India - Manmohan Singh's masterstroke

A K Bhattacharya

Leaders of India Inc behaved precisely the way they would do in any difficult situation. Once they realised that the global financial crisis was certain to impact the Indian economy and their businesses, they stepped up their campaign to have a meeting with Prime Minister Manmohan Singh and presumably seek assurances of policy support and even bail-out packages.

Not surprisingly, Dr Singh did not appear too keen on a meeting with industry leaders. Why should he easily agree to a meeting where he is likely to be judged by his response to a wish-list that industry presents to him? A negative response might further damage the overall mood. And a positive response might incur the Left charge that he has caved in under pressure from industry leaders. Indeed, initial suggestions for a meeting between top industrialists and the PM were rejected outright. Subsequently, there were reports that a meeting of the Prime Minister’s Council on Trade and Industry had been tentatively scheduled. But even that could not be held.

So, when the PM agreed to a meeting with top industry representatives last Monday, the subject of speculation was what assurances and promises India Inc. would manage to extract from the government. In the end, the prime minister proved to be a champion player. He did make the usual noises about the impact of the global crisis on the Indian economy. He also soothed industry’s frayed nerves by assuring it that the government had already responded to the crisis promptly and all steps would be taken to not let the situation go out of control. But barring the formation of a committee to resolve issues arising out of the crisis, there was no specific commitment from him on what the government’s package of measures would be.

Instead, the prime minister obtained a significant promise from India Inc. In his opening address, Dr Singh urged Indian industry leaders to refrain from laying off employees in large numbers. India Inc had no option, but to assure the prime minister that there would be no large-scale lay-offs at least in the next couple of quarters. Industry leaders were perhaps unprepared for such an advice from the prime minister. Once the advice came, they had no option other than agreeing to the suggestion.

Look at it any way you wish, this was a masterstroke from Manmohan Singh. Yes, the meeting had an economic agenda. Indian industry needed to be told that the government would support it with further policy measures if things went wrong. There was a need for such a confidence building measure. But the surprise, even for industry leaders, was that the prime minister had a political agenda as well. That agenda was to minimise the adverse impact of an economic downturn on Congress’s poll prospects.

With half a dozen assembly elections to be held in November-December 2008 and a general election in 2009, the prime minister is not just worried about inflation but also the prospects of large-scale retrenchment in industry and the services sector in the wake of the global financial crisis. The inflation rate has already begun showing signs of deceleration. That must be a relief, but the recent decision by Jet Airways to retrench 1900 employees had made ruling party politicians sit up and wonder if they too would have to pay an electoral price for the impact of an economic downturn on the job market. If Jet Airways did not finally implement its lay-off decision, it was also because the ruling party politicians played a significant role in influencing that reversal.

But if a few more companies like Jet Airways decide to cut jobs, which is not unlikely in the current economic situation, the electoral prospects of the Congress-led United Progressive Alliance (UPA) in the assembly as well as general elections are bound to suffer. This is the thought that must have bothered Manmohan Singh before he agreed to the meeting with industry leaders. What then could be a better opportunity to extract a promise from industry leaders on a moratorium on retrenchment for a few months at least!

Manmohan Singh’s gains from Monday’s meeting with industry leaders are many. He has done what the prime minister of the country should have done in such a grave economic situation. He has assured industry of all necessary steps to revive the economy and raised its confidence level. He has also obtained industry’s promise on a freeze on retrenchment for at least the next two quarters. This would be his gift to Congress president Sonia Gandhi before the party goes for elections. With inflation under control and no fear of large-scale retrenchment, the Congress election campaigners may feel a little more emboldened before the polls.

But what did India Inc gain from its meeting with the prime minister?