over what was happening in the stock market.
When he came back as prime minister in 2004, he never got his way on reforms from his party boss Sonia Gandhi.
With Singh as prime minister, Chidambaram got to present five full budgets (from 2004 to 2008, but not the interim budget in 2009), but he too did not get the needed political backing from Sonia Gandhi for any kind of reform — which was also the result of pressure from the Left Front which was backing the United Progressive Alliance (UPA) from the outside.
The UPA’s most reform-minded finance minister never got a chance to do his bit. On the contrary, he was forced to agree to a massive farm loan waiver on the eve of the 2009 elections, even though the farm sector was one of the biggest beneficiaries of the UPA policy of providing high minimum support prices (MSPs). And this when high rural wage growth was already stoking inflation.
It was only in his second UPA stint, from August 2012 to May 2014, that he came to grips with the challenge of runaway petroleum subsidies — but it was too late to undo the damage.
Under both Chidambaram and Mukherjee, practically no major reforms were implemented, and both allowed public sector banks to over-lend to favoured political cronies, resulting in the biggest pile-up of bad loans in this century.
This was the main reason why banks were unable to lend and support growth in the first term of the Narendra Modi government. The National Democratic Alliance (NDA) government’s relatively slow growth in the first term was directly the result of UPA economic mismanagement.
So why does Nirmala Sitharaman qualify as one of the better finance ministers in recent times? More so since she has been at North Block only in the second term of the Narendra Modi government.
Clearly, she benefited from the hard work on reform — implementation of the insolvency code, the goods and services tax (GST), Aadhaar-based subsidy reforms, and bank recapitalisation — done by her predecessors. But GST was still a work-in-progress when Sitharaman took over and yet to deliver on its revenue promises.
Moreover, the economy suffered three external shocks during her tenure — Covid lockdowns, and the (ongoing) Ukraine and West Asian wars — and she weathered them all.
As of now, the Indian economy is one of the strongest pillars of growth in the world, inflation is still relatively high but slowly coming under manageable, the external sector is strong, and manufacturing is getting a boost through the productivity-linked incentive system.
Banks are in robust health, and the economy is growing in the seven per cent range — the only major economy to be doing so well in the midst of economic turmoil.
GST revenues are in good nick, delivering over Rs 1.6 lakh crore monthly, and even direct taxes are doing well. That this is happening even after steep tax cuts is encouraging.
Sitharaman also cleaned up the mess left behind by Pranab Mukherjee’s retrospective taxation, where India was losing legal battles in foreign courts. She should have done this earlier in her tenure, but it’s always better late than never.
Any finance minister who can show this kind of report card at the end of a turbulent economic period cannot but be commended for her work, no doubt with the backing of her Prime Minister.
Where Chidambaram and Mukherjee left behind ticking economic time-bombs, Sitharaman is doing the exact opposite. She has defused the bombs, and the country is well-prepared to weather the economic disruptions.
The Prime Minister’s complete backing for the FM is obviously the main reason why Sitharaman has succeeded against the odds. Narendra Modi’s essential fiscal conservatism also helped Sitharaman keep the pressure for mindless spending after Covid at bay. This saved our fisc. Her interim budget earlier this month lived up to its name, drawing kudos from most economic commentators.
She deserves kudos for delivering on the mandate set for her by the Prime Minister. In terms of results, she compares well with Manmohan Singh and Arun Jaitley, but ranks higher then Chidambaram, Mukherjee, Yashwant Sinha and Jaswant Singh.
Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.
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