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VIEWPOINT: POLITICALLY CORRECT
Make The Buck Stop
The real way to earn investor confidence is to revive
the economy
By P. Chidambaram
 Unexpected
are the ways in which the truth is blurted out. Recently, Prime Minister
Atal Bihari Vajpayee said he was old, which is true; that he was ill,
which is also true; and that he could not ensure a cohesive government,
which, alas, is also very true. But when he said he wanted to quit, the
NDA blanched with fear. No sir, they said in a chorus, who do we have
but you to drag us through the next three years?
I am inclined to agree with the NDA but for
altogether different reasons. In my system of values, if anybody has created
a mess, he is obliged to clean up the mess. He may go afterwards, but
not before. Vajpayee and his finance minister, Yashwant Sinha, owe a duty
to the people to undo the damage to the economy that their Government
has done in the past few months.
 There
is no evidence, however, that they are up to the difficult task of reviving
a moribund economy. In the first place, neither the prime minister nor
the finance minister seems willing to admit that there is a serious problem
in the economy. Secondly, Vajpayee thinks he can get away by renunciation
and Sinha thinks that he can get away with denunciation. Finally, both
the PM and FM have tried to pass the buck. As hard as they might try,
the buck cannot be passed. It is the responsibility of the Government
to rescue the economy from the depths to which it has sunk.
The second collapse of the Unit Trust of India
(UTI)-the first happened in 1998-was inevitable given the state of the
economy. In 1999-2000, the gross domestic product (GDP) grew by 5.3 per
cent, in 2000-1 GDP growth was barely 4 per cent and in 2001-2 the prospects
for growth, so far, are quite bleak. The capital market in the long term
simply reflects the health of the economy. Sinha tried to lay the blame
for the collapse at the door of Dr Manmohan Singh, but that charge will
not stick because during Singh's tenure, the economy grew by 7.3 per cent
in each of the last two years (1994-96). In 1996-97 too, the GDP grew
by 7.8 per cent. The capital market was buoyant and there were huge sales
of US-64 units.
In a sense, UTI's success in those years is
the cause of its recent downfall. If UTI's sales of US-64 units had been
equal to the redemptions, there would not have been a problem of plenty.
But since sales exceeded redemptions, UTI faced the problem of parking
large investible funds where it could earn adequate returns. UTI put some
funds into debt instruments, but it was not always possible to find enough
debt instruments. So, UTI moved into more equity. That is how UTI's equity
portfolio grew from about 28 per cent to 70 per cent by 1997. It was a
road fraught with risks, but as long as the economy was growing the risks
were manageable. Therefore, Sinha's criticism of Dr Singh is pure hogwash.
The year 1997-98 was a difficult one, thanks
to the east Asian crisis. We were able to limit the damage, but there
was a negative impact on both growth and the capital market. Sinha came
into office on March 18, 1998. He has had three years to arrest the slide
in the economy, but has not succeeded. The most critical failure has been
in the area of investment. Foreign direct investment, inward remittances
and domestic capital investment have declined year after year. The capital
market is in the doldrums. Consequently, predominantly equity funds like
the US-64 have suffered.
Buying time and reassuring investors who feel
cheated will not be enough. The real way out is to revive the economy
through new investments-both private and public. If the PM and FM are
willing to lend their ears, here are a few practical-not radical-steps
they may take:
Forget disinvestment, it won't happen this year.
Turn your attention to investment. Set up a department of new investments
under the direct charge of the prime minister.
Bring a young, dynamic minister of cabinet rank
into the PMO to run the department on a day-to-day basis. The obvious
choice is Arun Jaitley.
Target 20 greenfield projects in power, gas,
oil, telecommunications and ports with a potential investment of Rs 1,00,000
crore. If Jaitley wishes, I can give him a list of projects which are
dead or dying into which he can breathe new life.
Assume total and overriding powers to push these
20 projects through to financial closure in six months.
This is not a trick-or-treat game. It will work.
It must work. If it does not, then the PM may quit, and take his FM along.
(The author is a former Indian finance minister.)
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