The second Mrs G

Sonia Gandhi will have grabbed a few more headlines than she would have liked with her speech at the Hindustan Times summit on Friday. Speaking of India’s resilience in the face of crisis, she mentioned Indira Gandhi’s “much reviled nationalisation of banks” in 1969; describing it as a sign of “prudence”, she went on to say that “public sector financial institutions have given the economy the stability and the resilience we are now witnessing in the face of the economic slowdown.” This claim is a truly worrying perversion of history, and not one that should be allowed to pass into the record unchallenged.

There are many, many ways in which that statement is wrong. Here is one: the public sector banks aren’t really providing the resilience in question. Non-performing assets — bad debts — will obviously be systemically higher at banks which have lending priorities dictated by the government rather than by the market: NPAs are, of course, a prime source of financial contagion and instability. Here’s another: any institution, whether state-owned or not, could provide stability if backed by government policy at a time of crisis, so that state-backed institutions in our case have been state-owned for decades is really quite irrelevant. Here’s a third: the “stability and resilience” being praised is the flip side of just not being grown-up enough, of not having a real financial sector that could keep our economy growing.

And, above all, there is this extraordinary leap of logic: that a decision universally decried as particularly harmful to the Indian economy, one which is believed to have retarded investment and thus growth for 40 years, should be considered prudent — for supposedly slightly moderating a crisis 40 years after it came into force. This is incomprehensible economics, and puzzling politics. The Congress — especially through Prime Minister Manmohan Singh — has, after all, tried to place itself politically as both the technocratic and human face of post-1991 reform. Why wake up the worst beasts of ’70s populism? Let us hope that the reference was nothing more than a particularly egregious error of judgment in choosing an example; because the alternative — that it represents the beginnings of a disastrous shift in values — is completely unacceptable. Gandhi said elsewhere in her speech that there is “no need” to return to the era of state control: there is less than “no need”, it would be calamitous if India even began to try. This is no time for mixed, statist, messages: don’t you know there’s a crisis on?