26 JUN, 2012, 04.21AM IST, ABHEEK BARMAN,ET BUREAU
Why the Opposition’s claim that Pranab Mukherjee was a lousy finance minister is wrong
Today, Pranab Mukherjee will bow out of active politics and stake claim to the largely-ceremonial office of President of India. The opposition BJP, which has no chance of getting a candidate of its choice elected toRashtrapati Bhavan has started its catcalls, labelling Mukherjee as one of the worst finance ministers in recent history.
It argues first that, under Pranab, India's growth fell off a cliff. Second, during Pranab's tenure, finance ministry mandarins clawed back many discretionary powers to probe businesses, powers they had lost in previous years.
Third, that Pranab's March Budget, which clarified that overseas companies had to pay capital gains tax if they traded in Indian assets, has scared off foreign investors.
Each of these claims is bunk. First, take a look at India's growth since reforms began in 1991-92. That year was a disaster, because the outgoing government had left a pile of debt to be paid off from empty coffers and the war in the Gulf messed up our oil economy. But over the next 13 years or so, the economy bounced back, growing at an average of 6-6.5% every year.
Then, during three years from 2006 to 2008, India seemed to shift gears and growth jumped to 9%-plus. People assumed that this was the new normal, but they were wrong. What happened around the world during those years was the growth of an enormous bubble in everything from copper and oil to stocks and real estate. This bubble affected every country that had functioning markets.
Though India tries to protect its markets from financial volatility, it wasn't immune to global trends: higher asset prices drove up wages and bonuses, investors flush with cash pumped money into any snake oil or wind energy project that was pitched to them. India's growth depends more on government and private investment than on consumption, so when investments soared, so did growth.
When the air finally whooshed out of the bubble in 2009, the world economy fell off a cliff. That was the year Pranab took over as finance minister and he played copybook policy. He dropped tax rates and pumped money into many sectors. Instead of falling off a cliff as the US and Europe did, India's growth rate merely dipped to 6.7%, and then rose to 8%-plus for two years after that.
Today, India is growing at its average post-reform rate, not at the bubble rate. This is not the hallmark of a failed finance minister but of a successful one.
Investments are key to India's growth. When we went bust in 1990-91, investments were around 25% of the size of the economy. Today, they are a healthy 35% of the economy, off the heady peak of 38% during the bubble year of 2007-08, but respectable nevertheless.
The Opposition now says that under Pranab, the finance ministry has taken on huge powers to probe dodgy transactions by businesses. These powers, they argue, can be misused to harass people and extort money from them.
The argument is hypocritical. For years, the Opposition, especially the Bharatiya Janata Party, has screamed about mythical trillions of dollars in secret overseas accounts, allegedly salted away from India. It has asked for these transactions to be probed and the money brought back.
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