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Mainstream, VOL LIV No 29 New Delhi July 9, 2016

IMF Loan: Fall-out on Foreign Policy / III Winds of Change? / Manmohan’s Progress

Saturday 9 July 2016, by Nikhil Chakravartty

From N.C.’s Writings

Twentyfive years ago Dr Manmohan Singh as the country’s Finance Minister in P.V. Narasimha Rao’s Union Government unveiled the new economic policis under the guidance and instruction of the IMF. From the inception this journal’s founder voiced his vociferous opposition to this course. Here are three samples of what he wrote at that time.

IMF Loan: Fall-out on Foreign Policy

The storm over the IMF loan that promises to overcast this session of Parliament pertains mostly to the impact of the conditionalities on the Indian economy as such. While one section of Indian opinion is optimistic, almost enthu-siastic, about Dr Manmohan Singh’s prescription laying down an open-market approach, others—equally important people—have warned against the danger of economic subservience to the powerful economies, particularly that of the USA.

While this debate is largely confirmed to the fate of the Indian economy as such, there are other consequences of the present government’s economic perestroika which will have a direct bearing on our foreign policy. For one thing, India’s stand on burning foreign policy issues of international economy will certainly be affected once the present controversy ends up with a closer dependence on the IMF, which in plain words would mean the American stand.

For instance, India has been strenuously resisting, with varying degrees of success, the Western stand in the GATT Uruguay Round. Now that chapter is likely to be over, as the US would expect India to give in to the line dictated by Washington. On the entire controversy over the Intellectual Property Rights and the signing of the Paris Convention, India has been one of the few countries that has so long refused to subscribe to the Western position. Now, after the IMF order is accepted, there is little doubt that New Delhi would have to change its position.

This, in turn, raises new problems. Within the country, there is a powerful lobby of indigenous business interests, particularly in the field of the pharmaceutical industry, which has been stubbornly opposing the Western stand on the issue of Patents and Intellectual Property. Once the government yields ground on this issue and moves towards signing the Paris Convention, it will certainly be resented by the indigenous manufacturers—what may be called the swadeshi lobby—engaged in the products which are bound to be immediately threatened by the invasion of the multinationals. This brings in a new aspect of the IMF loan controversy. Once its whole line is accepted, the government will be confronted with the problem of reconciling its stand with an important section of business interests who have been its mainstay for decades. In other words, the anxiety to invite the multinationals will lead to conflict with what may be regarded as indigenous national capital.

This will result in a totally new scenario with regard to the US Super 301. By complying with the IMF conditionalities, there will hardly be any ground for the Super 301 ban being imposed on India. Obviously, Carla Hills will have the last laugh.

On the wider issues of foreign policy, it is difficult to visualise India taking an independent position once the government falls in line in the economic sphere by going in for the IMF model. This is an important aspect of the present controversy over the IMF loan. The fact of the matter is that this loan is being taken at a particularly difficult time when, as the govern-ment has been telling the nation, there is no way-out but to take a large dose of foreign loan, and no loan is available from anywhere unless and until we have been certified by the IMF about our creditworthiness; and lastly, the IMF can give us the testimonial of creditworthiness once we agree to bend and reshape our economic strategy as per the free-market model that it strongly advocates.

But this exercise at reshaping policies is not going to be confied only to economic affairs, it is bound to invade our foreign policy, our socio-cultural outlook and approaches. One has to understand that the IMF model is an integrated model—it covers the entire spectrum of a country’s public life, and the model it has been propping up puts a small affluent elite at the top in the midst of a vast ocean of the underprivileged and the dispossessed. This means that the priorities will change in many issues before the government. Obviously, the anti-poverty programme has to be shortened, if not abolished altogether.

It is worth noting that Prof Galbraith in a recent interview has plainly said that the IMF prescription generally hits the poor in a community. When this was pointed out to a senior member of the present government, he very promptly dismissed it as Galbraith being over 80 years in age—implying thereby that the distinguished economist is old-fashioned, that is, out-of-step with the new radical thinking that the IMF represents.

Once this becomes the official approach, one should be prepared to expect tremendous pressure being worked up to change our foreign policy strategy as well. Why bother about Kashmir? Why don’t we sign the NPT? Why waste money on missile and nuclear research? Why bother about the old NAM and the new G-15? Why cling on to the dead concept of a New International Economic Order? Why?

It is to be realised that the foreign policy strategy of the early fifties that Nehru had prepared was organically linked to his concept of the mixed economy, the public sector and the state intervention in economic affairs to safeguard the interests of the dispossessed millions of this country. Once the economic policy strategy is changed, there can be no escape from a shift in the foreign policy strategy.

It is for Prime Minister Narasimha Rao to reconcile his declared commitment to the Nehru line with the economic strategy that his government is now trying to take up.

(Mainstream, July 13, 1991)

III Winds of Change?

Amidst extraordinary effusion of anxiety and interest, the long-awaited Budget was presented to Parliament on July 24.

The anxiety over it come from the high-voltage advance publicity about the country having reached the threshold of bankruptcy from which it could be saved by that mother of all money-lenders, the IMF. And interest in the Budget was generated by the expectation that it would set the lines of modernising our economy through structural changes so that it could be integrated to the global economic momentum. In the event, a veritable campaign was initiated for the instant removal of conrols and regulations which would have gladdened the hearts of Rajaji with his crusade against the licence-permit raj. In the bargain, all the familiar landmarks of our forty-year journey towards economic growth were earmarked for demo-lition, which by itself touched off intense debate and controversies.

It was a challenging, daunting task facing the government and it brought out the prudence of the Prime Minister in harnessing the reputation and erudition of Dr Manmohan Singh for the onerous job of the Finance Minister. It has so far been a heroic undertaking for him to try to convice not only the Opposition but the ruling party, and the country at large, tht the drastic changes now being prescribed by him are not at the behest of the IMF with its patent conditionalities which have played havoc with the economies of many countries in other parts of the world. It would be naive on his part if he thinks that by the master stroke of his Budget he would be able to banish such misgivings about the genuine swadeshi brand of his economic package.

Even many a well-wisher of the present government would prefer to withhold any testimonial for Manmohanomics, as revealed in the Budget proposals and other related moves, as good prescription for the country’s economic malaise, that it is not an unsuited imported medicine presented with a local label pasted on it by the erudite Finance Minister; while the critics of this new economic strategy, both in the ruling party and Opposition, will certainly brand it, as they have already begun to do, as a sell-out to the IMF.

It would be a superficial view to look at the Budget with its cosmetics in isolation from the economic strategy in its entirety. Particularly disturbing in this context is the open-door policy for foreign investments. In fact, the government’s new industrial poicy takes a come-hither posture towards the multinationals, more unashamed than Ashok Mehta’s classic opening-the-womb offer. Apart from the humiliating feelings such beseeching invitation to multi-nationals evoke in the national ethos, the massive invasion of the multinationals will directly militate against the interests of the well-established indigenous industries which have always been an enduring pillar of support for the Congress, and the national movement in general.

Apart from the immediate consequences of the new economic strategy—the inescapable rise in prices with its attendant spread of hardship and discontent among broad masses of the public—what faces the nation today is the challenge to work out a new model of development. It sounds all very exciting to talk about docking ours into the global economy. But as the leading country in the developing world—the world of the populous South in contrast to the super-rich North—it is for India to work out a model of development that shall truly ensure social justice with technological advance, while preserving the environment of the planet so seriously threatened by the ravages of the Western predatory models of development. Our economic strategists alongwith our political planners have to be constantly aware of this historic responsibility. The so-called structural changes under the IMF prescription can hardly be expected to equip ourselves for it.

The winds of change must blow constantly. We have, however, to ensure that they do not become the harbinger of a cyclone of disaster for this great land of ours. 
(’Editor’s Notebook’, Mainstream, July 27, 1991)

Manmohan’s Progress

With Parliament rounding off the general debate on the Budget, this is the point of time when certain reflections on the government’s presentation of the economic crisis before the nation may be in order.

Right at the outset, there was both curiosity and appreciation on the Prime Minister having chosen a distinguished economist as his Finance Minister. An outsider in the arena of party politics, Dr Manmohan Singh raised expectations that he would present before the nation a fairly objective assessment of the economic crisis, its origins as well as the way-out of it. With the double-dose devaluation, Dr Singh got involved in a rather unreal argument with many other economists outside the official precincts when he tried to claim that his prescription for the economic ills facing the country was totally indigenous and must not be taken as having been dictated by the IMF.

This heroic effort carried little weight because it had already been an open secret for months that the negotiations for a substantial loan included quite understandably the conditiona-lities of the Fund-Bank type. This was evident also from the experience of Dr Manmohan Singh’s predecessor in office, Yashwant Sinha, who, as the Finance Minister of the Chandra Shekhar Government, had gone to Washington for the very purpose or arranging an IMF loan. The announcement of the new foreign trade policy, that followed the devaluation of the rupee, left no doubt that the government had perforce to bend to the conditionalities set out by the IMF. Then came the new Industrial Policy Statement, which made no bones about the urgent need to fall in the line with the IMF, here and now.

It is not that the country was not prepared for the removal of many of the controls on economic activity which had long outlived the purpose for which they had been imposed at the beginning and which over the years developed into a breeding ground of bureaucratic corruption. It is the totality of the reforms that the government brought forward and the manner of their introduction which debunked to a large measure Dr Manmohan Singh’s rather pathetic pleadings that he was not guided by the anxiety to placate the IMF.

Dr Singh had begun with fairly plausible credentials. As the Secretary-General of the South Commission, he was known to be trying to sensitise world opinion about the fearsome dimension of the Third World debt, about the experience of the Uruguay Round in tackling the world trade imbalance, and the negative character of the IMF with its conditionalities. Ironically enough, the very week that saw Dr Manmohan Singh present his Budget—preceded by the announcement of the new industrial policy—that very week found Julius Nyerere, the head of the South Commission, in New Delhi on his way back from Beijing. One wondered if the Chairman of the South Commission could convince himself with equal felicity about the line of consistency between the Commission’s views and Dr Singh’s prescription for our country’s economic ailment.

Then came the long-looked-for Budget. One has to confess that many of his friends and admirers were disappointed by Dr Manmohan Singh’s presentation speech as well as by the measures proposed. What one had been looking forward to was how he would utilise the occasion to unfold a new vista of India’s economic development alongwith an objective appraisal of our economic strategy and its application in the last four decades. He needs no introduction as one of our leading economists, widely renowned, who has long been associated with the government in many important capacities. With his experience and erudition, he evoked expectations that he would present a major testament of New Thinking for India’s march towards the twentyfirst century.

It is against this background that the Budget—the speech and the proposals—were disappoin-ting. Neat but pedestrian. There were plenty of emotional touches in it. In fact his very first sentence was a lonely-heart tribute to Rajiv Gandhi. Beyond that, however, the speech failed to take a broad panoramic view of India’s economic activity—an exercise that was expected from an intellectual of Manmohan Singh’s standing.

There were copious references to the unprecedented crisis, but no explanation worth the name about the reasons for the crisis. Further, he gave the impression of having equated the balance-of-payments crisis with an overall economic crisis. That can at best be a book-keeper’s view, not an economist’s wide-angle approach. Here was a great opportunity for an economic thinker to unfold before his countrymen the momentous opportunities opened up by resorting to New Thinking for preparing this great country for its role of destiny. In dismay one has to confess that Dr Manmohan Singh missed a great opportunity for himself, for his government and for the country.

Not being an economist but just a concerned citizen, the present writer is in no position to pass judgement on the measures that the Finance Minister has proposed. Comments and criticisms galore have already appeared and they will persist long after the Budget session. However, there are one of two aspects of his presentation which may be specifically noted.

For one thing, Manmohan Singh in his Budget speech has glossed over the reasons for the BoP crisis, saying that the present government “inherited an economy in deep crisis” and sought to emphasise that things started going down only after the Congress was displaced from power in November 1989. On the other hand, the Economic Survey, which preceded the presentation of the Budget, made it amply clear that the malaise should be traced to the profiligacy in the management of finances in the previous period, that is, during the Seventh Five-Year Plan. And there is good ground for believing that the Economic Survey itself was suitably “edited” under the present Finance Minister so that a frankly objective picture might not turn out to be damning for the previous government run by the party to which he recently joined on being taken into the Cabinet. Besides the fact that the five-month delay in the presentation of the Budget from February to July—which worsened the BoP crisis—was due to the Congress party’s anxiety to escape the responsibility for a harsh Budget before an election battle, does not of course find even a remote reference in the Finance Minister’s analysis.

This takes one to the very interesting impact of Dr Manmohan Singh’s joining the Congress party—a sort of structural adjustment for a scholar falling into the company of politicians and trying to keep up with the Joneses. As one read the Budget speech and his copious interventions—more than perhaps any other Finance Minister before him—he has repeatedly been swearing by “our party”. One can under-stand his complex on that score after having burnt his fingers in the very first round before the Budget when he honestly conceded that the Congress election manifesto promise to roll back prices to the July 1990 level in “the first 100 days” of a Congress Government was unrealistic. The flacks he got from his party colleagues for this piece of honest opinion seem to have made him wiser and that explains his repeated references in his Budget speech to the Congress’ election promises.

Much along the same line has to be seen the Finance Minister’s announcement of “Five New Initiatives”—a Backward Classes Welfare Corpo-ration; a National Renewal Fund; a National Foundation for Communal Harmony; extension of the navodaya programme for youth exchange; a National Committee for popularising South-South Cooperation—plus, to cap it all, the mammoth Rs 100 crore grant for the Rajiv Gandhi Foundation. Leaving aside the Rajiv Gandhi Foundation which has attracted due share of notice in Parliament, one wonders how this list of miscellaneous items deserve to be tom-tommed as “initiatives”. Do these Man-mohan Initiatives point towards “the emergence of India as a major economic power in the world” as he promised in the concluding lines of his Budget peroration?

Controversies, misgivings and provocations a Budget in difficult times is bound to touch off, but what is indeed disturbing is that at the helm of affairs entrusted with the charge of providing a clear direction to the national economy, one finds a distinguished economist choosing to play the stereotype of a run-of-the-mill politician. In the life of a nation, rejuvenation has to come from the sturdy independence of the intellectual spirit. If the degeneracy of our politics can overpower our intellectual indepen-dence, that itself becomes a matter of utmost concern.

Is that the reflection of the sorry state of national morale today?

(Mainstream, August 10, 1991)