Failure to build consensus

Yashwant Sinha: "I don't expect the logjam in the economy to be broken as long as this government is in power."-SHIV KUMAR PUSHPAKAR

Interview with Yashwant Sinha, former Union Finance Minister.

Against the background of the countrys depressing economic figures, Frontline spoke to Yashwant Sinha, former Union Finance Minister and a senior Bharatiya Janata Party (BJP) leader. He said that the government was squarely responsible for the current meltdown of the economy and the market: They have been sitting tight and doing nothing. So if you wont act and dont take decisions, this is what will happen. I am not even talking about controversial pieces of decision-making on which there is no national consensus, like FDI in multi-brand retail. He said that the Finance Minister and the Prime Minister must take the blame because they are partners in whatever happens on the economic policy front.

The following is Sinhas take on the state of affairs of the economy:

How do you assess the Reserve Bank of Indias (RBI) measures to ensure capital flows by easing rules pertaining to external commercial borrowings (ECBs) and allowing foreign institutional investors (FIIs) to invest in government securities?

These measures have to be carefully examined because while speaking on the Finance Bill in the Lok Sabha I had said that not only was the current account deficit going beyond sustainable limits but what was even more worrisome was the fact that 70 per cent of the CAD, as per data available with me, was being financed by short-term debt. Commenting on a similar situation way back in 1991, Dr I.G. Patel said that short-term debt is like sudden death because if they dont roll over and insist on repayment, you have to repay. So short-term debt is even worse than FII money.

That is why in the management of external account, we always look at the balance between long-term and short-term debts, and the short-term debt should not be allowed to cross certain limits because it impacts adversely on the economic health of the country. So the large CAD which is unsustainable and the financing of these deficits are issues that should have been kept in view by the government and the RBI while announcing these measures. To encourage more ECBs and FII money into the economy will only add to the pressure on volatile debt-creating flows in a situation where we are experiencing more volatility in the exchange market with the rupee declining in its value against the U.S. dollar precisely because speculators started betting on the rupee, and we have no means to fight that. The new set of measures by the RBI will contribute further to the volatility by bringing in hot money into the system, and it is bound to increase the pressure with hot or short-term capital coming into the country. One has to be careful when the CAD is in excess of 4 per cent of GDP.

What are your views on the policy paralysis and governance deficit of the United Progressive Alliance (UPA) government?

I have said several times that this government has suffered from leadership crisis from day one. As long as the going was good, everything was hunky-dory. The moment we started facing challenges on the economic front or other fronts, we realised that this government had no power to take decisions and was floundering on all fronts. What are the problems in decision-making that they are not sharing in Parliament? I dont expect the logjam in the economy to be broken as long as this government is in power. My assessment is now we will trundle along like this and I dont expect any miracles to take place and the next government will face the music.

I have answered the theoretical question if I were the Finance Minister what I would do. I have done and shown what can be done in a situation like this. I have faced much greater crises than this government ever faced in the last eight years. When I took over as Finance Minister in 1998, there was the East Asian crisis, and economic sanctions on us by all powerful countries, post-nuclear test. We faced the situation and brought the country back from the brink.

Bipartisanship is a very desirable objective in any democracy because in a democracy, while governments are formed on the basis of numbers, they function on the basis of consensus. But the responsibility for building that consensus rests squarely on the shoulders of the government of the day. The government should reach out to build that consensus. Why only on economic issues, even on other issues this government did not build any consensus. On the nuclear deal, the BJP and the Left were opposing it, and the other elements in the political spectrum too, but the government went ahead with it. So consensus-building cannot be cherry-picking, that I want to build consensus and so you fall in line.