Tough Governor, PSU Sales
By Shivaji Sarkar
Dr Manmohan Singh had semi-political and political stints long before he rose to become a finance minister, bestowed with credits for being ‘The Great Liberaliser’ or reformer of the Indian economy and ‘not a politician’ as prime minister.
Despite his academic credentials, the sweet, sober gentleman had a knack of keeping all he was close to in perfect humour and rub no one the wrong way. He had wisdom. So from Member-Secretary of Planning Commission in 1982, then Prime Minister Indira Gandhi moved him to Reserve Bank of India (RBI) as the Governor from September 16, 1982 and held office till January 14, 1985.
Singh protested high statutory liquidity ratio (SLR) – the portion of bank deposits to be mandatorily invested in government securities – at 36 per cent. He turned down a request from the Government for increase in SLR by two more percentage points as it would have diverted about Rs 1,550 crore from non-food credit to the Government.
The RBI has been doing the sheet anchoring of the Indian economy and many finance ministers, as even at present, never liked an upright Governor. Singh acknowledged in the book ‘Strictly Personal: Manmohan and Gursharan’, authored by his daughter Daman Singh, that he did have serious differences with the then Finance Minister Pranab Mukherjee when he was RBI Governor. Singh advised the government against granting approval to Bank of Credit and Commerce International (BCCI) — a foreign bank promoted a decade earlier by the Pakistan businessman Aga Hasan Abedi — to open a couple of branches in India. However, the government wanted the RBI to grant BCCI a licence and directed it to approve the application. With the RBI led by Singh opposing it, the government took to the Cabinet a proposal to strip the RBI of its power to license foreign banks.
Singh protested and sent his resignation to Mukherjee and the Prime Minister. However, he was persuaded by the government to continue as the Governor. Singh and Mukherjee reportedly had differences of opinion on the hostile takeover plan of Escorts and DCM by UK-based industrialist Swaraj Paul.
In 1990-91 the current account deficit swelled to 3 per cent of the GDP, a level highest by far in two decades. The import cover afforded by India’s reserves plummeted to a historic low of three weeks at the peak of the crisis. At this critical time, Prime Minister PV Narasimha Rao inducted him as finance minister. Singh, as Finance Minister, abolished the ‘Licence Raj’. He liberalised the Indian economy, allowing it supposedly to speed up development. Rao is stated to have rejected his original budget draft, and he had to redo. His new draft opened up avenues for closure of PSUs, job losses and the end of the monopoly laws and competition. The central government’s immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tonnes of India’s gold reserves as collateral security in 1991.
From1979-80, India started facing the balance of payment (BoP) crisis. By the end of the 6th Five Year plan in 1985, India’s BoP deficit rose to Rs. 11,384 crores (from a BoP surplus of Rs. 3082 crores during the 5th Five Year plan ending in 1978).
His new 1992-93 budget could not absolve Singh of the stock market debacle. Unprecedented stock price rises initially filled the powers that be with great joy. It was believed that the world had given a laudatory approval to liberalisation and globalisation raising false hopes that investments were pouring in. It turned into a concern in days.
According to the book ‘A Fly on the RBI Wall’, published by Rupa Publications, “When the Harshad Mehta scam was unearthed, it was RBI Governor S Venkitaramanan, who understood the connection between trading in banker’s receipts (BRs) and the rising stock market, which was what Harshad Mehta was engaged in. Harshad borrowed money from banks through BRs, invested it in ‘badla’ in the stock market, and returned the money to the banks two days later when the ‘badla’ transaction would unwind.” The Joint Parliamentary Committee (JPC) intense probe proved the scam, and it was found that Mehta defrauded banks, financial institutions, LIC, GIC, Unit Trust and host of others. It caused a loss of estimated Rs 50 lakh crore to government bodies. The JPC recommendations led to a major overhaul of the Indian financial system, including setting up of Securities and Exchange Board of India (SEBI).
Singh was accused by some journalists of most large newspapers in early 1990s of being the agent of International Monetary Fund, World Bank and MNCs, as his moves facilitated many foreign companies increase their stake at low costs. Today, those newsmen writings are all laudatory for him, after his demise.
Singh’s move for putting the PSUs on sale block had his successors in United Front circumspect and set up Disinvestment Commission under GV Ramakrishna in August 1996. The commission, in 1999, submitted reports on 58 PSUs, recommending disinvestment of up to 49 per cent in core sectors and 74 per cent or more in non-core sectors. This led to sale of some of the iconic PSUs like HMT that turned the country into an international watch-making hub. It was apparently done to facilitate a large private house’s new watch-making facility.
Often it is said that Singh’s prescription added to GDP growth. Partially correct. The GDP growth rate in 1993 was 4.75 per cent and in 1995 and 1996 – 7.5 per cent. But manufacturing growth remained stagnant, and the country was losing jobs – adding to the epithet – “Jobless Growth”. By 2019, it, according to Singh, had turned into “job-loss growth”.
Singh as prime minister during UPA-I had given the country the Right to Information (RTI) Act, MGNREGA for adding to the rural jobs, National Food Security Act, Right to Education Act, Direct benefit Transfer, Nuclear Agreement with the US and Land Acquisition Act. The Land law is playing havoc with severe depletion of agriculture and forest land. The nuclear deal with US raised a storm in teacup by the Left parties even with a no-confidence motion in 2007, which Singh managed to win. In hindsight, none but the Left lost in the deal that remained virtually stillborn, except some minor deals with the US.
The UPA-I strategy helped Singh return to power with a larger number, 205, seats in 2009. It was considered his gain and not so much of the Congress party. After the 2008 Lehman sub-prime meltdown, Singh succumbed to the lobbying of corporate, granting them huge incentives (loans) from public sector banks. This led to a severe NPA or losses to banks, inflation – mehangai dayan kahya jaat hai (inflation is called a witch), an unstable political situation and losing out in the 2014 elections to a virulent campaign by the BJP-RSS. The rest is history. — INFA