The finance ministry occupies the most important position in the government as it also controls the funding of all ministries. It is the ministry that is closest to the prime minister and hence is the pivot for all policies. A book on finance ministers of the past, hence, is always interesting, and here AK Bhattacharya, better known as AKB, does a superb job. AKB is known not just as a seasoned journalist and editor, but also an erudite scholar with specialisation in budgets. His columns before and after budgets are always insightful and this book shows that knowing the politics behind the economics is necessary to understand how finance ministers act.
AKB takes a look at finance ministers from 1947 to 1977 and has detailed chapters on their regimes. There were 12 ministers during this period, which included two PMs. Jawaharlal Nehru was one, who had to step in when TT Krishnamachari resigned ostensibly due to a controversy. Indira Gandhi, on the other hand, took charge quite consciously when Morarji Desai resigned as FM over political differences. AKB takes us through some details of these regimes and their major achievements, as well as controversies during their tenures.
Being an FM is not easy as one has to balance the economics of policies with politics. The latter cannot be ignored because it is based on ideology as well as the fact that governments come to power based on certain promises that have to be delivered, and it is the FM who has to enable this. Hence, as critics, it is easy for one to be judgmental of policies, but then they cannot be dictated by pure economic rationale.
The part on Indira Gandhi stands out, recounting the time when it was decided to nationalise private banks in 1969. While the idea germinated when Morarji Desai was FM, it was not effected during his tenure as he was against it. But once the prime minister is the FM, there is less opposition. It was also in her time as FM that the highest marginal tax rate was clocked, at 93.5%, for those earning more than `2 lakh per annum. At that time, it was considered appropriate because the PM firmly believed in socialism.
Several such anecdotes dot the book based on extensive research by the author. On YB Chavan, another politician who served as FM, the author’s take was that he was not quite on good terms with the PM and hence not too aggressive. He did lower the marginal tax rate to 77%, but increased wealth tax rates. After Chavan, the job went to C Subramaniam, who held the reins from 1974 to 1977. This period was tough for various reasons. High inflation was a major blow, which was brought in by the first oil shock. There was large-scale hoarding of foodgrains, which sent inflation up to 27%, thus needing strong credit policy measures to curtail speculation. But the tougher part was aligning with the Emergency, which came down heavily on anyone who was anti-establishment at the political level. At the same time the government had to frame policies tough on smuggling, black money, foreign exchange dealings, etc.
It is also interesting to note that in the 1974-75 budget, the FM levied a tax on interest earnings received by commercial banks. This raised the cost of borrowings from banks by 1%. To correct anomalies with NBFCs, the FM allowed only 85% of interest paid by them on public deposits as expenditure for tax purposes. The reader can appreciate how different things were in those years when budgets would seem quite amateurish in retrospect. But there were not too many known templates that could have been considered. Also, then RBI governor Sarukkai Jagannathan resigned before his term ended, as he was not willing to compromise on lending standards of banks that were nudged by the government to lend to the infamous Maruti project driven by the PM’s son, Sanjay Gandhi.
AKB recounts how Sachindra Chaudhuri, who was FM for a short period of 1966-1967, also had a turbulent time as he had to engineer the big devaluation of the rupee. AKB draws a lot of views from the memoirs of former RBI governor IG Patel, who had pointed out that there was a difference of opinion over the act of devaluation between IMF and the World Bank. The latter wanted a sharp correction, while IMF was for gradualism. But the World Bank prevailed, notwithstanding the deliberations that took place. Curiously, the aid promised to India on the condition that we devalued the rupee did not quite come about. In this sense the move could be called a failure.
There are more such interesting stories in the book, such as the one involving John Mathai, who as FM was opposed to the setting up of the Planning Commission saying it undermined the power of the ministry. He went ahead with the decision, as then PM Jawaharlal Nehru wanted it, but resigned immediately after. CD Deshmukh, a career bureaucrat who had been RBI governor as well, was responsible for getting in an industrial policy as well as nationalisation of some private sector companies. But he resigned over the reorganisation of states’ policy which that Maharashtra.
Some statistical trivia on FMs provides for interesting reading. Morarji Desai had the unique record of having presented 10 budgets, including two interim ones, and served as FM under both Nehru and Indira Gandhi. Both these PMs were socialists, while he had capitalist leanings. But such contradictions, while leading to tensions, did not severely impede the development process. Also, the backgrounds of FMs were quite diverse: politicians, bureaucrats, lawyers and more.
AKB makes his narrative interesting with these vignettes and trivia that add colour to what could have been an esoteric book.
India’s Finance Ministers: From Independence to Emergency (1947-1977)
AK Bhattacharya
Penguin Random House
Pp 445, Rs 999
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