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Answers In The Air

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It would not be surprising if the Prime Minister feels more comfortable when he is out of India. The manners of the important persons he associates with over there are much better than of the rough-and-ready politicians and journalists he has to deal with at home; and thanks to a few figures which find wide circulation, people abroad have a better opinion of India than many in India would. No wonder he takes selected senior journalists with him. They get a junket; and once he has put them in a pleasant frame of mind, he can answer their unsurprising questions with the appropriate degree of frankness and circumspection.

The least surprising questions were about inflation, which has plagued the common man almost since the United Progressive Alliance government took reins of power. He recently consulted those whom he considered experts on inflation; he is also well aware of the policy instruments at his command. So it was surprising that when he was asked what caused such high and persistent inflation, the only factors that came to his mind were external ones. He seemed quite unaware of the possibility of tightening fiscal balance to reduce demand pressure, or of selling the enormous stocks of foodgrains his government has accumulated and increasing the supply.

He seemed to think that even the recent depreciation of the rupee is due to a foreign conspiracy. He may have been told this by the governor of the Reserve Bank. But as a former governor himself, he is familiar with the statistics the governor has access to. He should have known that the Reserve Bank can influence the exchange rate by trading in it; sitting as it does on foreign exchange reserves of $316 billion, it has considerable ammunition to make the exchange rate whatever it wishes. No doubt, if he asks the governor to sell foreign exchange and strengthen the rupee, so that imports become cheaper, the governor will give him a long lecture on what terrible effects that will have. But the Prime Minister can overrule the governor any day; in fact, it is his job to make judgements and take decisions. He avoided commenting on the Reserve Bank's monetary policy saying that it would be improper for him to do so. That raises a disturbing question: is there someone in charge of economic policy, or does every arm of the government make its own policy? Does the Prime Minister, who holds a first-class degree in economics, ever make up his own mind, or do a dozen bureaucrats' minds control a dozen different policy instruments?

To his credit, the Prime Minister never succumbed to the euphoria which led his ministers to predict that the Indian economy would grow at 9, 10 and more per cent. But he did take credit that, in his words, "In the year 2008, we showed to the world that we can swim against the wind blowing from abroad." That is the story his advisers have presumably given him. In fact, there was a sharp decline in imports, exports, invisible receipts as well as payments in the second half of 2008-09. But it was short-lived, because India's dependence on the crumbling West has been declining, and its connections with the Middle East, China and Southeast Asia have been strengthening. India's "resilience" had nothing to do with the government's swimming prowess. The other part of the official story is that it saved the economy by injecting a stimulus; but that came much later. In fact, it was the government's splurge designed to win the 2009 election. Things that happened at different points of time seemed to have got jumbled up in the mind of the Prime Minister to form a picture of heroic policy-making.

The Prime Minister will no doubt be travelling again, and he will take the opportunity to take journalists with him and explain himself to them. It would be a great gain if his explanation were to be modified in two ways. One would be evidence that the Prime Minister actually presides over the making of policy, makes up his own mind, coordinates the ministers, and gives policy coherence. The other would be that he realises and exercises the powers he has as Prime Minister. He certainly has to work within the confines of the Constitution and the democratic framework. But that framework does not tie his hands as tightly as he seems to think; nor is the wisdom of his ministers and bureaucrats as overwhelming as he takes it. It is very good that he takes occasional opportunities to explain and defend his government; but the function of Prime Minister goes beyond explication and defence. Some would go so far as to say that it extends to leadership, which is what the country will need if it is ever to be a superpower.

(This story was published in Businessworld Issue Dated 07-11-2011)