Manmohan Singh’s Contribution to India’s Rightward Drift | Arun Kumar

A shorter version of this article appeared in The Wire on January 5, 2025. Titled, ‘If Manmohan Singh had been more Firm, the Right may not have been as Dominant as it is Today’

Glowing tributes have been paid to Dr. Manmohan Singh at his death. This is an Indian tradition. One does not critique a person at his death; after all, they cannot defend themselves. There is an important reason today for the praise being heaped on the late Prime Minister. Much has changed since he demitted office after the unprecedented rout of the Congress Party in 2014. The public then had utterly rejected the Congress Party due to the rule of UPA II headed by Dr. Singh. The UPA II was characterized by policy paralysis and its non-performance was exploited by the Right wing in India represented by BJP and Shri Modi.

Dr. Singh comes across as a true democrat compared to the present times but he also has to share responsibility for the rise of the BJP and the post 2014 morass India faces. There is a paradigm shift. Today, freedom is under attack, autonomous functioning of democratic institutions is being curtailed, relations among communities are fraught so that social and political tensions have reached new heights. Autonomy of universities, media, parliament, judiciary, police, etc., is severely truncated so as to further the ruling party’s agenda.To achieve this, appointment to important positions is based onpersonal loyalty.The PM hardly attends parliament. And, when he speaks it sounds like a campaign speech that is often not in keeping with the dignity of the high office he occupies.

Today, critics instead of being celebrated are labelled as anti-national. A foreign hand out to destabilizeIndia is seen behind many NGOs working with the marginalized groups. The future of democracy looks bleak while it was thriving under the UPA rule, even if it appeared chaotic. Corruption of the high and mighty was being exposed then while today it remains under wraps due to the tight control kept on officialdom and media’s accesshas been limited. The PM goes for monologues and fixed interviews; a great contrast with earlier times.

How has this rapid transformation occurred in the power structure and the nation’s consciousness? Why have the checks on the unbridled power of the PM again dissipated? No doubt, the opposition’s weakness is an important factor underlying this. The same factors underlie both thesetrends and Dr. Singh has to share responsibility for it because he was at the center of policy making for 30 plus years before 2014.

Trajectory Rightward

Since 1971, Dr. Singh has been in important positions in the government. First as a bureaucrat implementing policy and then as a policy maker. He was a part of every government till 2014 and that testifies to his survivability skills in adjusting to various hues of policies. In the early 1970s, it was the left of center policies. During the Emergency there was a shift to the Right which strengthened with Janata government post Emergency and was consolidated with the New Economic Policies (NEP) in 1991.

When Mrs. Gandhi returned to power in 1980, there was a BOP crisis and India approached the IMF and agreed to follow its conditionalities. Markets had to be opened up, consumerism was promoted with the influx of white goods and imports were liberalized. The foreign debt which was $10 billion in 1980 rose to $93 billion by 1989. To begin with, it was financed by long term borrowingbut from 1985 it was replaced by short-term borrowing, which dried up in 1988-89 with the oil crisis hitting the world and led India into a debt trap. A BOP crisis ensued, the rupee weakened and flight of capital increased so that in spite of adjustments from the IMF, the foreign exchange reserves kept dwindling all through 1989-90.

Could Dr. Singh have cautioned the government of the pitfalls of such opening up as RBI Governor, as a member Planning Commission (1980-82) and its Deputy Chairperson from 1985 to 1987? After all, as the Secretary General of the South-South Commission under Julius Nyrere, in a widely quoted paragraph, the Commission’s Report cautioned the developing world against going to IMF. It pointed to the disasters that would befall them. To quote:

“Grave doubts exist concerning the theoretical validity of the key prescriptions now involved in conditionality. Their economic and social effects have in a number of cases been highly adverse. Monetary programming has frequently led to excessive idle capacity and rising unemployment. Financial liberalisation in condition of inflation has led to aggravation of inflation. Insistence on the elimination of selective economic measures has aggravated the maldistribution of income. Insistence on import liberalisation in periods of pressure has led to aggravation of balance of payments deficits and frequently to devaluations to a degree greater than would be needed otherwise. Insistence on indiscriminate expansion of exports of primary products in many countries simultaneously has led to more thanproportionate price declines and thus to declines in the value of primaryexports of developing countries as a group. Insistence on free trade irrespectiveof country conditions has led to many conflicts with national development strategies.”

Yet, as soon as Dr. Singh took over as the Finance Ministerin 1991 June,India accepted IMF conditionalities. The BOP crisis immediately eased because foreign banks started to lend to India and the flight of capital decreased.

The World Bank by 1989-90realized that India was headed towards a crisis and had prepared 7 Reports on what India should do. Former Prime Minister Chandrashekhar accused Singh in parliament that as his chief economic adviser, Singh had not shown him these reports.
The reports suggested trade reform, industrial reform, financial reform, etc..

Dr. Singhrapidly implemented these readymade policies.For instance, a devaluation of the Rupee by 23% was recommended and India implemented that in two steps on July 1 and July 3, 1991. So, it was not Dr. Singh’s policies that eased the economic crisis but the signal from the IMF and the World Bank.

Given the formulation in theSouth Commission Report whichflagged the adverse impact of conditionalities,could Dr. Singh have not softened the blow to befall the marginalized sections?The conditionalities were pro-business. Even the World Bank had realized by mid-1980s that these policies, termed as the‘Washington Consensus’ would aggravate inequality and poverty. So, ithad suggested setting up `safety nets’ for the poor. But, in India, invoking TINA (‘There is no Alternative’) NEP was implemented without safety nets.

Dr. Singh justified his turn around in stance on policy from being against conditionalities to justifying their implementation in India. In the post-budget discussion on Doordarshan on February 28, 1992, he justified his sudden change in stance by saying that if facts change should you not change your opinion – a famous line from Lord Maynard Keynes. But this way one can justify anything one wants to do.

The question arises did the facts of the Indian economy change so drastically that within an year, Dr. Singh shifted his stance from being pro marginalized in the South Commission to the pro-business stance World Bank was propagating. Clever ‘two handed economists’ often do such switching of sides, depending on which side the bread is buttered. In the mid-1980s, some young economists used to say with a 3 month consultancy at the World Bank, we can buy our car and with a one year consultancy, we can buy our house. Following the World Bank line is lucrative.

NEP were opposed by Trade Unions, Opposition parties and NGOs because of their adverse implications for the marginalized. A Bharat Bandh was organized every 6 months till end 1994. An Alternative budget spelling out the alternative to NEP and earlier flawed policies was presented to an assembly of citizens from various walks of life in 1993 and 1994. Yet, Dr. Singh went ahead in spite of these cautionary voices, perhaps he saw no choice for himself.

This rightward drift in economic thinking since 1975 was facilitated by the revolving door among policy makers who were increasingly drawn from the various institutions representing the interest of International Finance capital like the World Bank or were under its hegemony.

Opening up the Economy

NEP were justified on the ground that the Indian economy was closed and that was why it faced a crisis in 1989-90. The corollary was to open upand align with the Western bloc. The collapse of the Soviet bloc reinforced this proposition. The implication was that India had to go for marketization withthe state retreating from the markets. This was the essence of Washington Consensus.

India in 1991 was as open or closed as Japan, USA and China. The openness of an economy is measured by the share of its exports and imports in the GDP. We were all large economies with similar ratios ranging between 6 and 9%. So, this argument was just a ploy for theparadigm change in policies that the International Finance Capital desired.

Dr. Singh, following marketization made the stock market the yardstick of success of economic policies. In October 1991, when the economy was tanking, the stock market was booming. When questioned in the parliament, Dr. Singh stated, ‘I will not lose sleep over it’. Harshad Mehta, the big bulltook this as the cue to continue his stock market manipulations. Dr. Singh also met Mehta in the Ministry of Finance in February 1992, before the presentation of the budget (something that is not done),and agreed to exempt the holding of shares from wealth tax, further fueling speculation.

On the budget day, February 28, 1992, CBDT conducted a raid on Harshad Mehta and the stock market tanked. The raid was immediately stopped by Dr. Singh on his return to the Ministry after presenting the budget. Again, the stock markets soared. OnApril 6, 1992 the bubble burst.Many in the middle class lost even their provident fund from which they had withdrawn money to speculate. The Janakiraman Committee (set up by the RBI) Report estimated the size of the scam to be Rs 3,124 crore – the largest scam of the 1990s.

A JPC was set up to probe the scam but the officer who had ordered the raid did not appear before the JPC. Dr. Singh’s parliament statement regarding ‘not losing sleep’ became a bone of contention in the JPC Report with the Congress party not desiring its mention.

The period of Dr. Singh’s Finance Ministership saw a record number of big scams. Between 1991 and 1996, there were 26 major scams and 13 of them were above Rs.1,000 crore whereas before 1991, the biggest scam was Bofors which was estimated to be Rs.64 crore. So, the number of scams and the amount of money involved in the scam grew exponentially in this period. This was the result of easing of regulatory pressure on businesses due to pro-business environment created after 1991. This was also the period when the inadequate social sector expenditures to help the marginalized sections was further curtailed.

So, in economic terms India swung further to the Right in 1991. This had already taken place in political and social terms and these three trends reinforced each other.

Implications

What does swinging to the Right mean? It is the removal of equality and equity from the policy agenda.It is the celebration of greed, fuelling of speculation, promotion of consumerism and atomisation. Collectivity and its interest became secondary to the interest of businesses whether national or multinational. In a self-serving slogan, the motto became ‘grow the pie first’ and ‘don’t distribute poverty’. Redistributive policies became anathema.

The public sector had to retreat to make the market available to the private sector for its growth. Employment, education and health had to be obtained from the market. The state retreated from its responsibility of providing these to the marginalized sections. Social sector budgets were curtailed. This was a part of the belt tightening under conditionalities. There was rapid privatization in the field of education and health. No wonder during the pandemic a large number of people suffered due to lack of proper health facilities. Further, ASER Reports since 2005 show how poor school education for most children has been even though the gross enrollment ratio has become high.

The ground for policy was further sullied by the rising black economy and corruption which led to policy failure and public disenchantment with government. Large scams took place again during Dr. Singh’s Prime Ministership from 2004 to 2014. This sullied the image of both Congress and Dr. Singh.The Right in India linked this up to the high inflation and the economic problems faced by the people. Reluctantly, Dr. Singh agreed to a diluted form of Right to Information (RTI) Act passed in 2005 which kept the top ruling echelons out of its purview. A weak Whistle Blower’s Protection Act,an essential adjunct to the RTI, was passed in 2011. These two could have helped check corruption but they were deliberately kept weak.

During UPA II, the various‘safety net’ provisions under Rights to food, employment and education were implemented. But, Dr. Singh and two of his senior colleagues on economic matters resisted them since these were not in consonance with market functioning. They also invoked shortage of resources. However, Sonia Gandhi, the head of the National Advisory Council, stood firm and these rights were brought on the statue books.

Inability to Stand Firm

Corruption, inequality, poverty, unemployment and policy paralysis during UPA rule were invoked by Modi before coming to power in 2014. Letting these issues fester eased the path of the Right. Even to this day, these earlier weaknesses are used to divert attention from the present day non-performance of the government. These acts of omission and commission are used to threaten the opposition leadership with prosecution so as to prevent them from developing a counter narrative and in its absence, the opposition has had to resort to soft hindutva, which is the turf of the Right and strengthens it.

Dr. Singh was squeaky clean but did not check corruption all around him. Any number of examples of his honesty and simplicity are presented by his admirers. But the issue is not individual honesty, rather, the functioning of the system under his charge both as FM and as PM. Honesty is indivisible - it has to be systemic and not just personal. Dr. Singh’s weakness led to his totally succumbing to the IMF and the World Bank dictates and to his inability to rein in his Ministers.

The nationalist minded businessmen seeing the danger of indiscriminate opening up of the economy formed the Bombay Club. It folded up prematurely due to government pressure. The opportunity it provided to Dr. Singh to soften the NEP by claiming resistance in the country was not exploited since he was not able to resist the pressure from foreign capital. Unlike China which exploited WTO after joining it to become a super power in two decades, India did not move strategically. A nationalist entrepreneur like Chauhan who had stood firm against MNCs prior to 1991 was forced to sell out to an MNC.

Dr. Singh could have tested the waters by being more firm on policies. After all, Mrs. Sonia Gandhi needed him since he was not a political threat to the family. As a former academic he could have insisted on greater allocation to education and health to fulfil the goals of 6% of GDP for education and 3% for health.The secret of China’s dramatic rise lay in its prioritization of these social sectors and R&D. Further, unlike India, China did not sacrifice its sovereignty to foreign capital and worked on a strategic vision.

Marketization also led to growing consumerism post-1991 and it helped the ruling establishment divert people’s attention from real issues of unemployment, price rise, etc.. NEP favoured the capital intensive organized sector which led to rising unemployment and growing inequality. It has caused the share of profits in GDP to rise thereby fuelling inequality. In turn, this has narrowed the base of growth which not only makes it unstable but dependent on foreign markets and foreign capital flows and in a vicious cycle that requires giving more and more concessions to businesses.

NEP has boosted the services sector so that the share of agriculture has declined. Since the latter grows slowly, this has resulted in a shift in the composition of the economy and that is the reason the economy’s rate of growth has risen post NEP. The marginalization of agriculture has led to growing farmers’ distress and their suicides increased during the UPA rule. So, while the crisis in the lives of those in the unorganized sectors has aggravated post-2014, it had persisted during the UPA rule.

Conclusion

Tributes to Singh as a person are well-deserved, but the focus needs to be on his contributions to the nation’s journey. As an economist, he knew of the adverse impact of the paradigm shift he set in motion in 1991 since he flagged it in the South Commission report. If he had been more firm and helped moderate the impact of NEP on the marginalised, today the Right may not have become the dominant force it has become in Indian politics and society.

In the 1980s too, he did little to head off the impending crisis which the analysts were pointing to and did not caution the political class.

Dr. Singh’s contribution to policy making for which he is praised was to implement the World Bank and IMF programmes on behalf of International Finance Capital in 1991. That endeared him to these forces and to the Indian elite which had been wanting to link up with the global elite, irrespective of what it meant for the marginalized.

India also got pushed into the strategic orbit of the US rather than towards an independent path. And into marketization which in turn provided the fertile ground for Right’s advance.

Equity was dropped from the policy agenda by the rulers as self-interest became their paramount concern. Welfare of the collective was pushed to the margins and the nation got trapped in the web of the Right wing.

Some of the ideas here are from the author’s book, ‘Indian Economy since Independence: Persisting Colonial Disruption’. 2013.

(Author: Arun Kumar, Retd. Prof of Economics, JNU, New Delhi)