DNA Mumbai Anniversary: The outstanding economic contributors in finance ministry and banking sectors

In the years DNA has been around, the country has seen many economic peaks and troughs steered by leaders in finance ministry and banking sector.

These years saw economic growth zoom past 9% with former Prime Minister Manmohan Singh at the helm but the crash to less than 5% GDP growth rate was equally resounding towards the end of his tenure. Finance Minister Arun Jaitley propped it up to 8.2% but the controversial demonetization of high value currency notes pulled economic growth down to 6.7%. RBI governors Raghuram Rajan and Urjit Patel took on the raging inflation and tamed it but Patel got ensnared in demonetization. Chief economic adviser Arvind Subramanian aggressively pushed transformative reforms and the head of India’s largest bank Rajnish Kumar took up the cudgel against spirally stressed assets.  

They’ve all created their economic legacy.  Whether they are good or bad is for the history to judge. Here, we briefly profile these outstanding economic contributors in over past one decade or so. 

Manmohan Singh: The Liberator 

This soft-spoken bureaucrat used his creativity to evolve his own brand of economic policy

Any mention of Indian economy cannot exclude the Oxford and Cambridge educated Singh, who opened up a new course for the country with liberalisation of the economy in 1991. As finance minister under the P V Narasimha Rao government, he put India on this track and has since propagated open economy.  

Before he merged India with the global economy, he had worked with the government as an advisor in the ministry of foreign trade, CEA in the finance ministry (1972-76) and headed the Planning Commission (1985-87). He was also RBI governor between 1982 and 1985.

This soft-spoken bureaucrat, who went on to become Prime Minister during two successive UPA regimes from 2004 to 2014, has used his creativity to evolve his own brand of economic policy. He has often articulated his economic philosophy in his speeches. He once outlined it as; “It should combine with high rate of economic growth, employment generation at a phase, which is robust enough to get rid of unemployment in a reasonable period of time, protect our environment, control of pollution of our natural resources like land, water and air and having a due regard to the quest of social justice and equalities”.

It was during his prime ministership that India saw the fastest GDP growth rate of 9.57% in 2006-07. It was not a cakewalk all the way for him. His tenure was fraught with controversies and scams, and his stony silence over them blew them out of proportion. His term also weathered the 2008 global financial melt-down, which knocked down economic growth rate from 9.32% in 2007-08 to 6.72% in 2008-09. It revived in the subsequent two years to 8.59% and 8.91% in 2009-10 and 2010-11 respectively but later caved in and fell to 6.69% in FY12, 4.47% in FY13 and 4.74% in FY14. As he took a lot of flak from all quarters, he said; “History will be kinder to me than the contemporary media and opposition parties in Parliament”.

Arun Jaitley: Black Money Warrior

Defended demonetization saying India has moved to a cleaner, transparent, honest financial system

His only brush with finance and economy in the earlier term of NDA led by PM Atal Bihari Vajpayee (1999-2004) was as minister of state for disinvestment and, to a little extent, when he took additional charge of ministry of law, justice and company affairs and shipping. In his role of finance minister under Prime Minister Narendra Modi, his task was clearly cut out for him – to wage a battle against black money. He began this by taking softer measures like Income Declaration Scheme, 2016, and gradually intensified his war which culminated in demonetization of Rs 500 and Rs 1000 currency notes on November 9, 2016.

This drastic step was meant to curb corruption, black money, fake currency and terrorist funding, along with ushering in greater formalisation of economy, digitisation and wider tax base. Instead, as cash got sucked out of the system, consumption demand slumped and the informal sector (over 90% of the economy) that ran largely on cash got brutally hit. This halted the upward march of GDP growth rate as it fell to 7.1% in 2016-17 from 8.2% in 2015-16. Next fiscal, it further dipped to 6.7%. 

Jaitley has steadfastly defended demonetization by his government in the face of severe criticism by opposition, experts and economists. He maintains it was “bold and decisive” and has led to “reduced corruption, greater digitisation, increased flow of financial savings and greater formalisation of the economy, all of which will lead to high GDP growth and tax revenue”.

The implementation of the much-delayed GST on July 1 last year could have been a bright feather in his finance minister cap, but the hurriedly rolled out – without extensive preparation – GST encountered several glitches. This forced the GST Council to roll back, alter and delay many of its decisions. This kept GST collections below the mark as small and medium enterprises struggled to come on board the GST system.  GST revenues have risen only in the recent months. The new indirect tax regime is slowly stabilising.  This may help in salvaging Jaitley’s overall performance as finance minister.

Raghuram Rajan: Rockstar Economist

As a central banker, his sights were trained on inflation, fighting relentlessly to tame it 

Much before Rajan appeared on India’s economic and banking landscape, the ‘Rockstar’ economist was already making waves in the US with his unconventional economic thinking. He initiated his stint with the Indian government when Montek Singh Ahluwalia, Deputy Chairman, Planning Commission roped him in to work on a report on next generation financial reforms. Soon after that, in 2008, he was appointed honorary economic advisor by Manmohan Singh. In 2012, he became the chief economic advisor in the finance ministry and a year later (2013), the RBI governor.

His first speech as the central bank governor on his intent to reform banking sector and ease curbs on foreign banking, sent the benchmark stock index Sensex soaring over 300 points and Indian rupee firmed 2.3% against dollar. He and his team relentlessly fought against retail inflation to tame it from 9.8% in September, 2013 to 3.78% in July 2015. The wholesale price index (WPI) inflation eased from 6% to -4.05% during the same period. 

A panel set up by him suggested inflation target be kept at 4%, with a 2% margin on either side. In a media interview, he said as RBI governor he would focus on reigning in inflation, expanding savings and deepening financial markets. While he was at the helm of the apex bank, foreign exchange (forex) reserve rose 30% to $380 billion in two years. He continued working on the RBI goals even after change in government regime as he developed a comfortable rapport with Prime Minister Narendra Modi. Things soured when the establishment took offence to his speeches on varied topics. As the situation hotted up, and with no offer for term extension from the government, he returned to his life as an academic in the US. A few months after he left the Mint Street, the RBI and government announced demonetization of high value Indian currencies. He revealed in media interviews that the government had consulted RBI on demonetization, while he headed it, but never asked it to take a decision. He also said while giving its feedback, the RBI had cautioned the government against the “potential negative effects” of a note ban.

Urjit Patel: The Hawk

The low profile banker has taken stringent actions for cleaning up balance sheets of banks

Patel is known to be as much of an inflation warrior as Rajan. His stint on the Mint Street is overshadowed by demonetization. The reticent central banker has faced two Parliament quizzing on it since 2016 and is still hounded for RBI’s role in the whole exercise.

Yet, his role in demonetization, as the RBI head, is still not clear. What is known is that the government asked RBI for its advice and the central bank gave its feedback on the feasibility and usefulness of the move. The details of RBI’s response is not in the public domain.

In his support of demonetization, Patel had said the effects of demonetization were transitory; “credit is more important than currency and credit was not affected at all”.

Patel also stands out among other RBI governors as he is one of the few RBI heads with a corporate background. The Oxford and Yale graduate has been on the board of Gujarat State Petroleum Corporation (GSPC) and worked with Reliance Industries.  He was appointed Deputy Governor of RBI in 2013, the same year Rajan joined as the central bank governor.

The low profile banker, whom Japanese broker Nomura classified under hawk category, has taken stringent actions for cleaning up balance sheets of banks. He has also faced flak for the bank frauds and scams uncovered during his governorship. He surprised everyone by being vocal about government meddling in the running of public sector banks (PSBs). The former International Monetary Fund (IMF) economist is also considered to be fiscally conservative but is supposed to among bankers who believe in not rocking the boat while dealing with the government.

Arvind Subramanian: The Insider Critic

The former IMF economist believes globalisation is 80% technology driven and 20% by policies

Subramanian deftly dodged controversy at North Block even as he pushed for transformative reforms in his economic surveys, which were widely quoted by media and economists. It was another matter that the government took little heed to these recommendations.  He succeeded Rajan as the chief economic adviser (CEA) in the finance ministry in 2014.

The former IMF economist has authored many books on economy and believes that 80% of globalisation is driven by technology and 20% by policies. According to him, “Countries that are able to manage social conflicts are more likely to succeed”.

An ardent critic of Modi’s Gujarat model, Subramanian had predicted that the Prime Minister would expose paradoxical tension between his mandate and mission.

“His electoral appeal is based on his ability to wield power, ruthlessly if necessary. His success in governing the economy will depend on coming to grips with, and making the best of highly circumscribed power”.

In his latest economic survey, he has advised the government not to undertake anything “new or radical” but to finish what they have started, stabilise GST, complete Air India privatisation, head off macroeconomic pressures and potential sudden stall from rising oil prices and sharp correction in stock prices”.

One of his interesting views is that India has moved from crony capitalism to “stigmatised capitalism”.

Rajnish Kumar: The Critic Silencer 

The current SBI chairman has maintained that NPA management is his top priority

Like his predecessor Arundhati Bhattacharya, the current State Bank of India (SBI) chairman has maintained that non-performing assets (NPA) management is his top priority.

He took over the reign of the largest state-owned bank when public sector banks (PSBs) had taken a huge dent in their credibility due to the banks frauds that had come to the fore and rising mountain of NPAs. There was a massive clamour for their privatisation.

Kumar silenced critics by saying private banks were in the same boat as PSBs. Simultaneously, he took on the private sector; “They (private sector companies) default and sit in the front rows of the industry associations”. He said PSBs served a “huge socio-economic agenda”. 

The banker also believes demonetisation was a success in terms of digitisation and formalisation of the economy. He urged people to not prematurely judge the “sweeping measure” taken by the Modi government. In an interview to a foreign media he said; “(it would be) early judgement to call (demonetization) an epic failure…. If the idea was to formalise the economy and bring more people in the tax base … to that extent, in my view, it has succeeded in its effort. Digitisation numbers are staggering (post demonetization)”.