Exclusive: 'Manmohan was my role model and a master in persuasion', says Montek Singh Ahluwalia

Exclusive interview/ Montek Singh Ahluwalia, former deputy chairman, Planning Commission

Q/ You had over a 50-year association with Manmohan Singh. What kind of relationship did you share, and how did you influence each other?

A/ For me, he was both an inspiration and a mentor; so, obviously, I cannot say how I influenced him! The other way around is easier. He was professionally a role model. He had done exactly what I wanted to do―worked outside government as an economist and then joined government. I was also very impressed by his personal kindness and gentleness and his willingness, indeed keenness, to hear other people express their views. You could go to him and say, “I don’t entirely agree with what you said,” and he would listen and explain his position. He was a master in persuasion. Seeing him in operation taught me a lot on how to push ideas in an environment where they were not immediately attractive.

Q/ A significant percentage of the country’s population was born after 1991. Tell us about decisions from that era that shape India even today?

A/ You have touched on a very important point. Two-thirds of the country was born after 1991, and even the young adults among them are not aware of the importance of the changes in 1991, which are responsible for the economic transformation we have seen. They have no idea of how inefficient the control-oriented system was before 1991. They are not aware that by closing ourselves from foreign trade and protecting domestic manufacturers, we kept inflicting automobiles on the population which were 30 years out of date, and even then, it took many years to get a new car! Today’s young people have much more choice and they have producers chasing after them.

I worry about this because parts of the western world seem to be turning back towards protectionism. I hope we have the good sense to avoid this. We are much less closed than we were before 1991, but we are still more closed than other developing countries. We need to remain open to foreign investment, foreign technology and also imports, while also taking active steps to support Indian industry to compete effectively. I have no doubt we need to do more to help domestic industry, but not through across-the-board protection.

Q/ Manmohan Singh came from an academic background, and also served as a civil servant. Can you share a few of his “out-of-the-box” or bold decisions?

A/ The entire reform agenda was out-of-the-box, and he was the principal architect. As a civil servant, he had to work within the system, trying to push for change as much as possible. But, even as a civil servant, he didn’t just toe the line. I can think of two important occasions where he spoke up and had a decisive impact.

The first dates from 1973. There was a sharp rise in prices following the second oil shock, and domestic inflation reached 23 per cent. Wheat prices also shot up, and this was a sensitive matter. The Planning Commission recommended nationalising the wheat trade. This would have been a disaster. There was a meeting called by prime minister Indira Gandhi on how to control inflation, when the wheat trade nationalisation was also discussed. Manmohan Singh was then the chief economic adviser, a relatively junior official at a PM-level meeting, and he spoke up sharply against the nationalisation proposal. Instead he advocated using monetary and fiscal policy to restrain demand. He told me that Mrs Gandhi asked him if he was confident that these measures would curb inflation, and he unhesitatingly said they would within one year. He proved to be absolutely right. The next year saw prices fall. The official mood in those years was very control-oriented, and it was an “out-of-the-box” decision to speak up against controls and in favour of conventional monetary and fiscal policy. It worked, and I think it greatly raised Manmohan Singh’s stature in Mrs Gandhi’s estimation.

The second occasion was in the early 1980s, when the Bank of Credit and Commerce International, started by a well-known Pakistani banker based in Dubai, applied for a banking licence. Manmohan Singh was RBI governor, and he had heard that there were questions about some of their linkages, and he denied them a licence. They lobbied the finance ministry and the minister of finance, Pranab Mukherjee, was persuaded to take a note to the cabinet proposing to amend the law, taking away the power to grant licences from the RBI and move it to the finance ministry with consultation of the RBI. Manmohan Singh made it plain that if the cabinet approved this, he would resign since it would undermine the RBI’s credibility. When Mrs Gandhi heard of this, she overruled the proposal and the change was never made. It was a bold decision.

Of course, as finance minister and later prime minister, there were many occasions when Manmohan Singh had to act boldly, and he did.

Q/ How was the engagement with the states when you were deputy chairman of the Planning Commission. What was Singh’s guidance?

A/ He was very concerned that the Planning Commission should work closely with the states and try to keep them on board on policy matters, and also brief him on the issues the states raised. We used to meet each state once a year. The chief minister would come to meet the commission, and we would review progress on their plans and offer our comments. This is when we would determine and announce the size of assistance the Centre would give, and the size of the state plan. We would then brief the PM in detail on each such meeting.

States were particularly concerned that plan assistance, through what was called the Central plan schemes, should not be tied to too much conditionality, and they should have flexibility in how to use the funds. I agreed strongly with this and got the PM’s approval to reduce conditionality wherever we could.

Our relationship with the states varied. The larger states mainly wanted more money, but of course we had constraints. Some of them would take our criticism of various aspects of their performance fairly well and others not so. Smaller states found the most value in the interactions, partly because their needs were smaller and we could often respond significantly. Larger states often complained that if we couldn’t do more for them because of resource constraints, what was the point of their coming? I recall Sardar Parkash Singh Badal of Punjab saying this precisely. I had to explain to him that the purpose of annual discussion was to discuss state performance and to “approve” the state plan. Technically, the assistance the Centre gave was for the “approved” plan, so we had to approve the plan as a technicality. I recall [Tamil Nadu] CM Jayalalithaa telling me very nicely that since the Central government contribution to the TN plan was relatively small, it was odd for her to come to Delhi and get approval for how she spent mostly Tamil Nadu’s own resources! She had a point.

Towards the end of his second term, Dr Singh asked me to review what the Planning Commission did, and think of restructuring it to be better suited to the needs of today. We did a fair amount of work on that and I gave him a note on our ideas for restructuring the Planning Commission. He told me he had given it to PM [Narendra] Modi when he met him just before he took over.

Q/ What were the high points of Singh’s tenure as prime minister?

A/ It is obviously very difficult to identify high points of a ten-year tenure. An important point to make is that, in his ten years as PM, he guided an economy that had gained a lot of dynamism because of the reforms he had initiated in 1991 as finance minister. These were reforms which were continued by the United Front government, and also the subsequent National Democratic Alliance government under PM Vajpayee.

It is relevant to ask how the economy performed in that ten-year period. Well, it experienced an average growth of around 7.6 per cent per year, which is the highest India had ever experienced before and since. And growth was never Dr Singh’s only objective. The slogan coined in UPA-1 was “inclusive growth”. In those days, that was measured by the impact on poverty, and here, too, progress was remarkable. It was in this period that we saw, for the first time, a decline in the absolute number of the poor. Earlier there were small declines in the percentage below the poverty line, but between 2004 and 2011, the absolute number declined by 138 million!

Q/ How would you look at the India-US nuclear deal?

A/ This was another achievement that deserves mention. It was initiated in 2005 and signed in 2008. Dr Singh was deeply conscious that the non-proliferation regime that had been put in place discriminated against India, because we refused to sign the Non Proliferation Treaty that banned every country other than the big five from developing nuclear weapons. We had consistently called for universal nuclear disarmament, but if the world was not willing to do that, we reserved the right to develop a weapon ourselves. After the Pokhran-II explosion, the US and many countries applied sanctions. The Vajpayee government soothed ruffled relations, bringing things back to square one, but we continued to be discriminated against because the Nuclear Suppliers Group denied nuclear trade and technology to countries that were not part of the NPT regime.

Dr Singh’s personal diplomacy succeeded in getting an India-US nuclear deal, which included a waiver from the NSG such that India got all the benefits of a nuclear state without technically being accepted as one under the NPT. This enabled us to get materials and nuclear technology, which was otherwise denied. The press wrongly presented this as a deal to get US to build reactors. This was a possibility but what it did was to enable us to deal with anyone. It enables us to import uranium to fuel our own reactors. Our domestic mining of uranium was less than what we needed, and our reactors were not able to operate at full capacity.

Moreover the agreement with the US and the NSG waiver is what made possible a whole range of other military cooperation, which has expanded greatly in the last ten years. None of this would have been possible without the India-US nuclear deal.

Q/ His second tenure was marred by allegations of corruption. It also sparked a massive anti-corruption movement. How did he navigate this challenging phase?

A/ The spate of corruption allegations by the India Against Corruption movement did alter the image of the government. There was not even a hint of corruption around him personally or any of his family. As for the individual cases, he was a firm believer in doing the proper thing. In the case of A. Raja, the telecom minister, he was made to resign as soon as he was charged, and thereafter the matter was with the court. It is interesting to note that the CBI court, after a prolonged trial, pronounced judgment after the UPA term was over, and acquitted Raja on all counts, stating that not a shred of credible evidence had been presented to prove corruption. Let me clarify: one can have different views on whether the licences should have been allocated by auction or continued by administrative decision as in the past and the switch made only for 3G. But that is very different from corruption. The court categorically said there was no proof of corruption and the scandal was publicised because of the allegation of huge corruption. I have discussed this at length in my book, so let me leave it at that.

On balance, I don’t think the government navigated that period well. The strategy of leaving it to the court can only work if everyone accepts that is the right thing to do. But if politics keeps alleging corruption, and you say you cannot pronounce because the matter is sub judice, it becomes an unequal battle. I think the right thing to do would have been to have the CAG report discussed in Parliament, but as you know, the opposition did not allow that discussion to take place.

Q/ How do you think Singh’s legacy will be remembered? What aspects of his tenure and contributions deserve greater acknowledgment?

A/ I hope he is remembered as the person who brought about the decisive shift from the old policies which had not worked to a new set of policies based on reforms, and he did it in a way which got the backing of the Congress and other parties so that the broad thrust was continued by successive governments. As prime minister, he achieved the fastest growth rate India had ever seen. And it was a growth that was much more inclusive than in the past. If we are today seen as one of the fastest growing economies of the world, with the potential to become a serious economic power, it is because of the foundation Dr Singh laid.