It won’t be an exaggeration to say that Pranab Mukherjee, as finance minister, presided over a period of high growth riding on post-crisis stimulus. Problem was that growth was built on weak economic fundamentals.
Till his resignation from the post of finance minister in 2012, Pranab Mukherjee was regarded as one of the most influential leaders in the Congress party and in the Manomhan Singh government.
He wore with aplomb many hats—the government’s top trouble-shooter, a consensus builder in the party, a skilled political negotiator and one of the few leaders who could cut across party lines to resolve any crisis.
That said, an evaluation of Mukherjee’s term as country’s finance minister, particularly his second stint (2009-2012), would show it wasn’t all good with the economy.
By the time Mukherjee bid adieu to the North Block to contest the presidential election, the fiscal scenario was showing early signs of stress. That was a period when India’s fiscal situation worsened and the economy began to fall into a crisis phase after witnessing a high growth period, riding on the post global financial crisis fiscal stimulus.
The GDP growth during Mukherjee’s term averaged above 8 percent but the high growth came at a price.
The inability to unwind the stimulus on time gave fiscal shocks to the economy in later years. In 2011-12, the year when Mukherjee exited the finance ministry, the country’s fiscal deficit shot up to close to 6 percent. It has never really recovered since.ALSO READ: Former president Pranab Mukherjee passes away: A look at his five-decade long political career
The investment boom in the post-crisis years and the government’s push for public sector banks to step up lending to reboot the economy was based on the assumptions of continued high growth in later years.
But that assumption proved terribly wrong after 2013. Economy began to falter. The result was a prolonged phase of high fiscal deficit and huge build-up of non-performing assets (NPAs) in the banking sector. The ghost of loose fiscal policy management continues to haunt Indian economy even today.
Mukherjee received the biggest criticism for his flip-flops on taxation policies. That irked investors and growth lobbyists simultaneously. Despite resistance from all quarters including from his own part’s senior leaders, Mukherjee chose to amend the Income Tax Act retrospectively in 2012. Soon, this became the biggest disputed and most contentious tax provisions India witnessed in all time.
What did the tax rules imply? Under the controversial amendment, Indian government could reopen tax cases beginning 1st April, 1962.
This single announcement ruffled many feathers in the corporate world, including that of Vodafone. Mukherjee’s arguments were very clear in favour of retro-taxation—a country has the right to assert the right of the state in taxation and address the problem of companies which route money through tax havens.
"This retrospective arrangement was not merely to check the erosion of revenues in present cases but also to prevent the outgo of revenue in old cases. As Finance Minister, I was convinced of my duty to protect the interests of the country from the revenue point of view," Mukherjee wrote in his book The Coalition Years 1996-2015.
But the truth is despite his arguments, Mukherjee didn’t receive the wholehearted support of the top leaders of his party, including Manmohan Singh and Sonia Gandhi, who feared the move would backfire on the party and cause outflow of money.
P Chidamabaram, who succeeded Mukherjee as FM, began the emergency damage control within hours of taking over. The fears of investors were addressed to some extent in later years by promising reversals of retrospective taxation policies.
“In fact, I can’t recall any big positives in the Mukherjee era except the fact that growth was good. But except that most other fiscal parameters were in bad shape,” said the chief economist of a leading rating agency. He did not want to be named.
During Mukherjee’s term, the issue of government undermining RBI autonomy thrust in the spotlight. The RBI was consistently under pressure to pay heed to “requests” from the government on rate decisions. In fact, before every monetary policy, the government made its wish list public for the RBI policy and failure to cut rates often evoked critical comments from babus.
This wasn’t limited to monetary policy. Once, Mukherjee practically announced in Parliament that RBI will issue more private bank licences. He said this at a time when the central bank was reluctant to give new bank permits.
Mukherjee's announcement caught the RBI by surprise. This meant that the RBI had to act on fresh permits. Still, it was only after a few months, the RBI published a discussion paper on the issue to seek comments from the public.
Mukherjee’s tenure as FM wasn’t a period with too many positives for the Indian economy. But he can’t be blamed entirely for that. The entire world was recovering from a devastating crisis. The unwinding of the stimulus was tricky for India, as any other country, at that juncture. Let's say, Mukherjee took up the FM job at North Block at a difficult time.
An assertive communicator
While the success and failure of Mukherjee’s term as FM is a matter of debate, there is no doubt that Indian politics have not seen many leaders who can be compared with Mukherjee’s coordination, communication skills and consensus-building ability.
Once, at a press interaction on the sidelines of an event in Mumbai, reporters chased Mukherjee for comments on the worsening fiscal situation.
Even when the barrage of questions continued, Mukherjee remained silent and stood there for a few minutes and finally responded. “Either you talk or I. And one question at a time. If not, I’m going back”. The reaction surprised the press for a moment and order followed.
Mukherjee, who wanted to be a horse
Once, in an interview with a television channel, Mukherjee’s sister, Annapurna Dev recalled a conversation with Mukerjee. When he first became an MP and came to Delhi, the distance from Mukherjee’s official quarters to the President's House was not much.
While both were sitting in the veranda watching the path of the President's Bodyguard and how well the caretaker groomed the horses, Mukherjee said: “Didi, it is such fun for the horses ... just see, isn't it? They don't have to work, they just eat, and just look at their shining coats ... When I die I will become a rashtrapati's (president) horse.”
But fate had other plans, Mukherjee went on to be the President and the horses he so admired were part of his retinue.
After becoming president, Mukherjee revived a presidential tradition (discontinued three decades ago) by riding a six-horse buggy (carriage), instead of the official limousine, to the Beating Retreat ceremony.Clearly, Mukherjee was a political leader who left his mark on Indian politics. He remained the Congress’ go-to man till the end despite occasional frictions with the party in later years.