To the Brink and Back: India’s 1991 Story (15 page)
Read To the Brink and Back: India’s 1991 Story Online
Authors: Jairam Ramesh
Government is pledged to launching a reinvigorated struggle for social and economic justice, to end poverty and unemployment and to build a modern, democratic, socially prosperous and forward-looking India. Such a society can be built if India grows as part of the world economy and not in isolation.
While Government will continue to follow the policy of self-reliance, there would be greater emphasis placed on building up our ability to pay for imports through our own foreign exchange earnings. Government is also committed to development and utilisation of indigenous capabilities in technology and manufacturing as well as its upgradation to world standards.
Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of capital markets, [and] increasing competitiveness for the benefit of the common man. The spread of industrialisation to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments.
Government will provide enhanced support to the small-scale sector so that it flourishes in an environment of economic efficiency and continuous technological upgradation.
Foreign investment and technology collaboration will be welcomed to obtain higher technology, to increase exports and expand the production base.
Government will endeavour to abolish the monopoly of any sector or any individual enterprise in any field of manufacture, except on strategic or military considerations, and open all manufacturing activity to competition.
The Government will ensure that the public sector plays its rightful role in the evolving socio-economic scenario of the country. Government will ensure that the public sector is run on business lines as envisaged in the Industrial Policy Resolution of 1956 and would continue to innovate and lead in strategic areas of national importance. In the 1950s and 1960s, the principal instrument for controlling the commanding heights of the economy was investment in the capital of key industries. Today, the State has other instruments of intervention, particularly fiscal and monetary instruments. The State also commands the bulk of the nation’s savings. Banks and financial institutions are under State control. Where State intervention is necessary, these instruments will prove more effective and decisive.
Government will fully protect the interests of labour, enhance their welfare and equip them in all respects to deal with the inevitability of technological change. Government believes that no small section of society can corner the gains of growth leaving workers to bear its pains. Labour will be made an equal partner in progress and prosperity. Workers’ participation in management will be promoted. Workers’ cooperatives will be encouraged to participate in packages designed to turn around sick companies. Intensive training, skill development and upgradation programmes will be launched.
Government will continue to visualise new horizons. The major objectives of the new industrial policy package will be to build on the gains already made, correct the distortions or weaknesses that may have crept in, maintain a sustained growth in productivity and gainful employment, and attain international competitiveness. The pursuit of these objectives will be tempered by the need to preserve the environment and ensure efficient use of available resources. All sectors of industry, whether small, medium or large, belonging to the public, private or cooperative sector, will be encouraged to grow and improve on their past performance.
Government’s policy will be continuity with change.
In pursuit of the above objectives, Government have decided to take a series of initiatives in respect of the policies relating to the following areas.
A. Industrial Licensing
B. Foreign Investment
C. Foreign Technology Agreements
D. Public Sector Policy
E.
MRTP Act
A package for the Small and Tiny Sectors of Industry is being announced separately.
What the preamble did was provide a political context to technocratic text, with the clincher being the line ‘continuity with change’ at the very end! To use Narasimha Rao’s own words (enunciated in another context), the preamble was a lesson in how to facilitate a desirable U-turn without it seeming to be a U-turn! This was my first major lesson in political packaging and marketing, and I would have numerous occasions to use this lesson on crucial occasions over the next quarter of a century in public life.
The union cabinet met again on 23 July 1991 to consider the revised cabinet note with the preamble. Most of the original sceptics who had protested on 19 July felt reassured after reading the preamble.
M.L. Fotedar, a political heavyweight, took the lead and said that had the original cabinet note come with such a preamble, there would not have been so much as a murmur. He concurred with the cabinet note, and after he had spoken, others followed suit. Thereafter, in a most unusual move, the larger union council of ministers met to give a seal of approval to what the cabinet had decided.
Narasimha Rao did not want to leave anything to chance. He convened a meeting of the
CWC at 3 p.m. at his residence. The official minutes of this meeting that lasted ninety minutes read as follows:
[…] at the permission of the Chair, Shri Manmohan Singh, Union Finance Minister, who was specially invited in the meeting apprised the
Working Committee about present financial position of the country and the Industrial Policy of the Government. After hearing
Shri Manmohan Singh, the Working Committee endorsed the Government’s industrial policy in principle and made it clear that every effort should be made to remain within the framework of the Party’s manifesto.
At this meeting, after having been warned by the prime minister that he was very much on his own, the finance minister quoted extensively from the
Congress’ 1991 Lok Sabha election manifesto.
63
Manmohan Singh read out some crucial portions that went thus:
Restoring sound management will require priority attention to fiscal policy. The massive deficit in the budgetary system has created a serious fiscal imbalance. This will have to be rectified […] The Congress will restore fiscal balance in the budgetary system by drastically reducing wasteful expenditure, rationalising non-developmental expenditure and expanding the revenue base of the Government, particularly through a leaner, more dynamic and profit-oriented public sector. […]
The Congress will tackle the problem of the present foreign exchange crisis by pursuing vigorous export promotion, effective import substitution, establishing an appropriate exchange rate mechanism and increasing productivity and efficiency in our economy. […]
The Congress will pursue a sound policy framework: encouragement of entrepreneurship, development of capital markets, simplification of the regulatory system, bringing in new technology and increasing competitiveness for the benefit of the common man. […]
Foreign investment and technology collaboration will be permitted to obtain higher technology, to increase exports and to expand the production base. […]
The Congress will endeavour to abolish the monopoly of any sector or any individual enterprise in any field of manufacture, except on strategic or military considerations and open all manufacturing activity to competition.
As
Manmohan Singh was coming out of the meeting, his senior cabinet colleague,
Arjun Singh told him: ‘Doctor Saab, you have read the manifesto more carefully than all Congressmen.’
The next day was really an anti-climax. I was imagining a big bang announcement of the industrial policy reforms, as were many others. Instead, at about 12.50 p.m. on Wednesday, 24 July 1991, about four hours before Manmohan Singh was to present his budget,
P. J. Kurien, the minister of state for industry got up in the Lok Sabha and read out a brief statement: ‘Sir, I beg to lay on the table a statement (Hindi and English versions) on Industrial Policy.’
That was it. A bland sentence to usher in a radical transformation of Indian enterprise. The occasion was made more ironic by the fact that the junior industry minister’s heart was not in the revolutionary contents of the new industrial policy. Indeed, at various points of time, he and his officials had acrimonious disagreements and the finance minister ultimately had to tell him that he had to fall in line to avoid international embarrassment.
Perhaps, this tepid introduction had been provoked by a fear of protests from sections of Indian industry. In fact, I had reason to believe that lobbying by some prominent figures of industry—nervous about foreign direct investment—had delayed the approval of the new industrial policy.
On 26 July, at the
prime minister’s bidding and, if I my say so, at my suggestion, an unprecedented event took place. Manmohan Singh,
Vijaya Bhaskara Reddy,
Rangarajan Kumaramangalam, P.J. Kurien and
P.K. Thungon (the other minister of state for industry) met the press
jointly
to explain the new industrial policy reforms package. The finance minister held centre-stage, but the presence of five ministers was meant to convey the impression that all were on board. Almost all the questions were on foreign investment, the public sector and the abolition of MRTP controls, and all of them were fielded by Manmohan Singh himself—and that too aggressively!
The most detailed
news report that appeared about this unusual event was carried in the 27 July 1991 edition of
The Hindu
and gives the full flavour of what transpired there.
Industrial Policy Not Anti-worker: Manmohan Singh
From Our Special Correspondent
New Delhi, July 26
In an unusual move, the Government today fielded five senior Central Ministers to emphasise the point to the press that the new industrial policy neither meant a go by to socialism nor would be detrimental to the interest of workers.
Denying the charge that the policy would mean a shift towards capitalism on behalf of other Ministers—Dr. Manmohan Singh, Finance, Mr. K. Vijay Bhaskar [
sic
] Reddy, Law and Justice both with cabinet rank, Mr. P.R.
Kumaramangalam, Law and Justice and Mr.
P.K. Thungon, Industry with Minister of State rank—the Minister of State for Industry Prof. P.J. Kurien asked how could socialist goal be achieved without increasing production.
The centrestage at the press conference was occupied by Dr. Manmohan Singh who said the process of industrial and economic transformation did not mean reneging on efforts in the direction of poverty alleviation, reducing income and wealth disparities, unemployment or rural-urban disparities. He said, social objectives enshrined in the Constitution would remain and quoted Pandit Nehru to say that ‘instrumentalities must be adjusted to changing circumstances’. While the effort would be to modernise without tears he said ‘we are committed to protect the worker’s interest and modernisation process would not be achieved by breaking their backs’. Besides referring the cases of sick companies to BIFR [Board for Industrial and Financial Reconstruction], the Government would also contribute Rs. 200 crores to the proposed
National Renewal Fund, he said.
Regional balance:
On ensuring regional dispersal of industries, while Prof. Kurien was trying to say that there should be no apprehension on that count as special incentives would be given to ensure it, Dr. Manmohan Singh was really blunt. He said the Government was not going back on its commitment to ensure regional balance. But the earlier policies regulating industries to go to backward areas just did not work, he remarked, citing Bihar. Bihar had lots of industries but it still remained backward. There was no point in compelling capital to move in a particular area where its contribution to the local population in terms of quality jobs was minimal. Stressing the need for a positive and promotional approach, Dr. Singh recounted the example of Eastern UP to suggest that industries set up there did not create job opportunities matching the local skill. He felt the new policy was far superior to the old approach of regulating through industrial licenses. Under the new policy it would now be possible to effect substantial expansion by existing units even if it were at a new location.
Again Dr. Manmohan Singh rescued Prof. Kurien when pointed questions on foreign investment were raised. According to him the proposed Special Empowered Board would negotiate with multinational corporations (MNCs) as they had the technology. To a query on BHEL which was languishing for lack of orders and as to whether the entry of MNCs would not hit it further, Dr. Singh said, ‘In these areas if somebody wants to come, we will discuss. But it should be understood that they (foreign investors) also wanted to make money,’ he said and asked, ‘why should they put their money here otherwise. If BHEL had no orders where will it be for these chaps.’ A correspondent told him they came in under bilateral arrangements. But Dr. Singh said in an open environment, they would have to compete. ‘It will be good for BHEL to compete and earn its living by being cost and quality efficient’.
On the entire gamut of foreign investment, Dr. Singh said three routes were open to them namely 51 per cent equity in 34 high priority industries eligible for automatic approval, 51 per cent foreign equity in trading houses and anything outside it to be approved by the Government. It was in the fourth category, though not mentioned per se in the policy, the Empowered Board would discuss with big companies abroad and consider their proposals on a case by case basis. Dr. Singh said, ‘You can’t operate the economy rigidly. It has to be transparent as there are areas about which neither of us know and it would be better to negotiate.’ There was unease among businessmen in Hong Kong about their fate once the island rejoined China. ‘Now if the MNCs want to come here, we would be willing to look at them.’
Foreign banking:
Asked about the reported violation by Pepsi, he said, ‘Let us not create unnecessary scare. India is not a small country and this excessive fear of foreigners might have been okay at the time of Independence. But in the last 40 years the country has created a new class of entrepreneurs, new confidence, new technical/managerial skill and therefore this foreign bashing is not good for the morality of Indians.’ He said, ‘Look at Singapore, it has thousands of MNCs but when the Singapore Government sometime back expelled
Wall Street Journal
and
Time
magazine, the US swallowed it. It is the lack of self-confidence which is not justified here.’
As for the rationale behind increasing FERA limit from 40 per cent to 51 per cent, he said, ‘If we are really in the game of getting foreign investment and technology, then we will have to address ourselves to the legitimate fear of foreign investors about possible leakage of technology and their consequential demand for management control. I do not see anything wrong in it.’ This fear was perhaps the reason for India not getting top technology in the past. Further, he felt the country today was in a different ball game especially in a situation where capital was scarce and a new entrant like Soviet Union [was] offering 100 per cent foreign equity.
In a significant observation, he said that though present rules did not allow 100 per cent foreign equity outside EOUs and Foreign Trade Zone, the Special Empowered Board may consider even such cases if latest technology could be brought to India in the national interest. While the Government has allowed automatic clearance for CG imports up to the value of Rs. 2 crores because of tight foreign exchange position, this limit could be raised and eventually abolished if the BoP position showed substantial improvement. Dr. Manmohan Singh said 70 per cent of the cases came under this category.
However, the most interesting part of the press conference was provided by Mr. Vijay Bhaskar [
sic
] Reddy who announced that provisions in the
MRTP Act relating to unfair/restrictive trade practices would now be extended to even the public and cooperative sector. Since existing law did not have such a provision, he was informed that he had made a policy announcement while Parliament was in session. Immediately, his deputy, Mr.
Rangarajan Kumaramangalam corrected his senior to say, ‘The MRTP Act does not cover public sector and we are examining where it can be changed without destroying the harmonious relation between consumers and the Act.’ As for the assets criterion, he said though his Ministry would now be concerned with only post-entry rather than pre-entry problems of the MRTP companies, a
legislation would be introduced to abolish chapters 3 and 3A which covered the asset limit, dominance, acquisition and mergers.
What about privatisation and disinvestment of public sector shareholdings? Dr. Manmohan Singh said, ‘Life is not a linear path and in public life the best can easily become the enemy of the good, though there may be legitimate fears.’ As regards the difference in expression used in budget speech and the industrial policy on disinvestment of public sector equity among mutual funds, financial institutions, workers and general public (stated in the industrial policy while the expression ‘general public’ was missing in budget) Dr. Singh said the Industrial Policy statement was a more authoritative text.