Forbes India 15th Anniversary Special

From the Bookshelves: India's economic history told through stories of Finance Ministers

Senior journalist AK Bhattacharya gives a glimpse of how India's earliest finance ministers balanced politics and economic considerations, their relationship with prime ministers, and how his new book can be read in the context of the current political and economic scenario

Divya J Shekhar
Published: Jun 7, 2023 02:41:49 PM IST
Updated: Jun 7, 2023 03:05:08 PM IST

From the Bookshelves: India's economic history told through stories of Finance MinistersAK Bhattacharya, senior journalist, presents a detailed account of the work done by finance ministers in India’s first three decades since Independence

How did India’s earliest Finance Ministers shape the economic story of the country? In his new book India’s Finance Ministers: From Independence to Emergency (1947-1977), senior journalist AK Bhattacharya presents a detailed account of the work done by finance ministers in India’s first three decades since Independence. In an episode of the podcast From the Bookshelves, he speaks about how finance ministers like RK Shanmukham Chetty, John Matthai, CD Deshmukh, TT Krishnamachari and Morarji Desai balanced economic considerations with politics of their time, what is the difference between a politician becoming a finance minister versus an economist or professional, why political ideologies may often overpower economic considerations, and how this book can be read in the context of the current political and economic scenario of the country. Edited excerpts: 

Q: In your long career as a business journalist, which finance minister has impressed you the most? 
At this point, I think the finance minister who excited me the most is undoubtedly Manmohan Singh. And not just because he has probably done the most in the shortest time for the Indian economy, in terms of bailing the Indian economy out of the twin crises of a balance of payment problem and the fiscal discipline issue, but also because I have had the privilege of covering his tenure as a finance minister as an economic journalist.   

Q: One thing that stands out in your book is how the finance minister has to operate within the realm of politics and also keep economic sensibilities in mind. And the two might not always align. So how, in your opinion, have different finance ministers managed to strike that balance?
This has been a very difficult balance to strike because finance ministers come into the job with their own economic and political ideologies. But they soon realise that they have to work within the political and economic framework that is decided by the prime minister. So what you see in this volume—I've covered thirty years between 1947 and 1977—is the finance ministers struggling to deal with what their prime ministers want. As a matter of fact, there have been finance ministers in this volume who have had to pay the price of losing their job because either they did not live up to the expectations of the prime minister, or they did not see eye to eye on a few important economic policy issues.   

I can name Morarji Desai, who differed with his Prime Minister Indira Gandhi on the question of bank nationalisation. Indira Gandhi wanted, as the prime minister, that banks should be nationalised for ensuring that more people in the villages and rural India get access to bank credit, but Morarji Desai was of the view that social control of banks is the first important step to be undertaken. And because Morarji Desai managed to own his own in the political platforms, in the Congress—and the Congress was a far more democratic organisation then than it is today—Indira Gandhi realised that she needs a different finance minister. What she did was she herself became the finance minister and decided to nationalise the banks. So that was one [example].   

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Then you have John Matthai. An economist par excellence, he realised that [Jawaharlal] Nehru’s decision to have the Planning Commission would mean undermining the authority of the finance ministry. So he put his foot down, but he realised that in real-world politics, he has to agree to the overall idea of his prime minister. So he implemented the idea and actually announced the setting up of the Planning Commission. He read out the names of people who would be the members of the Planning Commission, but after he completed his Budget presentation, he sent in his resignation letter. And Nehru, being the prime minister, he hesitated a bit, but later on he accepted the resignation.   

So I think finance ministers have recognised this hard political reality that while they can try to assert their economic policies and implement them, at the same time, at the end of the day, they have to live within the broad parameters that the prime minister sets out.   

Q: In fact, in those days there were finance ministers who quit over policy differences with the prime minister. Like John Matthai, there was his successor, CD Deshmukh, who was at the time the longest-serving finance minister under Nehru. He also eventually quit over the issue of reorganisation of the state of Maharashtra. Do you see something like this happening in today’s political climate?
Unfortunately, I don't see that happening in today's climate. I think there is a difference between the role of a finance minister played by a professional politician and the role of the finance minister played by an economist or economic administrator. Johan Matthai, CD Deshmukh, and even Shanmukham Chetty [India’s first finance minister] who also quit under a bit of a cloud, were not politicians.   

You will see in the second and third volumes of this book that finance ministers who have been professionals are quite principle-oriented and when they see that there is a difference of opinion, they consider it more honourable to make an exit. Please remember, Manmohan Singh tendered his resignation not once, but twice during his five-year tenure. But you don’t see the same from politicians who have become finance ministers.  

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Even Morarji Desai did not resign in the wake of bank nationalisation. He was forced to quit by his prime minister. Or take TT Krishnamachari, who was indicted by the Chagla Commisison—not direct involvement in making money, but not playing by the rule book correctly—resigned, but he was essentially asked by his Prime Minister Nehru that he should quit. So politician finance ministers don’t normally quit, but professionals, economists, and economic administrators are more prone to quitting their job under any pressure that you see.   

Q: In that sense, when there are politicians who are finance ministers, do political considerations or politics trump economic considerations?
At the end of the day, no prime minister will subject his political goals to be subservient to economic issues. If it is a question of survival of the country as an independent sovereign nation, as it happened in 1991 when India was close to defaulting, its sovereign rating was coming down, there was going to be a collapse of everything economic, I think the prime minister would listen to the finance minister. At that time, Narasimha Rao did listen to his finance minister Manmohan Singh. But those are rare occasions.   

In normal situations, I think the prime minister or the political requirements will outweigh economic requirements or compulsions. Remember, even Manmohan Singh, when he was the finance minister—even as he had rescued the economy from that imminent crisis—in the 1991 Budget, he had decided to raise the prices of fertilisers, but he had to roll them back, partially, because there was political pushback. So my point is that political requirements are not to be brushed aside, and economic issues often get second-grade treatment.   

Q: Another important thread in your book is the relationship that different finance ministers have shared with prime ministers. And this dynamic is a very interesting one. How, according to you, has the nature of this relationship evolved over time?  
I think this is an important question. The equation between the prime minister and the finance minister is a very important factor in the manner in which the finance minister can discharge his or her role. If the prime minister has got a good equation with his finance minister, then the finance minister can get to do an experiment with a lot of economic policy-making, which he would not be able to do if he did not enjoy that trust and the equation that another finance minister may have.   

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From this volume, take the examples of John Matthai and TT Krishnamachari. The former was not very politically close to Nehru. He was an economist and he did not like the idea of the Planning Commission, but finally had to quit as Nehru stood his ground. But take TT Krishnamachari, who was very close to Nehru. Politically, the equation was very strong and TT Krishnamachari took the liberty of experimenting with really bold taxation measures. He got hold of [economist] Nicholas Kaldor and introduced an expenditure tax which was politically opposed and had to be discarded soon after. But Nehru allowed Krishnamachari to experiment with such taxation issues. And even when TT Krishnamachari was indicted by the Chagla Commission for his role in the Haridas Mundhra stock market scandal, Nehru was not very happy letting him go.   

So the equation between the finance minister and the prime minister is very important, whether it is Narendra Modi deciding on Arun Jaitley or Nirmala Sitharaman, prime ministers do keep in mind this equation factor, that ‘Can I function well with this finance minister?’. I think this principle, this lesson that you learn from the different prime ministers in the first 30 years after India’s independence, has been internalised by the current lot of prime ministers.  

Q: We've had 25 finance ministers in this country. As your book notes in its introduction, only a few finance ministers have had long, stable careers—like CD Deshmukh, Morarji Desai, P Chidambaram, Arun Jaitley, and now Nirmala Sitharaman, if she completes her term and comes back as finance minister post the elections. All others have barely lasted for a couple of years. What, according to you, are the pros and cons of having one finance minister for a long time versus getting a new person in charge every year or two?  

If you look at this like a corporate philosophy, you have a CEO [which is your prime minister], and the finance minister is like your chief financial officer [CFO]. If you keep changing your CFO, it weakens governance, particularly governance with regard to economic policymaking. So check out, in one five-year term, how many finance ministers did the prime minister have? Look at Rajiv Gandhi, who, in his five-year tenure, had four finance ministers, which means four CFOs, whereas, Mr [Narendra] Modi, so far, has maintained continuity, and stability, by having just had two finance ministers in his nine years. Of course, in between, he had Piyush Goyal step in as interim finance minister, but otherwise, he has maintained stability. Same with Manmohan Singh. He also kept two finance ministers for a period of ten years. Narasimha Rao, five years of tenure, just one finance minister. So in the first 30 years, the lack of stability and continuity of finance ministers, in retrospect, looks to be a bit of an aberration.   

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Q: There's this part in your book where you write about how Nehru liked TT Krishnamachari as finance minister because of, and I quote, “his ability to articulate governments economic policies in a format acceptable both politically and by industry”. And one challenge for most finance ministers, especially in the early days and perhaps even now, is to constantly keep an eye out for industry interests while framing economic policies. How important is this skill for the finance minister and how does our current finance minister fare in this regard?
It's a very important skill. A finance minister is, after all, not just the guardian of the central exchequer, but also the guardian of the Indian economy. And the Indian economy cannot be talked about without talking about trade, industry, and consumers. So you need to have a finance minister who can articulate the thoughts, worries, concerns and issues of all these various stakeholders, whether they are consumers, traders or industry bodies.  

So a finance minister like TT Krishnamachari, or at least Nehru believed, being able to relate to these different stakeholders was definitely an important asset. Now, if you look at the last few years, certainly Arun Jaitley was not an economist, he was not even a politician who was elected to the Lok Sabha. But his major skill was that he could articulate the government’s economic and political ideologies like probably nobody else in the Modi government at that time. Apart from his being a senior member of the party and a close advisor to the prime minister, his ability to explain what the government wants to achieve through its economic policies was very critical. Something similar is with Nirmala Sitharaman, who you will remember, was the party spokesperson before she became the minister for commerce and industry in the first Modi government. So she is also pretty articulate, and she recognises the importance of communicating what the government wants to do, whether it is by reducing corporate tax rates or giving or reducing exemptions.

From the Bookshelves: India's economic history told through stories of Finance Ministers

Q. Of your long and illustrious career of being a business and financial journalist, how much do you think business journalism has changed over the past three or four decades?

Immensely. I think you are giving me an idea for my next book. I really mean it when I say this should become the subject of a book because when I used to practise business journalism in the 70s, you could not report the name of the company holding a press conference while dispatch. For example, for argument's sake, if Bata is holding a press conference, in my report, I had to say “a leading shoe-making company”. And now, the information revolution has happened and the world has changed.  

Now, I think not mentioning the company’s name in an article is the wrong thing to do. If somebody is giving out a piece of information, the source of that information has to be disclosed, but the journalism of that time was that if you are naming the company, it means you are promoting that company. But today, we have come to a point where we do not suffer from those complexes, which is a good thing. But the flip side of that is that sections of media have gone to a stage where corporate promotion has often been the actual objective of many media dispatches. So if what was happening in the 1970s was an aberration, what is happening in some sections of the media today is also an aberration.