Manmohan Singh: Astute economic thinker who leaves behind a lasting legacy

What is the economic legacy of Manmohan Singh in India? Both the Left and the Right would like to remember him as the man who brought economic reforms and privatisation to what was a State-dominated Licence-Quota Raj economy.

Singh, himself would have liked to differ. “What is the future of capitalism especially in India?” Singh was asked in a 2009 Financial Times interview. His answer would have disappointed market fundamentalists. “Capitalism with a human face. We are a mixed economy. We will remain a mixed economy. The public and private sector will continue to play a very important role,” he answered.

To be sure, Singh’s ideas of a mixed economy were radically different from what his party, the Congress, tried to achieve when India gained Independence.

The Report of the South Commission, published in 1990 ( Singh was the secretary-general of the commission) provides some insights into Singh’s thoughts on the misplaced romanticism on State-led development strategies in the Third World.

“In many countries, the State has underachieved precisely because it has tried to do too much, too soon... In such conditions, the withdrawal of the State from some activities may well enhance its effectiveness as an instrument of development,” the report said.

Also Read: How Manmohan Singh’s economic reforms changed India

Singh’s 1991 budget speech, perhaps the most important in post-Independence India till date, echoed this sentiment. “The public sector has made an important contribution to the diversification of our industrial economy. But there have been a number of shortcomings. In particular, the public sector has not been able to generate internal surpluses on a large enough scale. At this critical juncture, it has therefore become necessary to take effective measures so as to make the public sector an engine of growth rather than an absorber or national savings without adequate return”, it said. The 1991 Union Budget was accompanied by a new industrial policy which de-reserved a large number of sectors from public sector monopoly.

It is in this transformation of the Indian economy that Singh played the most important role, first as the finance minister in the 1991 Narasimha Rao government and then as the prime minister of India for 10 years from 2004 to 2014. If the somewhat crude yardstick of GDP growth rates – external factors can emerge as big disruptors and some policies only yield a growth dividend in the long-run – is applied to judge Singh’s performance, his was one of the most successful tenures in India.

As an academic-turned-technocrat, Singh hit the political ground running, learning to deal with the constraints politics puts on policymaking. The Narasimha Rao government was a minority one. But the first resistance to undoing the Nehruvian consensus on economic policy came from within the Congress party. A lot of the 1991 reform was actually reform by stealth, wrapped in rhetorical commitments to continue the old ways. While political expediency necessitated that Singh displayed commitment to the old guard on the outside, he was pretty firm when it came to pushing his reform agenda on the inside.

In his essay The Road to the 1991 Industrial Policy Reforms and Beyond, published in the collection India Transformed: 25 Years of Economic Reforms, former Reserve Bank of India deputy governor Rakesh Mohan (who was then working in the industry ministry) provides an account of Singh’s firm resolve to push the reform process.

“Within a few days of his appointment (as finance minister), Manmohan Singh called a meeting of all the secretaries of the major economic ministries and the chief economic adviser.... Manmohan Singh outlined the full economic reform programme that was to be followed over the next five years — and more importantly, over the next six weeks. The latter included immediate action to be taken on industry policy. He said quite clearly that he had the full mandate of the Prime Minister to do whatever had to be done to solve the crisis... Since he knew that some of the mandarins present were not on board with the kind of liberalising economic reforms envisaged, he added: ‘If any of you have any difficulty with the proposed reform programme, we can find other things for you to do!’ This was perhaps the most firm and forceful that I ever saw Dr Manmohan Singh.”

Welfare State

The first four years of the United Progressive Alliance (UPA) government, of which Singh was the head, were spent on the parliamentary support of the communists, the most consistent critiques of economic reforms or neoliberal policies in India. This phase saw radical and progressive changes in India’s social-democratic fabric. The enactment of the National Rural Employment Guarantee Act, the largest demand driven employment programme in the world and the Right to Information Act are some such examples. The welfare push would continue in the second term of the UPA, this time without the support of the communists – they parted ways on the question of the Indo-US Nuclear Deal – and on the back of improved performance of the Congress party itself. And it would continue with the NDA under Narendra Modi.

The 2009 election results were perhaps the biggest political vindication of Singh’s vision of capitalism with a human face.

Things changed soon after the moment of glory. While the 2008 economic crisis did not have an immediate effect on India’s growth prospects, the export engine of growth ran into headwinds soon after. This, accompanied by a sharp rise in commodity prices and what many economists believe was a delayed withdrawal of the fiscal stimulus, which was administered to deal with the 2008 crisis, made things very difficult for the Indian economy. Inflation, fiscal deficit and trade deficit shot up; growth slowed. From being seen at the cusp of sustained double digit growth rates, India joined the infamous club of fragile five countries, whose macroeconomic fundamentals were deeply in the red. The fact that the UPA did not do enough to reform governance structure in banks played a big role in the pile-up of bad loans in the banking system. This would emerge as a major impediment to growth, something which created the twin-balance sheet problem.

The post-2008 crisis was also a moment of reckoning for Singh’s economic philosophy of capitalism with a human face. With revenue growth drying up and a rise in economic misery, largely a result of an upward turn in prices, his government found it impossible to balance the macro economy and welfare demands.

The best, and perhaps most hard-headed articulation of this growing contradiction was given by Singh himself in a 2012 speech, which among other things was trying to justify a hike a price of diesel and a cap on the number of subsidised LPG cylinders.

“...The subsidy on petroleum products has grown enormously. It was ₹ 1 lakh 40 thousand crores last year. If we had not acted, it would have been over ₹ 200,000 crores this year. Where would the money for this have come from? Money does not grow on trees. If we had not acted, it would’ve meant a higher fiscal deficit, that is, an unsustainable increase in government expenditure vis-a-vis government income. If unchecked, this would lead to a steep rise in prices and a loss of confidence in our economy,” Singh said.

Both the UPA government and Singh’s political clout could not recover from the economic crisis, which ultimately paved way for a sweeping Bharatiya Janata Party (BJP) victory in 2014, followed by an even bigger victory in 2019. To be sure, myriad allegations of corruption against various UPA ministers also played a role in diminishing the Congress’s, especially Singh’s credibility in the eyes of the voters. Singh himself admitted that his hands were tied because of political considerations.

“My compulsion is that I have to bear a lot because we cannot have elections every six months,” a 2011 HT story quoted Singh as saying. “Some compromises have to be made in managing a coalition. A coalition government has to be viewed in a context that no single party has emerged to rule by itself,” he said, adding: “In a coalition, there is a coalition dharma. Obviously things are not entirely what I would like them to be. But quite frankly, I never felt like resigning. I have a job to do.”

Singh, of all people, should have realised what such a politics would lead to. Once again, the 1990 South Commission Report, which Singh played a lead role in writing, was prophetic. “Politics in the management of development cannot be wished away. But if it is to be creative, politics must be the servant of social sympathies. It must be an instrument for purposeful social change rather than a ticket to power and privilege or another lucrative profession.”

In a media interaction in January 2014, months before the Congress would face a crushing defeat, Singh made a brave attempt to defend his legacy. “I honestly believe that history will be kinder to me than the contemporary media, or for that matter, the Opposition parties in Parliament. I cannot divulge all things that take place in the Cabinet system of government. I think, taking into account the circumstances, and the compulsions of a coalition polity, I have done as best as I could under the circumstances.”.

Whether the Congress party and Singh’s legacy will gain their lost glory is a question best left to the future. However, one can say with a reasonable degree of confidence and gratitude that Manmohan Singh was instrumental in India’s smooth transition from an ossified economy in the shackles of misplaced beliefs of State-led transformation to a market-oriented one without major disruptions and collateral damage. There are far too many examples of failed shock therapies and lost decades, a result of complete surrender to the exuberance of the Washington Consensus advocates, which teach us that India should always be grateful to Dr Singh for the fine balance he set out to achieve – and did.