Friday, September 28, 2012

Insight: How Sonia Gandhi was persuaded 
to back India reforms

Wed, Sep 26 2012
By Satarupa Bhattacharjya and John Chalmers

NEW DELHI (Reuters) - It had been a brutal August for India's Congress
party: economic growth was wilting, the monsoon rains were failing and the
opposition had it cornered on yet another corruption scandal.

In stepped Sonia Gandhi to revive the morale of the ruling party's
lawmakers, exhorting them at a meeting to "stand up and fight, fight with a
sense of purpose and fight aggressively". It was a stunningly assertive
speech from the normally temperate matriarch of a dynasty that has ruled
India for most of its post-independence era.

And yet few at the gathering were aware that just a week earlier she had
performed an even more dramatic about-face, agreeing to a raft of economic
reforms that would be unveiled on September 13 and 14.

Gandhi has no official government post, but as Congress party president and
torchbearer of India's widely revered first family, she has the last word
on big policy issues: and for her, social welfare has always come before
liberalizing the economy.

However, more than a dozen officials and party leaders close to the
secretive inner circle of the Italian-born leader told Reuters that Gandhi
was persuaded of the need for urgent action to avert a repeat of the crisis
that took India to the brink of bankruptcy in 1991.

"This time there was a very grim scenario," said Rashid Kidwai, a Sonia
Gandhi biographer who was given an account of the arguments made over weeks
by Prime Minister Manmohan Singh and his new finance minister behind the
closed doors of colonial-era government bungalows in New Delhi and even on
a plane journey.

"It's not that she wanted to go for all this, but it was made very clear to
her that, if she didn't, there would be far more dire consequences," Kidwai

Sources said the trigger for the reform campaign in Asia's third-largest
economy came with the return of P. Chidambaram as finance minister on
August 1.

An eloquent Harvard-educated technocrat with a track record as a reformer,
he replaced Pranab Mukherjee, a left-of-centre Congress stalwart who had
consistently warned Gandhi against radical reforms that could cost the
party votes.

"Pranab was from the old school of Indian politics," said a senior
government official, who spoke on condition of anonymity. "The prime
minister and the finance minister had to persuade Mrs. Gandhi that good
economics was good politics."

Her acquiescence in the end led to this month's "big bang Friday" when, a
day after taking an axe to costly subsidies on diesel, the government
announced that the retail market would be opened to foreign supermarket
chains and the bar on foreign investment in both airlines and broadcasters
would be lifted.

In sum, these were the most sweeping reforms since Singh took office in
2004 and - in the space of 48 hours - they dispelled the image of a prime
minister who was losing his mojo as India's high-trajectory growth faltered.


However, insiders say Gandhi remains instinctively wary of economic
liberalization and trimming the budget deficit. For months, she had held
out against cutting fuel subsidies that are aimed at the poor and the
country's rural majority, fearing the impact on the Congress party's

She only agreed when Singh and Chidambaram spelled out that new growth
generated by reforms and improved investor sentiment would have a
trickle-down effect and provide funds for welfare spending in time for
elections due by mid-2014.

"They explained to Mrs. Gandhi that social benefits for the poor will need
deep pockets," said a Congress party source who declined to be named
because the discussions were confidential.

Reuters reviewed more than 30 letters written by Gandhi to the prime
minister and U.S. diplomatic cables released by WikiLeaks that portray her
as passionate about social issues, and attached to protecting the poor.

That means the sudden burst of reforms could be cut short if Gandhi - who
Forbes magazine ranks as the world's sixth most powerful woman - sees no
benefits for the rural poor on whom her party relies for votes.

Indeed, party sources said she will now focus on passing a bill on
universal food security in December, a populist plan that would cost
billions of dollars at a time when her government is under intense pressure
to rein in spending.

"She just wants enough budgetary resources available to finance her welfare
schemes," said Swapan Dasgupta, a prominent journalist and commentator who
leans towards the opposition.

"She has never spoken about reforms. What she has done is make Congress
think of reforms as a low priority and a political liability - she has
ingrained that mindset in the party."

A request to interview Gandhi was declined.


Sonia Gandhi, 65, carries the authority of a political family that, after
India won independence from Britain in 1947, drove a vision of democratic
socialism to uplift the vast rural masses. With that came a mind-boggling
range of controls that tied the economy down and kept it closed to global

A turning point came in 1991 when a slump in exports following the collapse
of the Soviet Union and a leap in oil import costs due to the Gulf War
tipped the country into a balance of payments crisis.

Manmohan Singh, then finance minister, responded with shock treatment,
devaluing the rupee by nearly 19 percent. So determined was he to push this
through, when the prime minister of the day got cold feet, he reportedly
blamed the infamous inefficiency of India's telephone system to pretend
that he couldn't contact the central bank in time.

His moves to prise open the economy set the stage for a long run of
dazzling growth that peaked at 9.7 percent in 2006/07.

Although Gandhi appointed Singh as prime minister when the Congress party
returned to power eight years ago, she has a far more socialist mindset
than the Oxford-educated economist who drove that first round of reforms

Sources close to the Gandhi family say she has been strongly influenced by
her late mother-in-law, former prime minister Indira Gandhi, whose policies
were considerably left of centre.

Sonia Gandhi initially declined the throne of the Congress party after the
1991 assassination of her husband and former prime minister, Rajiv, but she
finally agreed to enter politics six years later to lift the flagging
fortunes of the party under her family's brand name.

As party president and chairperson of the ruling coalition, she has kept a
low and almost enigmatic profile, appearing to stand above the political
fray. When she went abroad for surgery last year there was no official word
on her illness, and the media tamely accorded her the privacy a royal might

But Gandhi wields extraordinary power behind the scenes, shaping policy out
of the public eye with a tight circle of decision-makers and relying on
back-channel negotiations to manage relations with fractious coalition

Ratings agency Standard & Poor's, warning earlier this year that India
could become the first of the emerging market BRICS economies to lose its
investment-grade rating, took a swipe at her resistance to policies mooted
by Singh.

"The Congress party is divided on economic policies. There is substantial
opposition within the party to any serious liberalization of the economy,"
S&P said.

"Moreover, paramount political power rests with the leader of the Congress
party, Sonia Gandhi, who holds no cabinet position, while the government is
led by an unelected prime minister ... who lacks a political base of his


Gandhi gives little away about her thinking on economic policy, but
dispatches from the U.S. embassy in New Delhi during the early years of
Singh's tenure show she made "repeated objections" to proposed hikes in
fuel prices, which are heavily subsidized to cushion the poor.

"Key leaders (including Sonia Gandhi) have opposed the price hikes,
criticized the way they have been handled, or urged Congress to capitulate
to ... demands for a 'rollback', and the party is finding it difficult to
speak with one voice," one of the cables said.

Describing a leader who projects herself as a benevolent matriarch, the
dispatches were scathing about one of her pet projects, a scheme
guaranteeing 100 days of paid employment per year for rural citizens. "At
worst, the jobs plan is political patronage run amok and horrid economic
policy," one said.

Gandhi also set up the National Advisory Council, a government-funded think
tank that offers legislative guidance on social policy and the rights of
disadvantaged groups.

A batch of letters Gandhi wrote as chairperson of the council, which were
recently released under the Right to Information Act, illustrate where her
priorities lie.

Writing to the prime minister and several ministers, she drew their
attention to issues such as legal entitlement to subsidized food grains,
child labor, housing for the poor and "indiscriminate acquisition" of
agricultural land for private companies. In one letter, she closed by
urging a minister: "You may like to have the matter examined appropriately".


How was Gandhi persuaded that, as one government official put it, "if you
are not growing you are distributing poverty"?

For one thing, the economy was in trouble. Growth had dropped to its lowest
clip in three years, the fiscal deficit was blowing past official targets,
and the government was under heavy fire for sitting on its hands as the
crisis mounted.

With Mukherjee gone from the Finance Ministry, Singh and Chidambaram made
their move, warning Gandhi of a possible slump in the rupee and even a
repeat of 1991, sources said.

"There were three meetings over about four weeks ... to tell her that if we
don't do all this it will be bad politics," said the senior government

Singh also tackled Gandhi at length on the issue in July during a flight
from Delhi to the northeastern state of Assam.

Adding his voice at a separate meeting, Commerce Minister Anand Sharma
explained to Gandhi that opening up to global supermarkets like Wal-Mart
Stores Inc could tame the corruption that plagues the state-run food
distribution network - a compelling argument after two years of graft
scandals that have damaged her government.

When Gandhi returned in September from a medical check-up abroad, the stage
was set for 'big bang Friday'.

And although the reforms triggered the walkout of a key coalition partner
from the government, reducing it to a minority, she has resisted calls for
a U-turn and even plans to join a street march in favor of the retail
sector reform.

Gandhi's ambition in all this is to ensure that the Congress party returns
to power in 2014, with her son - Rahul - at the helm of the government
after eight years waiting in the wings.

"What she is concentrating on is really the need to be re-elected," said M.J. Akbar, a former Congress party lawmaker and once a trusted Gandhi family insider. "
The only thing wrong about this reforms business though 
is... they left it too close to the election."

No comments:

Post a Comment