Modi clearly missed the danger signals as economy tanked; he must now steer it

Subhash Garg’s replacement Atanu Chakraborty in finance ministry is an old Gujarat hand. Modi and Chakraborty obviously know each other well.

PM Narendra Modi at the BJP party meeting | Photo: Praveen Jain | ThePrint

Prime Minister Narendra Modi’s decision to move out secretary Subhash Chandra Garg from the finance ministry and replace him with Gujarat-cadre IAS officer Atanu Chakraborty has been one of the most significant moves since the Union Budget.

The decision is Modi’s acknowledgement that he missed the danger signals. It is also a confirmation that the prime minister had to make a swift decision to cut his losses just as the markets began to tank in response to the finance ministry’s one negative move after another – for instance, a higher surcharge on the country’s super-rich.

Atanu Chakraborty is an old Gujarat hand. The PM knows him well. They two may even complete each other’s sentences. That may be enough, at least in the beginning.

But even before the new economic affairs secretary begins to get his teeth into his new job, he will realise that the stench of mismanagement hides a scenario straight out of Alice in Wonderland.

At Garg’s door are several charges in the public domain. It is said that he was the brain behind the controversial proposal to issue sovereign foreign currency bonds in the overseas markets, announced by Nirmala Sitharaman in her Budget earlier this month, a move that sent domestic bonds crashing.

On Thursday, hours after Garg was summarily moved out the previous night, the Prime Minister’s Office ordered an immediate review of the decision to float these sovereign bonds. Analysts now say that a compromise may entail the floating of “masala bonds”, or rupee-denominated bonds, in the international market.

Earlier in the week, Rathin Roy, a member of the PM’s Economic Advisory Council, publicly stated that he was worried about the “imperial announcement” around the flotation of these sovereign bonds and that former Reserve Bank of India (RBI) governor Y.V. Reddy had himself been extremely circumspect about this option.

Roy noted that even in 1991, when the country went to the International Monetary Fund (IMF) to borrow money and pledged some of its gold to the Bank of England because it was broke, India hadn’t taken recourse to this decision.

Former RBI governor Raghuram Rajan had once pointed out that foreign bond flotation may even become a case of “a foreign tail wagging a domestic dog.”

Naturally, then, the debate begs the question: Where was the political oversight on all these decisions? If one assumes that Nirmala Sitharaman joined the finance ministry only weeks before presenting the Budget in a blood-red ‘bahi khata’, and therefore may not have been fully aware of all the goings-on; and then also considers how former Finance Minister Arun Jaitley was leading the BJP’s 2019 Lok Sabha election campaign while dealing with his health issues as well as the complexities of handling the finance ministry – a picture seems to emerge that things may have gone astray in North Block in recent months.

Here, then, is the next question: Where was the PM’s Economic Advisory Council as the crisis unfolded, and did its chairman, Bibek Debroy, flag the issues to Modi and his confidantes in the PMO?

Is the answer yes or no? No one knows. And if that sounds like the violin playing as Delhi burns, then the answer may not be far from being wrong.

Subhash Chandra Garg has also been accused of pushing SEBI to part with 75 per cent of its surplus funds as well as seeking a review of the RBI’s regulatory framework so that it could hand over some of its funds to the Modi government.

But why was Garg so desperately pushing for an infusion of cash into the Union government? The answer can be found in a comparison of the Economic Survey with the Budget, which reveals a shortfall of Rs 1.7 lakh crore in revenue estimates, or earnings.

Rathin Roy, who first wrote about this difference, has not speculated about the reasons behind this shortfall. But some analysts, speaking on the condition of anonymity, pointed to the continuing chaos in the heart of the economy in the wake of demonetisation in 2016 as well as in the difficulties in implementing the complicated Goods and Services Tax.

Certainly, the problem has now been revealed in all its magnificent inadequacy. Meanwhile, Nirmala Sitharaman has joined Smriti Irani in protesting against Samajwadi Party leader Azam Khan’s sexist remarks against the Lok Sabha deputy speaker in Parliament Thursday.

PM Modi, on the other hand, flush with his victory over getting passed this week a slew of amendments to old bills and a variety of new bills, is rightfully celebrating India’s 20^th anniversary of the victory over Pakistan in Kargil War.

By moving out Subhash Chandra Garg, Modi has done the right thing, irrespective of whether Garg is the fall guy or not. Now, the PM must take full charge and steer the economy to safer shores.