Looking back at Yashwant Sinha, the finance minister
Yashwant Sinha is back in the news. The former finance and external affairs minister, who served as a senior leader of the Bharatiya Janata Party (BJP), has turned increasingly critical of the central government — and over the weekend, he formally joined the Trinamool Congress weeks before the election in West Bengal.
While it is Sinha’s politics that has been in focus, it was his role in government that had catapulted the former Indian Administrative Service officer turned politician into prominence.
The Chandra Shekhar years
Sinha was expecting to become the external affairs minister when the Chandra Shekhar government was formed in November 1990. But Chandra Shekhar tasked him to handle the finance portfolio, ostensibly to manage an impending economic disaster, which would manifest as the Balance of Payment (BoP) crisis.
The short-lived Chandra Shekhar government was acting in the capacity of a caretaker. Sinha describes, in his book, Confessions of a Swadeshi Reformer: My Years as a Finance Minister, how a senior finance ministry official visited him in Patna during his election campaign for the Lok Sabha seat. The official wanted his signature to mortgage gold to secure a loan of some $400 million from the Bank of England and avert the BoP crisis. India was left with limited foreign exchange reserve barely enough pay for two weeks’ imports. Sinha had approved the move, even as it was a legacy issue that did not develop overnight. That day, he made a promise to overhaul the fundamentals of the economy if he would get a chance. Seven year later, he got the opportunity when he was made the finance minister in the Vajpayee government.
It was not that Sinha had left the issue unattended during his short stint as the finance minister (1990-91). When he assumed the office, total foreign exchange reserve had dropped to ₹3,142 crore, sufficient only to finance imports for one month, he recollects in his book. He adopted a two pronged strategy—to secure a loan from the International Monetary Fund (IMF) and to prepare a “path-breaking” budget to mobilise revenue. While the first task was accomplished, the second could not take place as the Chandra Shekhar government could not present its full budget. Even as Sinha claims he was drafting the first reformist Union budget of the country ahead of Manmohan Singh’s reforms, the Congress withdrew its support from the government in early March 1991.
Sinha, in his first budget, which was not a full budget, diagnosed the disease for the successive finance ministers: “The room for manoeuvre, to live on borrowed money or time, has been used up completely. The soft options have been exhausted,” he said in his interim budget speech presented on March 4, 1991. As FM, Sinha’s focus at that time was to mobilise additional revenue, improve tax compliance, expenditure control and fiscal consolidation.
He told the Parliament about the need for a “fiscal correction” in a medium term perspective. “We are engaged in the formulation of a comprehensive approach which would provide a satisfactory and sustainable solution to these problems. This needs time. I would, therefore, plead with the House to wait until the regular Budget for 1991-92 is presented in May 1991,” he had said on March 4, 1991. But, the task was cut for the next finance minister Manmohan Singh, who took over in June 1991.
The Vajpayee years
But Sinha did not lose the opportunity completely. His time came in March 1998, when the Vajpayee made him the Union finance minister.
Presenting a budget on June 1, 1998, Sinha laid contours of what can be seen as an attempt to address the economic impulses for self-reliance. “This budget is rooted in Swadeshi which will be unfolded as we go along. But I shall hasten to add that Swadeshi does not mean isolation, Swadeshi means making India strong and self-reliant so that we can compete with the world and win,” Sinha had said that day. Three key objectives of his 1998 budget included ensuring macroeconomic stability, attracting investments and freeing productive energies of the people from unnecessary bureaucratic hurdles, or the ease of compliance.
Based on these principles Sinha subsequently presented four more budgets in the Parliament — on February 27, 1999, February 29, 2000, February 28, 2001 and February 28, 2002 — before he was moved to the external affairs ministry in mid-2002. During these years, Sinha introduced some significant reforms that strengthened the Indian economy. He lowered real interest rates, introduced tax deduction for mortgage interest, helped boost highways development and deregulated telecom and petroleum sectors.
The infra and housing thrust
Sinha’s first budget in the Vajpayee government, focused on infrastructure development to boost growth, with a 35% increase in allocations. The budget set a target to construct two million additional houses and provided tax incentives to promote housing construction that included 100% tax deduction for first five years, reintroduction of tax deduction for rents paid and exemption from wealth-tax for commercial complexes.
“The National Agenda, identifies housing as a priority area. We will move purposefully to tackle the country’s enormous housing shortage problem through partnership between government, housing finance institutions and the private sector,” he said in his budget speech on June 1, 1998. That year, the budget also put private investment as one of the key growth drivers—removing some of the burdens of the Inspector Raj, doubling foreign direct investment (FDI) inflow in two years and providing for a 90-day, time bound approval to high value FDI proposals.
Sinha also had to brace for economic impact of India’s nuclear tests at the Pokhran range in Rajasthan desert on May 11 and May 13, 1998. “In India, we had to contend with the additional challenge of economic sanctions imposed on us after the Pokhran nuclear tests. While we have not remained unaffected by these developments, we have reasons to be satisfied at the way we have withstood the impact of these challenges. Despite the hostile economic environment, our GDP growth in 1998-99 has accelerated to 5.8% compared to 5% last year,” he told Parliament while delivering the budget speech on February 27, 1999.
He accelerated the pace of economic reforms in the 2000-01 budget with key policy measures such as strengthening the rural economy, nurturing knowledge-based industries (infotech, biotechnology and pharmaceuticals), modernising traditional industries (textiles, leather, agro processing and small scale industries), focusing on infrastructure developments, and establishing a credible framework of fiscal discipline. “With this, my third budget, I propose to put India on a sustained, equitable and job-creating growth path of 7 to 8% per year in order to banish the scourge of poverty from our land within a decade,” he said in his budget speech on February 29, 2000.
His next budget (2001-02) brought some structural change, most notable of them was fuel price decontrol, also known as dismantling of the Administered Pricing Mechanism (APM). “In order to accelerate growth in the Indian economy, we have now to address some of the difficult areas of reform that have not been tackled so far,” he said on February 28, 2001. “A time bound action programme is being prepared for the deregulation of APM by March, 2002. My colleague the Minister of Petroleum and Natural Gas will be outlining the road map for this separately,” he said in his budget speech. The budget laid out a comprehensive agenda of the second generation economic reforms and deepened tax reforms aimed at providing a modern tax regime.
One of Sinha’s major achievements was the introduction of the Fiscal Responsibility and Budget Management Bill in the Parliament in December 2000. “Putting our fiscal house in order must remain our highest priority. We have to make every effort to contain non-productive expenditure and make substantive improvements in our tax machinery so that revenue collections show higher buoyancy in coming years,” he said in his last budget speech on February 28, 2002.