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Economy Sep 30, 2012

More power to the ‘foreign hand’ behind Manmohan’s awakening!

By Venky Vembu

Gujarat Chief Minister Narendra Modi has been leading a frontal attack on Prime Minister Manmohan Singh and Congress president Sonia Gandhi in the context of the recent burst of economic policy initiatives that have triggered so much debate.

The move to permit FDI in multi-brand retail, says Modi, has come about only under US pressure. "The country wants to know," Modi said at a BJP rally in Surajkand, why Manmohan Singh has "become Singham" only twice - once in 2008, when he pushed ahead with the Indo-US nuclear deal even risking losing support from the Left parties, and now, in 2012, in pushing for FDI in retail, again staking his government's survival. On both these occasions, the US was in election mode, Modi pointed out, suggesting again that the FDI retail proposal was announced under duress.

More insidiously, Modi wondered if the FDI in retail proposal was linked in any manner to Sonia Gandhi's recent visit to the US. "The decision to allow FDI in retail was taken the very day after Sonia returned to India from the US. This raises several questions," he said.The Congress had claimed that Sonia Gandhi had been to the US for a routine health test, and the announcement on FDI in retail came soon after her return.

If it takes a 'foreign hand' to wake up Manmohan Singh, so be it. Reuters

Since Modi himself has welcomed foreign investments in heavy industry in Gujarat, it is reasonable to assume that his objections relate not to FDI in its entirety, but to its being secured under pressure from a "foreign hand" - and that too in an area (multi-brand retail) where, some argue, FDI doesn't have the same value-creating potential for India as in, say manufacturing. This harks back to the BJP's earlier slogan - in the first flush of economic liberalisation - that India needed foreign investments only to manufacture "computer chips, not potato chips."

Yet, the manner in which the argument has been framed has only served to reinforce the notion that the BJP has unwittingly adopted the "foreign hand" bogey - which, as this columnist points out, the Congress used to unthinkingly invoke whenever it needed to divert attention away from its own failure of governance.

Manmohan Singh has responded to Modi's comments by claiming that the US had nothing to do with the recent policy initiatives. "We are not a country to be dictated to by others."

But Manmohan Singh is perhaps being a trifle disingenuous. There is a 'foreign hand' that accounts for why he has in the past three weeks sought to paint himself all over again in the hues of a "reformist" even though his own government has in the past eight years been taking a diametrically opposite path.

As columnist Swapan Dasgupta observes, in 2004, Manmohan Singh, the "accidental Prime Minister", inherited an economy that was on a sound fiscal footing and poised for high growth. But rather than building on the reforms of the NDA era, he and Sonia Gandhi changed the narrative away from 'reforms' and 'growth' to one of 'entitlements'. "For nearly four years, the UPA-1 regime... shifted the government's priority from the creation of infrastructure to the creation of a welfare net for theaamaadmi," Dasgupta notes. "The total quantum of subsidies, for example, rose from Rs 57,125 crore in 2006-07 to Rs 2,16,297 crore in 2011-12. The fiscal deficit rose from 3.3 per cent of the gross domestic product to 5.8 per cent in the same period."

The UPA's victory in the 2009 election only reinforced that welfarist agenda, and all talk of 'reforms' and 'fiscal consolidation' went out the window. Swamped by a succession of corruption scandals, each more chart-topping than the previous one, and a policy paralysis that had ground down the economy, the government was looking to change the narrative.

It's worth recalling that in the past few years, the UPA government - and, in particular, Manmohan Singh himself - have been at the receiving end of withering criticism in the domestic media for its corruption scandals, and for its mismanagement of the economy. Yet, it was only when the foreign media began to characterise Manmohan Singh as "an underachiever" and as "Sonia Gandhi's poodle" that he began to even acknowledge his sense of hurt.

The final straw, of course, was the international rating agencies' very real threat to downgrade India's sovereign ratings in the light of the sharp slide in GDP growth and the soaring deficits. For all the attempts by Congress spin doctors to discredit the rating agencies by citing their dubious role in the lead-up to the 2008 financial crisis, the threat could not be dismissed lightly. A downgrade - which even now cannot be entirely ruled out - will have only compounded India's economic crisis.

If there was a ''foreign hand" that directed the recent burst of policy initiatives from Manmohan Singh, it comes in the form of the international rating agencies and the foreign media.

That a Prime Minister should take criticism from the foreign media, while having remained unheeding of much more trenchant (but well-meaning) criticism from the domestic media who have an ear closer to the ground, is reprehensible. One wishes he would be just as response to constructive criticism from his own domestic constituency. But to the extent that it was foreign media criticism that lit a fire under the Prime Ministerial posterior and induced his government to begin to address the economic slowdown - which is directly attributable to his government's policies of recent years - it is a welcome course correction.

Likewise, if the only hand that could slap the UPA government from its slumber is a foreign hand (in the form of international rating agencies), more power to that 'foreign hand'.

by Venky Vembu

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