Since 1980, India's Grand Old Party has moved from state control to a pro-business stance and one man has seen it all. Now, Pranab Mukherjee is painting a new sheen of socialism one that will work with market forces
For many years, no party has had as powerful a hold on the seat of power as the Congress does now. Its position and the current environment allow it to implement what it set out to do under Indira Gandhi nearly three decades ago.
It was clear that socialism was gradually becoming a mere veneer. In 1984, finance minister Pranab Mukherjee announced that India would not use a $1 billion IMF loan, which was the last tranche of a five-year, $5 billion package negotiated after the oil shock of 1979. One of the reasons to terminate the agreement was to preempt IMF conditionalities. The changes the IMF would have asked for, however, became part of policy. “These changes were incorporated into the Sixth Plan and called for greater deregulation and a more pro-business policy,’’ says Kochanek. Mukherjee declared it the “year of productivity”, raised production caps in several sectors, and allowed NRIs to invest in Indian firms. That year, he was voted as one of the best five finance ministers in the world by Euromoney magazine.
This was perhaps also the time when businessmen managed to get a foot in the door of policymaking and wield greater influence. “Traditionally the business community in India has had a limited but disproportionate say in the making of economic policy,’’ says Kochanek in an essay on business-government relations.
In his criticism of the government, Mukherjee stresses on the pace and sharpness of reforms. A person who knows Mukherjee closely says that he believes in gradual change.
Industrialists themselves admit the state-business nexus. Rahul Bajaj, chairman of two-wheeler maker
Bajaj Auto, says, “Funding requirement of political parties does not allow them to be inherently anti-business. Earlier, politicians used to stay away from businessmen and accepted money on
the quiet. Now, businessmen are no longer considered persona non grata.”
International Experience
The balancing act that India needs to do to keep public finances healthy while embarking on massive state spending on social sectors, raises tough questions on the sustainability of the Congress’ prescription for economic growth. Europe’s “social market” model, whose cornerstone is high taxes and government-given welfare, is very difficult to introduce in India because it would be a huge political risk to raise taxes.
(This story appears in the 17 July, 2009 issue of Forbes India. To visit our Archives, click here.)