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The decline and fall of the UPA

Nobody seriously disputes that it will take the global economy a long time to recover from the Corona virus pandemic.

In India, when and if the problems caused by the lockdown are solved, we will then have to return to the grim reality of the mess that our economy is already in.


Even before this pandemic started, the Indian economy was in trouble. Worse still, very few people in business believed that the government had the answers or knew how to revive the economy and instil confidence in consumers.


   The Modi government has one all-purpose defence for this situation: we inherited a mess from the UPA. We have cleaned up the corruption but we can’t be expected to turn the economy around overnight.


   Montek Singh Ahluwalia was a senior governmental economic planner from the1980s onwards and has just published an excellent memoir called Backstage which, sadly, came out on the eve of the Covid crisis and has not received the sort of attention it deserves from the general public.


   Most of the memoir deals with the pre-UPA period and I imagine that economists and serious readers will be most interested in the part that covers the 1991 reforms, during which period Ahluwalia was a key player.


   But the part that interested me— given how often the BJP harks back to that period—was his description of UPA 2. Ahluwalia has always been personally close to Manmohan Singh and has many insights to offer about the UPA.


   How could a government that was so popular during its first term that it was re-elected with larger numbers and delivered record growth be seen as a byword for corruption and indecisiveness in its second term? If Manmohan Singh had not lost public respect so completely during UPA 2 would Narendra Modi ever have won an overall majority?


   Ahluwalia gives us the usual explanations for the decline in growth during UPA2. He focuses on the global crisis that began with the fall of Lehman brothers. He thinks we did not act quickly enough to respond to the massive rise in oil prices. But after an initial pause, he argues, the economy was back on track by the end of UPA2.


   More unusually, he concedes that the government failed to act decisively to stop fraud in many cases. In 2011, he writes, his colleagues brought to his attention that private investors in public-private partnership projects were asking public sector banks for loans while quoting project costs that were much higher than the costs that had been approved by the government. He writes “unduly high levels of borrowing raised the suspicion that unscrupulous investors may be siphoning off the surplus amounts from the project and then recycling them back as their own equity contribution.”


   The Planning Commission (which Ahluwalia then headed) sent a note to both the Reserve Bank of India (RBI) and the Finance Ministry pointing this out.


   It took several months for the RBI to reply and say that it was aware of the dangers of ‘gold-plating’ but it could not do anything till defaults actually began. The private sector banks recognised what was going on and pulled back. But the public sector banks did not and this “was one of the factors that led to the build-up of Non-Performing Assets (NPA) over time” and to today’s banking crisis where many of India’s biggest businessmen are defaulters.


   Ahluwalia is critical too of the way in which Suresh Kalmadi was allowed to spend thousands of crores on the Commonwealth Games and does not dispute that “Kalmadi should have been subject to tighter oversight.”


   To that extent, he agrees with public criticism of UPA2. But many of the other controversies that the government was involved in, he suggests, were unnecessary and often unfair.


   On the 2G controversy, he makes three important points. The first is that the decision to not auction 2G licenses was not the government’s alone. TRAI had recommended that new licenses should be offered for each telecom circle at the same price that the existing players had paid in 2001 to provide a level playing field.


  The idea was not so much to make money as to make mobiles available to many more Indians. And to that extent, the policy led to impressive results: the number of mobiles increased from 36 million in 2004 to 919 million in 2012. (Though personally, Ahluwalia had preferred an auction, he does not believe that the TRAI recommendation was dishonest or irregular.)


   Secondly, while he notes that A Raja, the Telecom Minister was acquitted in the 2G scam case, he lists the many strange things that Raja did while issuing the licenses: suddenly changing the dates for accepting the license applications, asking applicants to pay fees running into crores in a few hours time, etc. It is hard to avoid the conclusion that the process itself was hardly a level playing field.


"The UPA did get the economics right. As he shows in the book, by the end of UPA2, the economy was in much better shape than it ever has been under the BJP."

   The third and most important point is that that while Raja’s conduct may have been dodgy (he was moved from the ministry in 2010), there was never the massive telecom scam that the media wrote about. That idea of a scam  originated in a notorious CAG report which most people now agree was either misleading or at worst, motivated.


   The CAG said that the government had made a “presumptive loss’ of Rs 1.76 lakh crore on the issuance of licenses. This was one of several possible estimates of loss contained in the CAG report, each based on a different formula. The man who headed the team that prepared the report told the JPC that his own figure was Rs 2,645 crore. This estimate was not used in the report and he said the Rs 1.76 lakh crore was added ‘by headquarters.’


   Worse still, writes Ahluwalia, the media suggested that this Rs 1.76 lakh crore figure meant that somebody actually pocketed this much money, leading to the allegation that this was one of the biggest scams in the world.


   In fact the estimates were of how much money the government could have raised from an auction. But the public at large did not understand what a ‘presumptive loss’ was and the repeated use of the word ‘scam’ suggested that someone had stolen the money. When the licenses were eventually auctioned (after the Supreme Court cancelled the first lot of 2G licenses) the CAG’s estimate was shown up as the ridiculous figure it really was.


   In his own understated way, Alhuwalia blames the Supreme Court and the CAG equally for creating an atmosphere that suggested that scams were rampant and that ministers were stealing lakhs of crores. (He has similar criticisms of the CAG and the Court’s conclusions on the coal block controversy as well.)


   Ahluwalia believes that, under attack from the Supreme Court and the CAG, the government was so much on the defensive that it lacked the moral authority to communicate quite how much it had achieved in its second term.


   This is fair enough but there were other factors he does not consider. By the second term, Manmohan Singh was not quite the same person he had been during UPA I. After the election victory, hubris had set in. Relations between his PMO (possibly the single worst PMO in history) and the Congress had collapsed. Congressmen and even ministers complained that the PM was now too aloof.


   Ahluwalia doesn’t consider also (perhaps for reasons of discretion) the collapse of the balance in the relationship between Manmohan Singh and Sonia Gandhi. The two had always got along but once Sonia Gandhi fell ill and spent long periods abroad, this balance was broken, never to be restored during UPA II.


   During UPA I, Sonia had done the political heavy lifting while Singh had run the government. Now, the people who handled the politics in her absence felt that Singh was surrounded by fools and cronies and consequently, were more and more disenchanted with him.


   Singh, a decent and gentle person, had been temporarily led astray by the second election victory and believed in the slogans his supporters raised. (“Singh is King” for instance.) When things began to go wrong, he retreated into a shell, hardly communicating with the nation.


   The Gandhis got it wrong too. Sonia Gandhi followed a policy of sacking anyone accused of even the slightest impropriety. This did not make her seem moral and high-minded, as she may have believed it might. Instead it contributed to the public perception that her government was full of crooks.


   Rahul Gandhi had been a newcomer during UPA1. But in UPA 2, he behaved badly. He had no business going public and tearing up an ordinance issued by the cabinet (with his mother’s knowledge) at a press conference. According to Ahluwalia, Rahul later apologized to Singh but the damage was done.


   Ahluwalia refers to how hostile the media became to UPA2. This was true but not entirely surprising. When the CAG and the Supreme Court like to make headlines with sensational claims against the government, why won’t the media repeat them?


   If the government handles such protests as the India Against Corruption movement and Baba Ramdev’s agitation so ineptly (and there is no doubt that Manmohan Singh did not know how to handle either) then it is an invitation for the media to go for the jugular.


   And there was one new factor which the UPA never understood till the end; digital and social media.


   The BJP had decided  to portray Manmohan Singh as an ineffectual slave of the Gandhi family (the view reflected in such movies as The Accidental Prime Minister --- though not in the book the film claimed to be based on) while Rahul was portrayed as an entitled moron. This message was disseminated again and again on Facebook, WhatsApp, Twitter and on readers’ comments sections on web sites.


   It was an innocent era and nobody in India had heard of troll farms or glove-puppets. The TV channels carried tweets on their screen and ran Twitter polls, naively believing that these reflected the voice of the people. But by the time social media was done with them, Manmohan Singh was not taken seriously and Rahul Gandhi has never been able to shake off the tag of being an immature, dynastic buffoon.


   So, yes Ahluwalia is correct. The UPA did get the economics right. As he shows in the book, by the end of UPA2, the economy was in much better shape than it ever has been under the BJP.


  But UPA2 completely screwed up the politics. And without fixing the politics there was no hope of communicating the truth about the ‘scams’ that the BJP hammered away at.


   Backstage is a fascinating book, clearly and simply written by one of the cleverest and smartest people to ever work for the government of India.


   If you care about Indian politics you can’t afford not to read it.



Posted On: 01 Apr 2020 12:30 PM
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