Why Pranab should read Singh’s 1991 speech

If Finance Minister Pranab Mukherjee is looking for help in writing his 2010-11 Budget speech, here’s a suggestion: he should ask for a copy of Manmohan Singh’s Budget speech of July 24, 1991. Large chunks can be lifted verbatim.

True, Singh was presenting a path-breaking reforms Budget against the backdrop of an economic crisis, a horrendous fiscal deficit, soaring inflation, and external bankruptcy. Mukherjee, as finance minister of a BRIC economy, the next big thing after China, should be having a ball. But is he?

Let’s read Singh’s 1991 speech and see what we can borrow from it. Manmohan started off by saying that “the new government… inherited an economy in deep crisis.” Pranab can say that this year, but probably will not because he can’t blame the previous government for it. The previous government was his, too.

Manmohan said: “We have been at the edge of a precipice since December, 1990, and more so since April, 1991… Due to the combination of unfavourable internal and external factors, the inflationary pressures on the price level have increased very substantially since mid-1990. The people of India have to face double-digit inflation which hurts most the poorer sections of our society.” This time around, Pranab can take these sentences verbatim and change the dates. We have seen double-digit inflation last year, and will probably see it again this year.
In 1991, Singh said: “The origins of the problem are directly traceable to large and persistent macroeconomic imbalances and the low productivity of investment, in particular the poor rates of return on past investments. There has been an unsustainable increase in government expenditure. Budgetary subsidies, with questionable social and economic impact, have been allowed to grow to an alarming extent.”

Pity Pranab. He cannot take this line, though he may want to. He can use the line and blame the global financial meltdown for it. The centre is running a humongous borrowing programme, is facing a huge fiscal hole (over Rs 4 lakh crore) and government money is largely going down the drain (oil, food and fertiliser subsidies).

Talking about public sector investments, Manmohan said: “The public sector has not been managed in a manner so as to generate large investible surpluses.” Pranab can take this line, but he will not blame the UPA’s bankrupt policies for it.  Air India is sick. The oil companies are living on doles of government bonds. Telecom is booming, but public sector BSNL and MTNL are in decline. And this is not an exhaustive list.

“At this critical juncture,” Manmohan went on, “it has… therefore become necessary to take effective measures so as to make the public sector an engine of growth rather than an absorber of national savings without adequate return. This has been widely accepted, but thought and action in this regard are still far apart.”

Manmohan obviously failed. Pranab can finish the job for him by reducing the gap between “thought and action.”
Singh said then: “The crisis of the fiscal system is a cause for serious concern. The fiscal deficit of the central government… is estimated at more than 8% of GDP in 1990-91, as compared with 6% at the beginning of the 1980s and 4% in the mid-1970s.”

Mukherjee can lift the sentence and change the dates. Our fiscal deficit — if one includes off-balance sheet borrowings — is close to 8% now. The 6% and 4% levels were crossed entirely during the UPA regime.

Manmohan had said: “After four decades of planning for industrialisation, we have now reached a stage of development where we should welcome, rather than fear, foreign investment.”

Pranab needs to change four decades to six and remove all investment curbs in telecom, media, insurance and retail, to name just a few. We have nothing to lose but our inefficiencies in these sectors.

As for subsidies, Manmohan was Don Quixote in 1991. After raising fertiliser prices by a hefty 40%, he said: “The economic rationale for an increase in the price of fertilisers is so obvious that it does not need to be stated. Nevertheless, I would like to draw the attention of the house to the fact that there has been no increase in fertiliser prices since July, 1981.” Mukherjee surely can identify with Manmohan’s logic. In 2009-10, he needs to get a move on.

Singh repeatedly reminded parliament that time was running out. “We do not have time to postpone adjustment and stabilisation. We must act fast and act boldly. If we do not introduce the needed correctives, the existing situation can only retard growth, induce recession and fuel inflation, which would hurt the economy further and impose a far greater burden on the poor.” Exactly the words you could use, Mr Mukherjee.