A failed Finance Minister as President!

Last Updated: Wed, Jun 27, 2012 06:50 hrs

It is a sad, ironic - and surprisingly little noticed - fact that when a Finance Minister of a developing country gets recognised as the "Best Finance Minister" by some international media outlet or a similar agency, within a few years that country has a financial crisis. This is obviously not intentional - it is much more a reflection of the shallowness of such judgments.

These tend to be based not on any really solid evaluation, but more simplistically on the temporary so-called "fundamentals" of a country that is experiencing a boom, for which the Finance Minister concerned gets the credit. And since booms are usually followed by busts, or at the very least slowdowns, it may even not be so surprising that the crisis follows, though what is still surprising is the perennial ability of those making such awards not to acknowledge this clearly repetitive pattern.

As it happens, Pranab Mukherjee was awarded two such prizes in 2010.

He was chosen as the "Finance Minister of the Year for Asia" by Emerging Markets, the equivalent of a daily newspaper for the World Bank and the IMF.

And in December 2010 The Banker magazine recognised him as "Finance Minister of the Year", ostensibly because of his efforts at fiscal deficit reduction and success at maintaining relatively high growth of the Indian economy in what was seen to be a turbulent year globally.

Those awards given two years ago would make the timing about right for the Indian economy to be on the threshold of a potential crisis. And in fact, this does seem to be more and more on the cards - if not a crisis, at least a significant slowdown, which is indeed already underway as Mr Mukherjee steps down from his office to pursue the goal of becoming India's next President.

Sadly, Mr Mukherjee appears to have outlived his welcome as India's Finance Minister, even among the corporate lobbies that he earlier seemed to be so much in tune with.

Today, as India's growth story seems to be petering out, with decelerating growth, rising prices of essential goods and stagnant employment along with high youth unemployment all jostling for public attention, it is much less likely that Mr Mukherjee would receive any awards for his management of the economy.

This was his second time in this particular job - Pranab Mukherjee was also Finance Minister in the Congress government of the early 1980s. At that time, he was seen as a safe pair of hands.

However, then and subsequently, there were accusations that he had favoured one particular business group (Reliance) through influencing differential tax rates in petrochemicals and textiles, which greatly benefited the company and adversely affected one of its main rivals.

Most of the media judgment on Mukherjee's latest tenure as Finance Minister has thus far focussed on the more obvious concerns of corporate India - the slowing rates of GDP growth and investment, the stagnation of industry and decline in infrastructure sectors, the burgeoning balance of payments deficit. He is seen as presiding over a slowdown that he has been unable to stop.

He is also criticised for making things worse by measures such as the retrospective tax law, which was actually a perfectly justified attempt to prevent a complete violation of the spirit of the laws of the land by multinational companies using offshore transactions as a means of tax evasion.

However, these are actually the less problematic aspects of his record.

The bigger concerns relate to acts of omission and commission that are associated with the very strategy of economic growth: the continuing neglect of productive employment generation as the most important macroeconomic goal; the failure to address the issue of price rise, and even the cynical accentuation of that price rise through the strategy of increasing prices of the most essential intermediate - fuel; the lack of effort to ensure enough public resources for the most basic of infrastructure and public services that affect the lives of most people in the country; the inadequate efforts to deal with growing food insecurity; the continuing attempts at further financial liberalisation on the sly; and the underlying presumption in all of this that GDP growth led by large private corporate investment driven by ever-increasing profits is the only mode of development and really all that the Finance Ministry needs to be concerned about.

It is this strategy that has generated the pattern of uneven development that is now unravelling.

The past boom was based on an unsustainable bubble, but even in the period of high growth the conditions of the bulk of the population hardly improved, largely because of the poor employment generation, inadequate attention to agriculture and nutrition security and terrible provision of public services.

Obviously, Mr Mukherjee cannot be held solely responsible for all of these issues, nor for the current state of economic affairs in general. He is but one (and that too, relatively recent) part of the now fairly long list of policy players who have chosen this route for the Indian economy. But it can certainly be said of him that he did little or nothing to ameliorate any of these problems and in some cases exacerbated them.

Certainly, both for his own sake and for the sake of the country, it is to be hoped that his career as President of the Republic will be more successful.

Other columns by Dr Jayati Ghosh:

Budget 2012: The greatest losers will be the Indian consumers

The Indian economy in 2012: What should the government do?

World economy in 2011: Fragile and seeking miracles

Why India won't feel like celebrating this Independence Day

Global turmoil and the threats it holds for the Indian economy

The scariest thing about the world economy

Is Europe rushing headlong into economic destruction?

The finance minister has failed the common man

Two burning issues the budget must tackle

Renowned economist Jayati Ghosh is the Professor of Economics at the Jawaharlal Nehru University in New Delhi. She is also a member of the National Knowledge Commission set up by the Indian Prime Minister.

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