Posted by: John Elliott | March 2, 2011

Finance minister Mukherjee in a time warp as India’s success story wobbles

Hidden away in the timid and inconclusive but mildly populist annual Budget speech that Pranab Mukherjee, India’s finance minister, delivered on Monday, were a few tiny sops for the country’s blighted environment. Just Rs 600 crores ($130m) was allocated for clean energy and cleaning rivers, and there were some customs duty cuts for solar lanterns and for “laundry soaps which conserve water and are gentle on the soil”.

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In a caring tone, but with words and a focus that smacked of the early 1980s when he was first finance minister, Mukherjee (left), 75, added: “The solar lantern enables our countrymen in far-flung villages to partake of developments in green technology”.

The thoughts matched the emphasis of the speech on boosting agriculture and improving the food supply chain with a Rs14,700 crore ($3.3bn) allocation, but they displayed a time warp that ignored all that has happened – much good and some bad – in the 20 years since India’s economic reforms of July 1991. The speech failed to tackle primary post-reforms problems of galloping corruption and appalling governance, both issues that are at the centre of major scandals and controversies.

A braver more inspired finance minister than Mukherjee could have said:

“We are approaching the 20th anniversary (on July 24) of the momentous opening up of India’s economy. In the past 20 years, India has come a long way……but we have left half our population under-fed, under-educated and with poor health care, and we have become a corrupt and badly run country, which is causing concern among investors. We must mark the anniversary with a new approach to these social issues, and I intend to today to map out a series of legislative and other changes that will be as significant as those of July 1991.”

Then, he could have added: “Corruption and mal-administration has done our environment much harm and I salute today my young (56) colleague Jairam Ramesh, the minister for environment and forests, who is doing more than most in the battle for the future of India. He is trying to bring order, stable policies, and clean government to this vital area, which is a lesson for us all in what needs to be done in many areas of government.”

Mukherjee of course did not say that, nor could he. He is the government’s most important, skilful and risk-averse politician, which stops him making big statements that might rumble into controversy. More importantly, no-one in the government dares speak up for Ramesh because he has trodden on so many powerful toes, as I wrote in an earlier article when I voted him India’s most significant ministerial achiever in 2010.

Changing government

I explained how he has tried to impose clean and effective policies and how this has upset many powerful environmental spoilers, both politicians and businessmen. Ramesh’s success – and his problem – is that he has been actually changing how the government works, whereas Mukherjee mostly tiptoed around ideas and committees and possible future changes.

I am returning to Ramesh here because, since I wrote that piece in January, he has been blamed for spoiling India as an investment destination by creating uncertainty here and abroad about project approvals.

He has cancelled or questioned environmental approvals for steel works planned in Orissa by Posco of Korea and a politically influential branch of India’s Jindal business family, an aluminium works run by Indian-controlled Vedanta of London, a multi-storey block of flats called Adarsh in Mumbai built for top army officers and other public officials under a recently exposed corrupt and environmentally-unauthorised deal, and a partially built “hill station” (a romantic euphemism for lucrative urbanisation of rolling hills) called Lavasa in Maharashtra that, he says, had no environmental approvals.

Critics rounded on him, trying to rein him in, and starting a phoney economic debate about whether economic growth or protecting the environment was more important. They included Montek Singh Ahluwalia, the country’s top economics bureaucrat who runs the Planning Commission. Ironically, Ahluwalia has worked with Ramesh in promoting economic reforms since the 1980s.

Even India’s august central bank, the Reserve Bank of India, appeared to condone reports that a major reason for a decline in foreign direct investment (FDI) inflows was “environment sensitive policies……in the mining sector, integrated township projects and construction of ports”.

The RBI later explained that it was only quoting what was being said in the commercial capital of Mumbai, allegedly by people linked with institutional investors but more probably those involved in Lavasa and the other projects. The RBI said it would now do some concentrated research on why FDI had declined. That the RBI should have uncharacteristically entered the fray shows the fear that Ramesh has struck among top companies, even though all he is doing is implementing environmental regulations that have been in force for years.

“It is time for India to make some tough choices,” Ramesh said recently at Delhi’s Foreign Correspondents’ Club (FCC). “We can’t pollute our way to prosperity. We have to find a way that is ecologically sustainable. In 1991, the focus was on fiscal stability. 20 years later it is ecological sustainability, so we face tough political choices”.

India story unravelling

It is true that India’s performance is wobbling. “Foreign institutional investors do fear the India story is beginning to unravel, asking if we are losing control of the process,” a senior government official told me. Although economic growth is still around an internationally high figure of 8-9%, industrial growth slowed at the end of last year and FDI inflows fell more than 30% in 2010 to $24bn.

“If foreign investors see local companies having problems (with the environment regulations), then they stay away,” said another official, arguing that Ramesh was affecting investment. But that is surely wrong, as has been proved by BP’s recent $7bn-plus natural gas deal with Reliance Industries.

Of course, the FDI inflows would have been bigger if Posco had started its $12bn steelworks (though it does not have any iron ore mining rights for the project). Ramesh however has not been at work for long enough to affect inflows significantly. What he has done however is to expose how the rule of law, usually said to be one of India’s investment strengths, is frequently undermined by companies, government officials and politicians in India.

Foreign investors’ real worry is the current series of corruption scandals that are hitting the Indian media seemingly every day, and making them wonder if the Indian system is coming apart. These scandals cover army generals, senior judges including even a former chief justice, and sport as well as business and, most recently, the chairman of a government-owned aluminium company (NALCO) accepting $500,000 bribes in gold bars.

World Cup  chaos

Bad governance – and repetitive failings that could be avoided – are also making India look unreliable. To take a simple example, look at the chaos over the organisation of the Commonwealth Games last November with late (as well as corrupt) projects and chaotic ticketing and other arrangements. That has now been repeated on the current cricket World Cup, with Kolkata’s famous Eden Gardens cricket stadium not being ready in time and chaotic ticketing arrangements for matches in Bangalore that led to police viciously beating angry crowds.

Ramesh is undoubtedly enjoying the fuss he has caused. For 20 years, he has been a sometimes controversially outspoken figure on India’s economic reforms scene and was, until five years ago, always an economic adviser and never a minister. In his current job, which he has held since the 2009 general election, he has had a chance to make a significant difference, not only to domestic environmental policy where he has also tried to rescue wildlife conservation from the grip of corrupt officials and traders. He has also transformed India’s approach to international climate change negotiations, co-operating as he proudly says with both the US and China to make sure India plays a role in finding a solution.

He has had to strike some high profile compromises on most of the controversial projects mentioned above, and this has cast doubt on whether he is in fact making the major changes to environmental protection that he claims. Answering that allegation, he says he has laid down strict conditions on all the projects. “All I am doing is implementing the laws of the land and looking afresh at old regulations that need changing,” he said at the FCC.

And he is still a success, despite the compromises. Biswajit Mohanty, who runs the Orissa-based Wildlife Society of Orissa and rarely praises governments, is outspoken in his praise .

“He is the best environment minister we have ever had, and probably the best we will ever have,” he says.

Who else in the government deserves such an accolade for trying to push through change? Not many, and certainly not Mukherjee in his time warp.

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Responses

  1. No country is immune from corruption. The real question is whether the guilty are caught and punished. In India, the rule of law and democratic checks & balances still apply as the PM himself is not immune when he had to publicly own responsibility for an “error in judgment” in the CVC case. Cabinet ministers, judges, powerful politicians and their families, business tycoons and executives, bureaucrats etc. – no one is above the law.

  2. India is not as corrupt as China and Russia, according to the global
    credit rating agency Fitch.

    “We will certainly rank India well below Russia and China when it comes to
    concerns about corruption. Really big concern about India is regulation
    and tax treatment,” he said.

    These comments come at a time when the nation is facing a plethora of
    corruption cases relating to allocation of 2G spectrum, conduct of
    Commonwealth Games , allotment of flats in Adarsh Housing Society and
    Devas-Antrix deal.

    Hunter further said that the recent corruption cases have not dent the confidence of investors in India, adding that “Corruption is certainly not
    a specialty in which India will win the gold medal.”

    “Corruption is something that does deter investors much more in China.
    There is respect for Indian legal system,” he said
    Now

    Other reports in various forms of media states that there is truth in the
    Reports of growth of Indian Economy and I feel and as stated by you about
    the BP Deal,India surely will be a great place to invest.

    That does not mean we go any bit easy on the law and regulation aspect of
    our country but I think though delayed now in India people do get justice
    in most of the times.

    So come on and invest in India.Flaws are few here and people pointing at
    them are just too many.It is lucky to be an Indian in the 21st Century thanks
    to the builders and visionaries of our great nation.

  3. India is destroying itself, and unless reforms are implemented on the law enforcement side, this process will continue till it’s completion. An independent, almost inquisitorial, department of anti-corruption is needed. People like Jairam Ramesh, though welcome, are an aberration. Many people here, because they are Indian, are defensive of India and it’s state of affairs being commented upon by a foreigner. So am I. The sooner people recognize the real enemy, it would be better, but we are weak. We don’t live in an ideal world. I fear the upcoming spectacle before us.

  4. I contrast the sentiments expressed in this column with a the projections of a Citi that India can be the world’s leading economy by 2050, less than 40 years away! I am not sure if the Citi report took into account perhaps the most disruptive technology of the 21st century which has been developed by India. It has the potential to make oil – and some say, Uranium – irrelevant.

    Past couple of years, Department of Atomic Energy India has unveiled the design of two reactors AHWR and AHWR-LEU, both in the mid size (300 MWE) range.

    The AHWR is mainly a thorium-fueled reactor meant for internal use, not for export. It represents a stage 3 reactor i.e. it uses as input the U 233 output produced from Th 232 (stage 2 fast breeders) and should be situated in relative geographic proximity of the Stage 2 Fast Breeders. It has been designed, developed, validated and currently in production with a target of 2012.

    The basic design of the AHWR-LEU was revealed domestically in 2008 and to the international community at Vienna in Sept 2009. It runs on a unique 20:80 fuel mix that combines the features of all three stages i.e. low enriched Uranium (stage 1), in-situ conversion of Th to U (it breeds U 233 from Th, a stage 2 process. Howver, because this is a once-through process, some have labeled it a “passive breeder” reactor) and also uses the Th converted U as fuel (stage 3). The AHWR-LEU promises a host of safety, waste management and anti-proliferation features, a design life of 100 years with “plug and play” convenience. This is the reactor meant for export and it is said to be in “development and validation” phase at the BARC with a hard stop of 2020 for achieving complete commercial viability.

  5. Sir please dont delete my comments.you please reply if you wish to debate.
    I do not post comments with false email addresses – see About this Blog for comment-posting information – je

  6. Did you check the chinese defence budgetthe actual figure is more than double an if you add the ppp rate that is the labour and resourses advantage then that figure will touch the skies and that budget is not meant for India.That is meant for…..yes you are absolutely correct.

    that figure i think will become no 1 in some years now…….

  7. Average ignorant indian knows about working of Government. He cannot get his Birth certificate/Driving license etc etc without bringing influence. This influence can be bought through money. Same is true for big business whether it be Ambanis, Mittals, TATAs, for that matter any person interested in raking good moolah.

    And art has been introduced and mastered by FIIs. Hence , corruption feeds business of FIIs e. g. BP deal, Vedanta deal etc etc

    In the same manner, budgets from veterans will always propagate the legacies, which they have mastered. Pranav being a veteran politician, it was never a point in anyones mind that what will he put up. He did his job of reading a document in Parliament. We are sure that he may not know and give a damn to this document. It has been great success that he was atleast able to read without any rest.

    Is it not a great achievement ! You shall not be surprised if he gets Bharat Ratna of Sonia Gandhi variety on next 26 january for such a great effort in such an advanced age.

  8. This now feels like a transitional Government adrift from ground and business realities. UP elections will be the big test but the party is already muttering loudly.
    Glad to see you have become such an environmental warrior!

  9. It is eye opening piece. In the vast discuussion going around in all TV Channels, I have got confused. I play in the share market. Yesterday’s Chart bursting performance has confused me more than understandig what is in the budget and what is not.To know what is in the budget sharemarket is the best place. It moves with sentiments of the majority investor i.e. FIIs.Has it has given a thumbs up or it is again a mystery of black money plyers.

  10. I appreciate you are a Jairam Ramesh fan John, but I think the notion that economic growth vs environmentally friendliness it is a phoney debate is way off mark. Sustainable development is probably the single most important issue confronting a country like India, and unfortunately there does not seem to be any clear cut answers because one is essentially forced to trade growth for the cleanliness because trying to combine both is extremely difficult. Far from being phoney it is perhaps single the most important debate to be had in India.

    The environment ministry is single handedly holding up probably close to US$40 billion in fixed asset foreign direct investment, something far more important to India than mere portfolio inflows which can leave when they please. Perhaps Mr. Ramesh and his ministry do have their reasons, and I would be inclined to believe that they are probably very good ones.

    The fact of the matter is the underlying problem is, they have done an exceedingly poor job of not making those reasons very clear and communicating their concerns, which leaves Mr. Ramesh and his ministry open to the charge of acting in an arbitrary manner and becoming a law unto itself, a license raj 2.0.

    Posco has been given a provisional clearance whilst Vedanta was blocked, what were the differences and why. Lavasa never got a clearance so after a very large investment by the developer the ministry is retroactively blocking any further development.

    How does the ministry arrive at a decision, what are its parameters, and how does it decide what is the appropriate action, and finally are there any checks and balances.

    It seems to me that what Mr. Ramesh needed to focus on to begin with was bringing a level of transparency to his vetting process and his entire ministry, and once he had that, then he should have gone about shaking things up. In principle India needs a strong environment minister and ministry, and you are very right in lauding Mr. Ramesh for having the courage to act and make hard decisions, it is an admirable quality in any Indian bureaucrat or politician. Courage is a quality the administrative caste distinctly seems to lack in India.

    But this is a country that has a long tradition of patronage and corruption in government, so the charge of behaving arbitrarily is a very serious one and its something he could easily do something about through simple PR if his ministry is behaving properly and has a transparent process.

  11. It had no progressive or futuristic streak in it.
    It was evidently drafted by the compulsions of politics rather than the drivers of economics.

  12. […] India’s finance minister is in a time warp, Riding the elephant […]


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