The white paper we got wasn’t the one needed urgently today
Arvind Virmani was chief economic adviser. A growth collapse was averted and our economy emerged from the crisis quickly. Sustaining the recovery required careful handling.
Singh’s team was the best bet for this, and, as I wrote in The Lost Decade, he would have kept the finance portfolio. An emergency coronary bypass surgery he underwent in January 2009, however, brought to the ministry Pranab Mukherjee, who had been finance minister in Indira Gandhi’s cabinet long before liberalization. Mukherjee had unbridgeable differences of economic ideology with Singh, which he aired in his first address as President in Parliament’s central hall and later wrote in his memoir, The Coalition Years.
From 2009 to 2012, he pushed public sector banks to lend aggressively and loosened the government’s purse strings, taking the fiscal deficit to over 6% of GDP. But instead of growth, he fired up inflation and banks’ non-performing assets, ultimately landing India in the ignoble ‘Fragile Five’ grouping. This was a typical pre-1991 approach to policymaking.
Mukherjee’s hand in the period’s “policy paralysis" can be assessed from his memoirs; he introduced retrospective taxes in defiance of Singh’s advice. He failed to move constitutional amendments needed for GST. He made feeble efforts to bring on board the only two states that were stalling it, the BJP-ruled Madhya Pradesh and Gujarat.
Communication between him and Singh broke down. Rangarajan took important files to and fro, including for extending the RBI governor’s term. Finally, Mukherjee became President and finance ministry could begin repairing the economy.
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