Feb 22, 1999

With the Finance Ministry unable to speed up the process of reforms, the PMO has become more assertive in setting the economic agenda.

By Rohit Saran

Amidst the breathtakingly beautiful ski resort of Davos in Switzerland, it was business as usual at the World Economic Forum's annual meet between January 28 and February 2, 1999. But the composition of the Indian delegation was somewhat unusual. Accompanying Finance Minister Yashwant Sinha was not the finance secretary, but Secretary to the Prime Minister N.K. Singh. In fact, Singh was compensating for Prime Minister Atal Bihari Vajpayee's absence.

But Singh's ascendancy is only a reflection of the increasing control that the Prime Minister's Office (PMO) has over the economic agenda of the day. The latest instance: the decision to hike administered prices across the board on January 28 and 30 was pushed through by the PMO while Sinha was away in Davos. It was the PMO again that withstood the pressure from partners of the ruling coalition to withdraw the subsidy cut completely. Sample some more economic policy initiatives authored by South Block since December 1998: a draft telecom policy, an expressway project with dedicated funds, private investment in five major airports, setting up of the Cabinet Committee on Disinvestment headed by the prime minister and preparation of six sector-specific agenda for reforms.

So are we beginning to see, for the first time in the '90s, the making of a super Finance Ministry in the PMO? Says I.G. Patel, a member of the prime minister's Economic Advisory Council: "Given the nature of the coalition, the PMO has to support the finance and other economic ministries."

It was not until August 1998 that Vajpayee showed any special inclination towards economic matters. The pre-occupation with cementing a disparate coalition and managing the post-Pokhran fallout left the PMO with little time to engage in economic affairs. Also, till then the frigid relations between Vajpayee and Sinha had not thawed. The ice was broken in August 1998 when Vajpayee took some unilateral decisions. First N.K. Singh was shifted from the Finance Ministry to the PMO as a secretary. That itself conveyed the PMO's intent to monitor the economy more closely. Within 12 days of Singh's entry into South Block, the PMO announced the formation of two advisory councils -- one each on economic affairs and trade and industry. The Finance Ministry was kept out of this.

What forced the PMO into action was the Finance Ministry's sheer inability to wade through the inter-ministerial gridlock. But once the PMO got going, its involvement acquired new purposes. The inability of the economy to pull out of a demand downturn, the deteriorating government finances and the virtual halt of the process of economic reforms reinforced and expanded the scope for the PMO's direct involvement in economic policy formulation. Explains S.L. Rao, chairman, Central Electricity Authority: "In India a ministry is rarely able to arrive at a policy conclusion and act upon it. As the PMO is not responsible for any single sector or policy, it is best suited to resolve the inter-ministerial wrangles and facilitate decision making."

The promulgation of the ordinance to amend the Patents Act, tabling of the Insurance Regulatory Authority Bill in Parliament and narrowing of differences over a new draft telecom policy are some instances of the PMO's writ cutting across the ministerial divide. Also not lost on the PMO is the political payoff of speeding through reforms, especially at a time when industry is stuck in a stubborn slowdown. Explains Tarun Das, director-general, CII: "Basically the Government has realised that a strong economy is good politics."

To be sure, the PMO's increased activism in economic matters is yet to yield ground-level reforms -- except the series of subsidy reductions effected in January 1999. But then Vajpayee started four months late. Between March and July 1998 the economy was allowed to drift far beyond the control of the finance minister.

Also, it has taken Vajpayee at least five interactions with the economic and trade advisory councils, spread over four months, to come to grips with the urgency and nature of policy thrust that the economy is crying for. The prime minister pleasantly surprised a visiting business delegation in the last week of January when he actually initiated the agenda for discussion.

But in its activist zeal isn't the PMO infringing upon the territories of other economic ministries, especially the Finance Ministry? If so, the sparks flying between ministers or bureaucrats concerned could cripple the functioning of Government. N.K. Singh, of course, denies any such possibility. "We are facilitating not interfering with any ministry."

However, the mandarins of the Finance Ministry (at the time of the appointment of the advisory councils) and the Surface Transport Ministry (at the inauguration of the expressway project) had expressed resentment at the PMO usurping their powers. In the end, however, if the PMO is able to carry through with reforms, such resentments will disappear. For example, if the prime minister -- as head of the newly appointed Cabinet Committee on Disinvestment -- is able to effect disinvestment, it will eventually help the Finance Ministry's balance sheets. The economy, of course, will benefit from reforms, irrespective of where they come from. Says Das: "The PMO's involvement can only help, not hurt."

Yes, but marginally. The June 1998 budget had little or no involvement of the PMO. This time, however, the mere fact that Vajpayee is more educated on the economy will ensure he interacts more in the budget-making process and expects more from the final document. At least, the six task group reports with the PMO could form a basis for sector specific measures in the budget.

In supporting the Finance Ministry on the administered prices hikes, Vajpayee has indicated his approval for a budget which could be harsh on populism and high on reforms. As long as that remains the mandate of the PMO's new-found zest for economic activism, the economy can hope to see better days even beyond the budget.

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