The white paper we got wasn’t the one needed urgently today | Mint

The white paper we got wasn’t the one needed urgently today

From 2009 to 2012, Pranab Mukherjee pushed public sector banks to lend aggressively and loosened the government’s purse strings, taking the fiscal deficit to over 6% of GDP.
From 2009 to 2012, Pranab Mukherjee pushed public sector banks to lend aggressively and loosened the government’s purse strings, taking the fiscal deficit to over 6% of GDP.


  • The economic failures of UPA-2 are well known and a lens on current worries might have served us better.

There’s a glaring disconnect between India’s self-congratulatory narrative on the economy and official growth estimates. India’s economic growth is the fastest. But gross value added (GVA) of agriculture will grow 1.8% in 2023-24, slower than 4% the previous year, according to government estimates ( That nearly 46% ( of our working population that toils on farms is experiencing such low growth is what likely made the Narendra Modi administration promise free food to about 40% of Indians for the next five years.

This may call for a review of the growth strategy the finance ministry is pursuing, the workhorses of which are the budget’s capex and welfare spending. It needs to be evaluated if capex outlays are ensuring meaningful growth for the bulk of our people. Welfare spending is largely on wages under the rural jobs guarantee scheme that are too meagre to assure economic well-being, while free wheat and rice provide calories, not nutrition. Whether this welfare spending is the best possible response to low rural economic growth needs to be assessed. Instead, the ministry has presented in Parliament a white paper that can only be called an exercise in partisan politics. Was this necessary when the government is so evidently popular?

Recall that India’s response to the global financial crisis in 2008 was designed by economists. Then prime minister Manmohan Singh held the finance portfolio, assisted by an experienced team. Montek Singh Ahluwalia, as finance secretary, had helped steer the 1991 reforms. C. Rangarajan, as governor of the Reserve Bank of India (RBI), had devalued the rupee and permitted private banks to be set up. Ahluwalia was now planning commission’s deputy chairman while Rangarajan chaired Singh’s economic advisory council. P. Chidambaram, as commerce minister, had corrected India’s trade tariffs in 1991. As home minister, he pitched in too. Arvind Virmani was chief economic adviser.

A growth collapse was averted and our economy emerged from the crisis quickly. Sustaining the recovery required careful handling. Singh’s team was the best bet for this, and, as I wrote in The Lost Decade, he would have kept the finance portfolio. An emergency coronary bypass surgery he underwent in January 2009, however, brought to the ministry Pranab Mukherjee, who had been finance minister in Indira Gandhi’s cabinet long before liberalization.

Mukherjee had unbridgeable differences of economic ideology with Singh, which he aired in his first address as President in Parliament’s central hall and later wrote in his memoir, The Coalition Years. From 2009 to 2012, he pushed public sector banks to lend aggressively and loosened the government’s purse strings, taking the fiscal deficit to over 6% of GDP. But instead of growth, he fired up inflation and banks’ non-performing assets, ultimately landing India in the ignoble ‘Fragile Five’ grouping. This was a typical pre-1991 approach to policymaking.

Mukherjee’s hand in the period’s “policy paralysis" can be assessed from his memoirs; he introduced retrospective taxes in defiance of Singh’s advice. He failed to move constitutional amendments needed for GST. He made feeble efforts to bring on board the only two states that were stalling it, the BJP-ruled Madhya Pradesh and Gujarat. Communication between him and Singh broke down. Rangarajan took important files to and fro, including for extending the RBI governor’s term. Finally, Mukherjee became President and finance ministry could begin repairing the economy. Chidambaram, appointed finance minister in July 2012, asked a panel for help on reducing the fiscal deficit. It was led by the 13th Finance Commission chairman Vijay Kelkar. RBI got a report on controlling inflation from its deputy governor Urjit Patel. Glide paths were announced and the deficit was reduced. By the time elections came, inflation was still high and a work-in-progress. Growth recovered gradually but steadily until demonetization disrupted it in 2016. The IMF’s Paul Cashin told me in an interview, citing data for 31 March 2004, that India was out of the ‘Fragile Five.’ This happened because the ministry took the advice of economists, who didn’t shrink from recording what needed to be stated; Virmani’s economic surveys discussed inconvenient truths about the economy, critiqued poor policy choices and recommended reforms.

In contrast to that legacy, the white paper sidesteps key issues. It starts by saying that agriculture GDP growth at the start of Singh’s term was above 9%, but says little on the record thereafter. Perhaps because it has collapsed this year? It seeks to take credit for inflation management—rightly so, as prices have trended lower in Modi’s tenure—but is mum about why much-needed policy advice is no longer available to the government from the architect of the monetary policy framework that delivered the relative price stability it’s so proud of. Meanwhile, the government has honoured Pranab Mukherjee with a Bharat Ratna! The white paper is also quiet on reforms reversed by the Modi government. These include trade tariff hikes that make Indian exports globally uncompetitive, a reversal of pricing reforms for non-urea fertilizers, and the in-effect nationalization of the wheat and rice trade as private players are edged out by the government’s heavy-handed market interventions.

The economy would be served better by a white paper on why the finance ministry’s growth strategy has delivered just 1.8% growth for the bulk of India’s population, and the changes it needs.

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