Posted by: John Elliott | April 1, 2009

Manmohan Singh marks the limits of liberalisation

There is a revealing line hidden away in the text of a Financial Times’ interview with Manmohan Singh, India’s prime minister, that is published today. Asked about “the future of capitalism, especially in India”, he replies: “We are a mixed economy. We will remain a mixed economy. The public and private sector will continue to play a very important role”.

This is significant because it underlines his continuing belief in India’s public sector and his long-held reservations about wholesale privatisation.

Manmohan Singh during the interview

Manmohan Singh during the interview

The prime minister preceded that line with the phrase “capitalism with a human face”, which  he has used several times (sometimes saying “reforms with a human face”) over the past 15 or so years. (I first heard it in 1995 as the title of a book by Sam Brittan, the FT’s veteran economic commentator).

This underlines the fact that the prime minister has never been the arch liberaliser that the international media likes to make him. He was not the architect of the 1991 economic reforms – the basic plans were drawn up between the end of Rajiv Gandhi’s 1984-1989 Congress government and 1991. But he did become an enthusiastic – and caring – implementer.

Narasimha Rao, prime minister of the Congress government elected in 1991 in the midst of a dire financial crisis, picked him as finance minister because, it is said, he reckoned that if the reforms succeeded, he (Rao) would get the credit, but if they failed he could blame ex-bureaucrat-Singh. As it turned out, Mr Rao’s calculation was wrong because the reforms were a success and Mr Singh got the credit – despite the government’s loss of nerve in 1994-95 after unfavourable regional election results.

On privatisation, Mr Singh’s Congress-led United Progressive Alliance (UPA) government has been held back for most of the past five years primarily by the Left Front that supported the coalition till the end of last year.

But Mr Singh was content to live with some of the Left’s approach because he does not believe in privatising profitable public sector businesses (PSUs, as they are known in India – U stands for undertakings). The corollary is that he believes in privatising loss-making PSUs, which of course is unreal because they rarely find a buyer.

He does favour selling – “divesting” in PSU jargon – minority stakes, and on that he was held back by the Left. But, along with the Left, he has not seemed keen on allowing in strategic investors – which usually means a specialist private sector company that aims eventually to acquire a majority stake.

He did not seem very disappointed when, just after the current government’s Common Minimum Programme was put together in 2004, he said that no profit-making PSU would “normally” be privatised. To underline the change of policy from the former Bharatiya Janata Party-led government, the Disinvestment Ministry was scrapped and merged into the Ministry of Finance.

It is refreshing to find an economic reformer who does not charge blindly up every liberalising alley, but instead analyses what is good and practical for the country. Too often governments around the world have privatised everything they can, without analysing the pros and cons.

A senior British Treasury official once told me that it was essential to have a constant stream of privatisation candidates so as to “maintain the momentum” of the policy. If that momentum was lost, he said, it could be difficult to restart it.

In India, of course, there is no momentum to be maintained. A few companies were privatised under the 1999-2004 BJP-led government, but since 2004 there has only been minimal restructuring, some by a specialist reconstruction board (the BRPSE).

It is surely good that the prime minister takes his stand on a literally mixed economy. It does mean of course that PSUs remain over-manned and often poorly managed, but at least there is something of a debate on the issue.

Too often India’s industrial policy, as I have written before, is developed by enthusiastic ministers working with equally enthusiastic private sector interests – for example on foreign direct investment rules, special economic zones, and airport privatisation (where Indian private sector companies are primarily interested in low-cost land acquisition and property development, not running top class airports).

There now needs to be a debate on where India is going on privatisation, maybe with the prime minister setting out how far he would like to go, and in which industries.


this post is also on the FT website



  1. The root cause of terrorism in our country is lack of co-operation from many of our citizens. As is evident from the social set in the country, the minorities especially the Muslims are feeling very much depressed. The outsider enemy always has the tendency to play some mischief. They can not play any game without the help of local people. Naturally Pakistan is taking full advantage of alien Muslim. To curtail the terrorism activities we have to ensure that terrorist labels are removed and the Muslim be brought into the main stream. Million of acres of Wakf Board land lying encroached can be of great help in this direction. After taking into confidence Mr.K . Rahman Khan, the chairman Wakf standing committee in the parliament, these properties can be legally leased out to the present occupiers for say 99years or so. The lease value can be worked out at half of the rate of land as fixed by local Collector or D C office, which can be deposited in a central Wakf Board bank account within say two months period. According to an estimate the scheme can fetch 40 to 50 lakhs crores of rupees deposits in the bank. First beneficiary will be the banking institutes with instant deposits of such a magnitude. The occupiers too will be saved from the trauma of evacuation. while occupying landed property at a much subsidized rate. This money can be utilized for the welfare of local Muslims where the properties are existing by way of new industrial ventures, educational institutes and other schemes. We will see the terrorism is vanished from the scene in no time.

  2. UPA GOVT headed by S.. Manmohan Singh Ji. has many mismatch planning. They have allowed to come up hundreds of Engineering colleges in the country without thinking of where these youths will go after passing out.
    For an example, during the recent past with the setting up of a large numbers of education institutes, Punjab has become a sort of education hub. Especially the number of engineering colleges in this part of country has increase manifolds during the last two or three years. At many places even manufacturing units have been converted into engineering colleges.
    Thus in a year or two, with completion of courses, thousands of engineering graduates will be out searching for their jobs. But unfortunately, 80 % of the factories in Punjab have already been closed down.
    Moreover, with the absence of any strict control by Punjab Technical University, the standard of technical education provided by these institutes is much lower than expected level. One wonders ultimately, where these youths will go? There will be really a glut of unemployed engineers leading to many socio-economic problems. This is high time that UPA Govt. should modify its planning to absorb the passing out engineers or stop further admissions in these institutes.

    Thanking you,

    Yours sincerely,
    22, Preet Colony ,

  3. great site this rated to see you have what I am actually looking for here and this this post is exactly what I am interested in. I shall be pleased to become a regular visitor 🙂

  4. The Editor , The Tribune. Chandigarh.
    Subject:- Apathy of Senior Citizens.

    A few days back during a press conference hosted for the release of congress pole manifesto, the your goodself emphasized that the Govt. has taken some steps to minimize the effect of higher prices. They have increased the income of employees through pay commission report and that of farming community through MSP rise. Unfortunately the senior citizens have been totally ignored here . The main source of income of a senior citizen is their life long savings lying deposited in the banks or post offices. With the rates of interest slashed, their returns from funds deposited have diminished a lot. Other wise also half per sent higher interest difference on deposits of senior citizens is insufficient. Especially there is no pension for employees retired from boards and corporations. All they get only thousands rupees or so per month from contributory P F linked pension schemes. Even this pension amount remains the same through out the life, since it is not linked with price index, unlike other Govt. pensions.
    After a life long service to the nation, the apathy of senior citizens can be well understood. The Govt. should not forget its obligation towards them. The govt. should fix rupees five thousand as minimum PF linked pension besides paying 2 % more interest on deposits by senior citizens to match the way the senior citizens are being looked after by many countries in the world. I hope your kind-self look into it and order some steps.

    Thanking you,

    Yours faithfully,
    Kulbir Singh Chadha,

  5. The FT interview was essentially studied statements on the current global financial crisis expressed by a serious academic, not views on public policy. So, the couple of lines you quote on Dr Manmohan Singh’s comments on India’s mixed economy are somewhat out of context. In the past I have been an ardent supporter of Governments sticking to what they are competent to do, which does not include running business enterprises. But Britain’s experience has shown that public wellbeing is not necessarily dependent on efficiency alone. So I guess there is a case for being selective about what you privatise and the pace you do it at and you seem to recognize that. Yes, we are woefully slow; but thank heavens that we had a regulatory framework on the working of our Banks. But even when disinvestment does seem to make business sense, the real obstacle is not ideology only but that politicians depend on public enterprises to provide them many of the amenities that they could not otherwise leverage. This is even truer of enterprises owned by the States.

  6. I read your blog on Manmohan Singh with interest. Always a courteous and charming man, his economic thinking in the early 80’s appeared to be far closer to those who ran Gosplan than to that of the standard bearers of free market capitalism. His ” Damascus road” conversion a decade later was indeed all about necessity, but he made it none the less. His background suited the Nehru years, but whether he still hankers for those ” Hindu growth rate” years. I somehow doubt it. India owes him a lot.

  7. I think Dr. Manmohan Singh is a hardcore pragmatist who knows what can work in India and what can’t, especially in the prevailing political situation where coalitions are ruling the roost. He definitely is not in a position to push some desirable choices because they are very hard to sell politically. Remember his views on subsidies and admistrative reforms. None of them have seen the light of the day. How I wish India gives a clear mandate this time. It must be quite frustating for the Prime ministers.

    Whatever was the motive of Narasimha Rao, the fact is he did think innovatively to invite Dr. Manmohan Singh to take the charge of finance at that time. He could have also done like other PMs did before him. Whatever was the overall report card of Narasimha Rao, the fact is, he was a game changer. I dont know, if others would agree on this assesment. I feel, we have been quite uncharitable in our assesment.

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