Jaswant versus Yashwant

A successful finance minister typically has three characteristics: good luck, political savvy, and wisdom. Yashwant Sinha was neither lucky nor politically savvy, though he showed flashes of wisdom.

Jaswant Singh has demonstrated both luck and political savvy. He still needs to prove he is also wise. That sums up the situation after Jaswant’s mini-budget.

Pity unlucky Yashwant. His first budget in 1998 was spoiled by the Asian financial crisis: huge devaluations by competing Asian neighbours made it impossible for him to cut taxes as merrily as his predecessor Chidambaram.

The situation was exacerbated by economic sanctions imposed after Pokharan II. His party had just come to power and the RSS urged him to go swadeshi. So, despite his own sound liberalising instincts, he presented a budget that threatened to retreat from globalisation into a swadeshi cocoon.

The problem did not end there. He was finance minister of an unexpected coalition in 1998, whose longevity was in grave doubt. He did not dare risk a collapse of the coalition.

And so when coalition partners criticised several measures he had proposed to reduce the fiscal deficit in 1998, he rolled them back. This earned him the nickname Rollback Sinha, which dogged him ever after.

After 1999 the Asian financial crisis and nuclear sanctions gradually ended. The prime minister helped Yashwant steer the party away from a swadeshi cocoon to globalisation, a major and unexpected gain for the country. He made fine speeches about going the Asean way.

His reputation improved, and so did the economy (the IT boom started in his time). But then his luck turned again. The global recession struck in 2000-01, and the technology boom collapsed, hitting Indian IT companies whose stock market price went from the stratosphere to zilch.

This was not Yashwant’s fault: the boom and bust in stockmarkets was a global phenomenon. But in India it was all blamed on Ketan Parekh and poor market supervision by Yashwant.

Then followed the worst drought for 20 years in 2002, which mired the economy and stock markets.

He was once again forced into humiliating rollbacks after his 2002 budget. Mercifully, he was then moved out of the Finance Ministry.

His budget speeches presented sweeping visions encompassing many sectors other than finance. In theory he had Cabinet approval for ranging far and wide.

But in practice other ministers simply refused to implement reforms promised at budget time, and coalition politics meant he could not discipline them.

As finance minister he promised too much and then could not deliver. This lack of political savvy marked his entire tenure as finance minister, and helped end it.

In his place came Jaswant Singh, who declared frankly that he was no financial expert, but wanted to put cash in the pockets of every housewife.

Now, that should not exactly be the key aim of a budget with the fiscal deficit at a record 11 per cent of GDP.

But Jaswant’s political instinct told him to gable on a sharp economic recovery, and so please housewives rather than Moodys or the IMF.

His giveaways in his 2003 budget were designed to please, yet entailed relatively modest sacrifices in revenue. And he was lucky.

The Iraq war went well for the US and the world economy boomed. The Indian economy boomed with it, spurred by the best monsoon for years. The economy recorded GDP growth of 8.4 per cent in the last quarter.

Jaswant cannot claim credit for the good monsoon, the global economic boom, or stockmarket boom. The world has suddenly realised that India is competitive not only in brainpower but even manufacturing.

This is a legacy of a decade of reform, and Jaswant is plain lucky to have inherited it at this time.

But to luck he has added political savvy, as shown by his mini-budget last week. He reaped all the dividends of an election budget, without formally announcing elections or even a budget.

This ensures that none of his giveaways of Rs 10,000 crore can be rescinded by the Election Commission as inducements to voters: the goodies have been announced prior to any election announcement.

But while he has proved both lucky and politically savvy, he has yet to prove that he is wise. It is one thing to gamble on giveaways in an election year, quite another to put the economy sustainably on a high-growth path.

Only fools would have expected him to worry about the fiscal deficit or other tough measures in an election year. But if he helps win the election for the coalition, he will then face several tough economic challenges. He will require more than luck to meet them.

What do you think?