It’s only a week since Prime Minister Manmohan Singh took over the finance portfolio. But already there is an electric buzz in the markets, an air of expectancy and talk of reforms. In six sessions, the markets are up nearly 4%, though some of that will have to be credited to optimism from the embattled eurozone.
Early signs suggest Singh’s magic might be intact, two decades after he hauled India out of an economic abyss with path-breaking reforms and set it on the road to relative prosperity.
He demonstrated it, as it were, with a short but swift wave of his wand – dispelling the fears, notably, of foreign investors. Singh hinted the government may not press its $1.2 billion tax claim against Vodafone – wrought vengefully by his predecessor, Pranab Mukherjee, by passing a law retroactively after a court rejected the claim – and made it clear that he would weigh in on the controversial GAAR, or General Anti-avoidance Rules.
It wouldn’t take long for anybody to guess Singh’s reforms agenda – if he were given a free hand. Surely, he would have waved in the likes of Wal-Mart into the country, raised FDI limits on insurance companies, and probably found ways to bring more foreign investment into the infrastructure, a sector that he has said needs a trillion dollars. He also would have freed petrol and diesel prices, and slashed a variety of subsidies that have led the fiscal deficit to balloon, and sharply eroded the value of the Indian rupee.
Obviously, he has done nothing of the kind in eight years as prime minister for reasons known to all of us. Still, the big question is: Can Singh really do something now?
Unsurprisingly, there are two views. One, held by Swaminathan Anklesaria Aiyar of The Economic Times and others, is skeptical. Aiyar doesn’t expect real reforms, primarily because Congress Party chief Sonia Gandhi doesn’t believe in reforms. Worse, she doesn’t believe reforms win elections, even though many recent surveys have tracked the growing correlation between economic growth and political victories. With general elections less than two years away, and the party already facing a lot of reverses, Gandhi will be loath to take risks, Aiyar concludes.
Economist Sanjaya Baru, who previously served as Singh’s media adviser, sees hope and probable redemption for his former boss. If the Congress Party is sensible, he says, it would give Singh free rein. The suggestion is that a measure of reforms might undo the damage that has been caused to the economy and growth by UPA-2, and that it might still be able to swing the party’s fortunes in the next elections.
Baru’s argument is pragmatic and worthy of consideration than one might initially suspect.
One, contrary to expectations, the 2014 general elections is not going to be Rahul Gandhi vs. Narendra Modi, but Singh vs. Modi.
The young Gandhi, still widely considered a prime ministerial heir, is down and out after the rout in the Uttar Pradesh state elections. He is no closer to joining the government and is in position to lead the country. Consequently, Congress is likely to keep Singh at the helm and it behooves Sonia Gandhi to back him more strongly than she has in the past, especially on big-ticket issues.
Two, the opposition led by the Bharatiya Janata Party remains in disarray and might be hard pressed to gain a broad political mandate. Even though the Rashtriya Swayamsevak Sangh has given Modi the nod, the controversial Hindutva leader is right now winning more enemies than friends – within his own party and within his home state of Gujarat. Besides, the BJP is locked in battles with its allies on several different fronts.
Finally, it would be folly to underestimate Sonia Gandhi’s leadership qualities. She is shrewd, if nothing, and motivated in her goal of eventually installing her son as prime minister. In a losing situation, such as this one with most analysts predicting a reverse for the Congress, Gandhi is capable of taking bold gambles. One of them could be to give her chosen prime minister a freer hand in shaping the party’s fortunes in the next two years, and forging some clever alliances – a task at which she has succeeded to a great degree in UPA-2, overcoming several challenges.
May we say, Cometh the hour, cometh the Man(mohan)!