Fumbling finance minister

MONEY is like manure,” goes a Hebrew saying, “Hoard it, and all you end up with is a big stink. Spread it wisely, and you are rewarded with a fortune.”

Someone who might have disagreed was Walt Disney’s immortal Uncle Scrooge, who had “four cubic acres of money, four quintimillion dollars and sixteen cents - and knew where every one of those cents came from”. But even Scrooge knew that one must spend money to make money...

Uncle Scrooge swears by the Trickle Back theory. When he pays his nephews their wages of 30 cents an hour he knows they will use the money to buy sodas. Then the soda fountain people will use the money to buy more fizzy stuff from the chemical factories, and the chemical factory people will buy ingredients from the coal tar factories. And who owns the coal tar factories? Uncle Scrooge! When those 30 cents have trickled back to Uncle Scrooge they have grown to 60 cents.

India’s bankers — and their masters in the finance ministry — have quite a bit to learn from a cartoon character. They are sitting on crores of rupees in the form of deposits, yet precious little is being invested. (There is a parallel situation with the Food Corporation of India; its silos are bursting with grain while starvation stalks sections of rural India.)

Maybe that is a little too strong. It is the commercial banks who have more money than they know how to handle. The banks directly charged with developmental activities are almost bankrupt.

Take the Industrial Finance Corporation, for instance, it is almost as perilously placed as several state governments. (And the fact that I am making such an analogy should tell you something about the provincial administrations!) Up to 40 per cent of its assets are classified as ‘non-performing’. If the Industrial Finance Corporation manages to receive any money — and that is a big if — those funds will be rapidly consumed in servicing past debts.

The Industrial Development Bank of India is in a slightly better condition. But that is like saying it has been wheeled out of the operation theatre into the intensive care unit. And with three chief executives in eight months — a fourth is expected very soon — any coherent policy to nurse it back to health is unlikely.

And then there are India’s foreign exchange reserves. These currently stand at a seemingly healthy 44 billion dollars. I thought this was a good sign, but experts soon disillusioned me. It appears that Indian industry has stopped importing machinery as well as other material required for developmental purposes.

All this suggests a rot at the top. Two years into the Vajpayee administration — well over three if you start counting from March 1998 — the biggest cause for concern is the under-performing economy. Small wonder then that receipts from taxes and other imposts, customs duties and so on, are well below the calculated figures. (The sole exception, I understand, is employment tax.) That says much about the guardians of India’s economic health, the men in North Block.

When you look back, what are the major events that took place during their tenure? I am sorry to say the incidents which spring to mind are all unhappy ones. The repeated collapse of the markets. The payments crisis in the cooperative banks. The fall in the GDP growth rate. A slow-down in industrial production. Foreign direct investment turning negative. And need I mention the fall of the Unit Trust of India, with all it entailed for the small investor and the vulnerability of the markets to foreign operators?

Some of this, perhaps most, couldn’t have been curbed despite the finance ministry’s best efforts. But did it even try? Sadder still, what has it done to ensure that these events will not be repeated?
When Yashwant Sinha took over as India’s finance minister back in 1998, one of his first acts was to bail out the UTI with Rs 3,500 crore. Would someone please explain why the finance minister allowed himself to be kept in the dark thereafter? Surely the fact that such a large amount was required to keep it afloat suggested some degree of mismanagement.

I cannot say whether it was ignorance or incompetence that kept the finance ministry on the sidelines. All one knows is that inaction was the order of the day.

Let us not fool ourselves into believing that all this is a short-term phenomenon with no implications for the future. The next five year plan drawn up by the Planning Commission speaks of raking in Rs 80,000 crore by way of disinvestment. That works out to Rs 16,000 crore every year.

This is a sick joke. If we continue at the current rate, it will be an achievement to get even Rs 2,000 crore every year, an eighth of what the plan envisages. We need a jaguar, yet worship a beetle!

Yes, I know there are plenty of hurdles in the way of disinvestment (and other economic reforms). But the finance ministry is expected to be in the forefront of the battle, not bringing up the rear - and rather leisurely at that. While there have been plenty of bold pledges in the various Budget presentations, the actual performance leaves much to be desired.

The bottomline: I believe Indians, from all sections of society, have stopped trusting in the promises of the Government of India. That is why they are content to put their money in bank deposits, rather than invest it elsewhere. Once, Indians would invest something like 11 per cent of their savings in the stock market; today, it is barely 2 per cent. Never mind any votes in Parliament, that is a no-confidence motion in the finance minister right there!

India’s economic fundamentals, the prime minister said on August 15, are still perfectly sound. I agree.

There is a traditional benediction which runs: Dhaanyam, dhanam, pashum, bahu-putra labham!. Roughly translated, that means ‘May you be blessed with grain and gold, cattle and many children’. Modern India is amply provided with all four — even the ‘dhaanyam’ and the ‘dhanam’. All that is lacking is the management to utilise them wisely.

If a patient doesn’t respond to a course of treatment, it is time to change the medicine. Whether one also needs to change the presiding physician is a matter of opinion, but desperate times require heroic measures.

Earlier Columns