The pragmatist and reformer

CLOSE TO MIDNIGHT, Delhi’s busy streets are beginning to wear a deserted look. But the throng of visitors at 13, Talkatora Road, residence of finance minister Pranab Mukherjee for nearly two decades, shows no signs of dispersing—hopeful Congress ticket seekers (for the West Bengal Assembly elections), bureaucrats carrying thick files, and businessmen Kushagra Bajaj, joint managing director of Bajaj Hindusthan, the country’s largest sugar producer, and United Breweries chairman Vijay Mallya. It’s unlikely Mukherjee will see his bed before 1 am.

He’s been up since six. March 25 was the last day of a truncated budget session and, as finance minister, he has had to reply to questions in Parliament. Next, he attended a Congress Working Committee (CWC) meeting to finalise the party’s candidates for the West Bengal elections. Mukherjee was home by 10 p.m., and, after a quick dinner, back at work.

You can tell he is exhausted. He shuffles across the room to the phone, keeps rubbing his eyes, and tries to hide the occasional yawn. Still, nothing escapes his attention. The TV suddenly starts flashing news on Pune-based businessman Hasan Ali Khan, currently the centre of a money laundering controversy. Mukherjee asks an aide for a quick update.

This is vintage Pranab babu—methodical, diligent, and thorough. Never one to suffer fools and with a quicksilver temper—Trinamool Congress leader Mamata Banerjee once complained in part jest that he scolds her more than her parents did—Mukherjee’s known in political circles as the only other United Progressive Alliance (UPA) minister who reads his files completely (“Like a novel,” volunteers a confidant). The other is home minister P. Chidambaram, with whom Mukherjee’s equation is supposedly testy.

“If some job is entrusted to me, it will be done,” he says. This conscientiousness makes him nearly invaluable to the Congress Party, its president Sonia Gandhi, and Prime Minister Manmohan Singh. Abhijit Mukherjee, the minister’s son and one-time executive who’s fighting the West Bengal elections on a Congress ticket, says his father has always had “strong determination and a sense of balance”.

Mukherjee is no mass leader and is better suited to the politics of Delhi than the hinterland. In his 41 years with the Congress (interrupted briefly and, by his own admission regrettably, between 1984 and 1989 when he floated the Rashtriya Samajwadi Congress, after being expelled from Congress) he’s played significant roles, including defence minister, external affairs minister, and finance minister. He says he enjoyed them all, though Abhijit claims his father liked external affairs the most.

These days, besides playing Congress’s troubleshooter, he’s responsible for charting India’s economic future, amid global uncertainty. His mind is a window into what’s possible next.

His latest budget, presented just over a month ago, has many questioning his reformist credentials. Yes Bank chief economist, Shubhada Rao says: “We were anticipating some articulation on the pace of the reforms. Long-term capital flows are the need of the hour and some proposals on reforms would have helped.” What she wanted to hear: foreign direct investment in multibrand retail and deregulation of diesel.

Not everybody is certain Mukherjee’s fiscal deficit target will be met. For 2011-12 he has projected it at 4.6%, down from 5.1% in 2010–11. Vallabh Bhanshali, chairman, Enam Securities, a financial services company, says: “We’re struggling to see how it will be contained at 4.6%.”

Mukherjee agrees that the complexity and scope of the reforms have changed substantially, and require finessed manoeuvring. “Developing a consensus in a multi-party system is far more challenging. New players have come in and there are many different political parties.”

He is no instinctive liberaliser. Born in West Bengal’s Birbhum district, an arid hinterland of the state, Mukherjee started as a college lecturer—he taught political science—before joining politics in 1969. His father, Kamada Kinkar, was a freedom fighter and a local Congress leader. Ideologically, Mukherjee was influenced by the politics of Bengal Congress’s Ajay Mukherjee, which was a mix of Nehruvian socialism and leftist radicalism. He is the product of an earlier era, when socialistic notions held sway and big government was mandatory, two principles that led to the licence-permit raj. Known for going beyond the call of duty, he learnt much of this during his early stint as deputy minister (shipping and transport) under Kamlapati Tripathi. He also admits that he learnt a lot from Indira Gandhi, when he served as finance minister between 1982 and 1984. That makes him both a loyalist and a party old timer.

BUT MUKHERJEE IS ALSO a supreme pragmatist. For him, economic reforms are not just about big-bang changes; but about calibrated ones, formulating policies keeping in mind the needs and demands of the time. His detractors say his pragmatism makes him acceptable all round. Some claim his past three budgets failed to stir political passions.

That’s exactly how he’d like it. Mukherjee once told a confidant that he doesn’t believe in the “news conference” brand of reform. He’s the classic mandarin, happiest making things happen behind the scenes, leaving the limelight to those ministers who want it.

Indeed, Mukherjee doesn’t want to be seen as the poster boy of reform. But that doesn’t mean he shies away from weighing in when required. Shortly after Singh kicked off reforms in 1991, Congress’s Vijaya Bhaskar Reddy lost the Andhra Pradesh elections to N.T. Rama Rao. Rao’s campaign had revolved around a populist plan of distributing rice at Rs 2 per kg. At a CWC meeting, Singh’s economics were criticised for preaching fiscal prudence. Mukherjee came out in
support of Singh’s policies, while advocating the middle path. His advice: While India needs a different set of economics, given domestic compulsions, political parties need to know how to nuance their message.

“One of the most important features of India’s economic policy formulation is that it has never been dogmatic,” he says. Reeling off facts and figures from industrial policies from 1948 to 2011, to show how policies have evolved to fit the needs of a changing India, he adds: “The latest reforms are not an abrupt break from the past but a continuum of the policies started in the 1980s.”

He takes great pride in the fact that he was the first finance minister to make a “modest beginning’’ (in reforms) by allowing limited portfolio investment by non-resident Indians (NRIs) in listed companies. That was in his first budget (1982-83). His other big contribution then was capital formation through the expansion of stock exchanges. “Nitish Sengupta, then Controller of Capital Issues, played a major role in the expansion of the stock exchanges,” he says.

India Inc., however, remembers Mukherjee’s first budget for very different reasons. London’s NRI businessman Swraj Paul, head of the Caparo Group, used the opportunity to buy shares in DCM (then Delhi Cloth Mills) and Escorts, and make a hostile takeover bid. It failed in the face of massive political opposition, but it made promoters aware of hostiles. For the record, nobody’s tried anything as audacious since.

There are a few who see Mukherjee as a visionary reformer, and not just a pragmatist in search of the appropriate fix. Former Reserve Bank of India governor Bimal Jalan says Mukherjee’s third budget (1984-85) anticipated several changes that would sweep India’s economy in less than a decade. “It was a landmark budget, initiating reforms in indirect taxes, simplifying the tax structure, and making the process tax payer friendly.” Mukherjee cut taxes for the lowest slab (Rs 15,001 to Rs 20,000) from 25% to 20%, and the highest (Rs 1 lakh plus) from 55% to 50%. These reduced rates now seem preposterous, but then such moves were bold.

The third budget also established his credentials as an astute finance minister. Well before Singh was forced to pledge gold for a loan from the International Monetary Fund (IMF) to tide over the 1991 balance-of-payments crisis, Mukherjee had to turn to the IMF amid strong criticism from the opposition for bartering away India’s economic sovereignty. The oil crisis of 1979 and a debilitating drought the same year had sent the economy into a tailspin, forcing the government to borrow $5 billion (Rs 22,345 lakh crore) in 1981 from the IMF under the Extended Fund Facility.

Within the next three years, Mukherjee would successfully put the economy back on track, registering growths of 3.1 %, 7.7%, and 4.3% from a negative of 5.5% in 1979-80. Also, an improved balance of payments and an increase in foreign exchange reserves meant that India could afford to forego the last tranche of $ 1.1 billion loan from the IMF.

In his budget speech of 1984-85, Mukherjee said: “Belying the prophecies of doom by many self-styled Cassandras, the economy has emerged stronger as a result of the adjustment effort mounted by the government. None of the dire consequences that we were being warned about has occurred ... We have entered into this loan arrangement with our eyes open. We have come out of it with our heads held high.”

Even today, he is proud of that. He’s been accused of selling out India twice since: once when he signed India’s accession to the World Trade Organisation on January 1, 1995, and later, when he supported the Indo-US Civil Nuclear Deal in 2006, while he was external affairs minister.

So, what makes Mukherjee effective across eras? Not having any ideological baggage and thinking about the country’s interests first, says Jalan. “He approaches issues with an open mind ... and is not afraid to take advice even from opposition leaders. Hence, he has earned their respect.’’

His understanding of domestic politics and global imperatives, partly because of the years spent as external affairs minister, also gives him a better perspective. Tarun Das, former mentor at the Confederation of Indian Industry (CII), says success lies in Mukherjee’s ability to meld two apparently contradictory forces: being faithful to socialist ideals, yet unleashing entrepreneurship. “He consistently takes care of welfare issues,” adds Das.

FOR ALL HIS CRITICS, Mukherjee’s pragmatism and deep understanding of India’s financial system was demonstrated in the 2011-12 budget. Realising the importance of austerity after the binge of yesteryears, and the need to keep inflation in check, he has made fiscal consolidation one of his main agendas. His plan to bring down the country’s debt-to-GDP ratio to 65% by 2014-15 is far more aggressive than the target of 68% set by the Thirteenth Finance Commission. Similarly, his fiscal deficit number of 4.6 % of the GDP is nearly 0.2 % less than what the Commission wanted.

Instead of resorting to the usual gimmicks of increasing social sector spends, or announcing schemes with an eye on the forthcoming polls in five states, Mukherjee chose an idealistic approach. Not only did he substantially cut the overall subsidy bill and government’s expenditure, he also increased allocation to the social sector by just 17%. “All these measures demanded great political courage and Pranab Mukherjee has shown that he has lots of it,’’ says Sunil Sinha, senior economist at credit rating agency Crisil.

However, the real challenge in the coming years will be to find solutions that are politically acceptable and administratively viable. The successful implementation of the “second generation of reforms” (such as labour) will depend to a large extent on Mukherjee’s ability to convince Congress’s coalition partners and state governments, many of which are ruled by non-Congress parties, on the need for such reforms. “Who better than Pranab da today?” asks a person who has worked with him in the Planning Commission. “He has a brilliant mind, believes in building consensus, understands different viewpoints and will come out with a solution that won’t disturb the political system.”

Bureaucrats, who often share an uneasy relationship with their political bosses, tend to like him. That’s because he treats them with respect. When, as a first-time finance minister, Mukherjee found that a senior bureaucrat didn’t sit till asked to, he asked why. The bureaucrat said he didn’t find it insulting to stand because he was “doing it out of respect for the constitutional propriety of the position, not the individual”. It was an early lesson in the decorum of parliamentary governance.

IF THERE’S ONE LEGEND about Mukherjee, it’s about his art of making the probable (or often, the improbable) possible. In March 2004, his ability to engage the opposition was put to full use during the passage of the Patent (Amendments) Bill. The deadline for making India’s old patent law compliant with the Trade Related Intellectual Property Rights Agreement was fast approaching and the 60-odd Left MPs and coalition partners were unwilling to budge from their positions, calling for a review of the agreement. It was left to Mukherjee to use his persuasive skills.

Mukherjee famously argued that “an imperfect legislation was better than no legislation”, which made sense to the Left parties. Then, he roped in an old friend and Communist Party of India (Marxist) veteran, the late Jyoti Basu, to persuade them further. Mukherjee won the day for the government and on the night of March 23, 2004, the ordinance was converted into an Act. His success was as a result of his friendship with opposition leaders. But more significantly, it also came from his understanding of what is acceptable to others.

A few years later, his abilities were again tested in persuading the 45-nation Nuclear Suppliers Group (NSG) to allow India to import enriched uranium without signing the nuclear non-proliferation treaty (NPT), as a part of the Indo-US civil nuclear deal. And it was his statement in Vienna before the NSG on September 5, 2008, that clinched the deal: “We remain committed to a voluntary and unilateral moratorium on nuclear testing.” It was once again knowledge of what would be acceptable.

Ask him about these abilities and he gets embarrassed. “It is my long experience in the government. The fact that I have worked with the current Prime Minister from the 1970s has given him faith and confidence in my abilities. Even the Congress president trusts me. But that does not mean that I am monopolising all the work. Other ministers do their share,” he says.

These days, he has begun airing his views on the future of nuclear energy. “There is no need to panic or rethink India’s nuclear policy. Just because there has been an aberration, an exception in a part of the world, does not mean it will be the general rule,” he argues. To corroborate his point, he cites the example of France, which gets nearly 85% of its power from nuclear plants, and has not changed its energy strategy.

IN MATTERS RELATING TO the economy, he is a bit more forthcoming. And many of these qualities will be required if he wants to successfully roll out a general goods and services tax (GST) across the country, bring about land and agriculture reforms (agriculture is a state subject) or even ensure effective implementation of the recently announced cash transfer scheme for providing subsidy to people below the poverty line (BPL). For it to succeed, it will require cooperation and coordination between the Centre and the state governments, and the state governments and the panchayats.

“It isn’t possible for the central government to carry out reforms on its own. We need coordination between the Centre, states, and panchayats,” says Mukherjee. For example, he says, it’s not possible for the Centre to identify the marginal sections of society, supposed to be the ultimate beneficiaries of the reforms. For him, that’s where projects like the Unique Identity project, which partners the states, come handy.

Similarly, the passage of bills crucial to further opening up the financial sector, will need the assent of Congress’s coalition partners and opposition parties. These include the Insurance Laws (Amendment) Bill, 2008, (it seeks to hike FDI in insurance companies from 26 % to 49%, and also allows the entry of foreign re-insurers), the Banking Laws Amendment Bill, 2011, (it proposes to raise the ceiling on voting rights of shareholders from 1% to 10% in public sector banks and remove the 10% voting right restriction for private sector banks), and the revised Pension Fund Regulatory and Development Authority Bill (it would bring in a full fledged regulator for the pension sector and not be regulated by an interim authority).

Mukherjee is already on the job. To keep all stakeholders (states) happy, he has agreed to forgo his power to arbitrate between the Centre and the states on the contentious issue of implementation of the GST, leaving it to a committee of state chief ministers.

His other big challenge will be managing inflation. Congress’s track record in this regard has been exemplary, in which Mukherjee has played a key role. The party brought down the inflation rate from 23.3% at the end of January 1980 to 4.9% by January-end 1982.

Today, managing inflation is a much tougher task because of global linkages. High crude and other commodity prices can impact the prices of industrial raw materials, components, machines, and intermediate products. And managing high food inflation because of supply-side constraints and the increasing gap between demand and supply will pose a huge challenge. Mukherjee agrees.

The answer, he says, lies in providing subsidised food grain to the poor through the public distribution system, and making a success of the second green revolution. “We can achieve a second green revolution because our measures are already yielding results.” For instance, production of pulses has gone up from 4.73 million tonnes last year to 6 million tonnes this year after the government adopted 60,000 villages for production of pulses.

IT ISN’T EASY being Mukherjee. He keeps an 18-hour schedule, starting with a walk on a treadmill at 6 a.m. He used to walk at Delhi’s Talkatora Stadium, but no longer does so because of security issues. The only time of the day he has to himself is between 7 a.m. and 9 a.m., when he prays. That’s when he doesn’t take any calls, reportedly not even the prime minister’s.

Those close to him say he has maintained a diary for years, in which he meticulously documents the important happenings of the day. Already a published author—he wrote five books between 1969 and 1992, across topics such as the economy, and the history of the Indian National Congress—Mukherjee has indicated that he’d like his diary published, though not while he’s alive.

History will remember him for many things. But if, over the next 12-15 months, he can successfully implement the direct tax code and the general goods and service tax—the two tax reforms that have the power to transform how business is done, and create a single unified market—it’ll seal his legacy as one of the country’s most influential agents of economic change.