To the Brink and Back: India’s 1991 Story (16 page)

Subsequently on 6 August 1991, P.K. Thungon laid a thirteen-page statement on the table of the Lok Sabha titled ‘Policy Measures for Promoting and Strengthening Small, Tiny and Village Enterprises’. This was politically very important and perhaps in retrospect should have come first. In any case, this detailed statement helped provide a broader vision to the Rao government’s approach to industry.

Rakesh Mohan and I succeeded in introducing the idea of a
Limited Partnership Act to enhance the supply of risk capital to the small-scale sector. But both of us were quite disappointed that we were unable to push through our ideas on the de-reservation of items reserved for manufacture exclusively by the small-scale sector—the scope of which had expanded hugely when the Janata government was in power. Besides, what this reservation had done, as both of us had been arguing, was kill India’s chances of emerging as a global supplier of consumer goods, garments, sports goods, toys and many electrical and electronic items—all of which became areas of China’s manufacturing leadership in the 1980s and thereafter.

A few days after the announcement of the new industrial policy,
S.K. Birla, the then president of FICCI, publicly expressed his apprehensions about a red carpet being offered to welcome foreign companies. The view of large sections of Indian industry was articulated by a young
Anand Mahindra (today chairman, Mahindra Group) at a FICCI seminar in late 1991, where he argued for faster internal liberalization first and external liberalization thereafter. I recall it was the noted academic
Mrinal Datta Chaudhuri (who passed away recently) who rebutted Mahindra by saying that this distinction did not hold so clearly in practice and, in any case, when the economy needed to revive, the start-up costs associated with external liberalization were much lower. I also recall telling the dapper industrialist that he sounded very much like a young JNU (Jawaharlal Nehru University) student!
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Suresh Mathur was then the secretary in the Ministry of Industry. He had a ‘let’s get it done’ approach, and like Verma, had sharp political antennae.

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Rakesh Mohan was then economic adviser in the Ministry of Industry. He had studied the textile and small-scale industries closely and had been advocating changes in industrial policy for three years.

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Madhavsinh Solanki was external affairs minister in Narasimha Rao’s cabinet.

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Arjun Singh was human resource development minister in Narasimha Rao’s cabinet.

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M.L. Fotedar was health and family welfare minister in Narasimha Rao’s cabinet.

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B. Shankaranand was petroleum and natural gas minister in Narasimha Rao’s cabinet.

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Balram Jakhar was agriculture minister in Narasimha Rao’s cabinet.

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Rajesh Pilot was communications minister in Narasimha Rao’s cabinet.

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Actually, even its manifesto for the 1989 Lok Sabha elections committed the
Congress to bolder economic reforms of the type that got carried out in July 1991. However, because of the prevailing circumstances, the 1991 manifesto acquired emotional value as the last will and testament, as it were, of Rajiv Gandhi.

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Sometime later in mid-1993, an informal group of industrialists that included Hari Shankar Singhania, L.M. Thapar, Ashok Jain, Keshub Mahindra, S.K. Birla and Rahul Bajaj met at the Belvedere Club at the Oberoi Hotel in Bombay (as it was called then). The group for which Rahul Bajaj emerged as the sole spokesperson welcomed industrial liberalization but voiced concerns regarding welcoming foreign investment and import duty cuts. The phrase made popular by this group—which has earned a place for itself in history as the ‘Bombay Club’—was ‘level playing field’, which came to be seen as a euphemism for protection from foreign competition. The club actually met only once formally and submitted a five-page memorandum to the finance minister.

r Manmohan Singh had directly helped prepare seven budgets in the 1970s. But the
24 July 1991 budget would be the first that he would not only conceive and write (most of it at least), but also actually present. While in India’s history, the May 1957 budget—bearing in some ways the imprint of one of Manmohan Singh’s teachers,
Nicholas Kaldor, and presented by
T.T. Krishnamachari;
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and the March 1985 budget—bearing the imprint of Rajiv Gandhi and presented by
V.P. Singh
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—have been heralded as milestones, the 1991 budget must rank among the most historic of all.

Normally, budgets are written by the mandarins and then touched up by the finance minister. Unfortunately, in July 1991, the two key officials in the Finance Ministry were not exactly on the same wavelength as the finance minister. Both the finance secretary,
S.P. Shukla and the chief economic adviser,
Deepak Nayyar, had been opposed to the IMF route and were not the most ardent champions of liberalization. Shukla had been appointed by
Chandra Shekhar at the behest of his finance minister,
Yashwant Sinha, while Nayyar had been brought in by
V.P. Singh when he was prime minister. Both were extremely diligent and meticulous. Both had fine reputations. But it was a fact that they did not see eye-to-eye with the prime minister’s principal secretary and with the finance minister himself.

As it happened, Manmohan Singh turned to one of India’s most versatile economists,
Ashok Desai, to replace Nayyar. But Desai could join the Finance Ministry only in December 1991, although he had been offered the assignment in June 1991 itself. For bureaucratic reasons, he was designated chief economic consultant—and not chief economic adviser, as Nayyar had been (and before him Manmohan Singh himself, between 1971 and 1974). As Desai himself quipped to me, ‘I stepped into Deepak’s room but not into his shoes.’

I could see that Manmohan Singh was distinctly uncomfortable with this pair, but he was always proper, dignified and correct in his dealings with them—as they were with him. It was an extraordinary situation—the entire reforms programme was conceived and executed without the full and active participation of the finance secretary and the chief economic adviser. As for myself, like the finance minister, I had excellent personal relations with both these gentlemen but knew that they were not entirely supportive of what we had embarked upon. They, along with the foreign secretary,
Muchkund Dubey, shared greater intellectual sympathy with the statement of the thirty-five economists than with the note issued by the quartet.
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Thus, the
24 July 1991 budget must be said to bear the personal imprimatur of the finance minister himself. Manmohan Singh delivered a deeply moving speech. Its contents, of course, marked a huge paradigm shift in economic thinking and charted out a course for the country that has remained steady for almost a quarter of a century. It also revealed a hidden side of the always serious-looking finance minister’s personality—his fondness for Muhammad Iqbal’s Urdu poetry.

Singh ended his
budget speech by saying:

I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, ‘No power on earth can stop an idea whose time has come.’ I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome. With these words, I commend the budget to this august House.

I recall
Bimal Jalan
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flashing the thumbs up signal to me in the Officials Gallery after Manmohan Singh had finished his speech.

The 24 July 1991 budget was, without doubt, unusual. What happened the next day was even more unusual. Normally, officials of the finance ministry have a detailed press meet a day after the budget is presented. But on 25 July 1991, the finance minister himself made an unscheduled appearance at the press conference to ensure that the message of his budget did not get distorted by less-than-enthusiastic officials. The prime minister was happy that the finance minister had done so.

The finance minister explained his budget—calling it ‘a budget with a human face’. He painstakingly defended the proposals to increase fertilizer,
petrol and LPG prices. He also announced that with the full budget having been presented, the government would seek another emergency IMF
loan, in addition to the US$220 million it had received on 22 July. In the context of today’s concerns, it is worthwhile to recall that on 25 July 1991, the finance minister spoke extensively on the anti-black money scheme introduced in his budget.

The budget met with its predictable quota of bouquets and brickbats. The prime minister’s friend,
Nikhil Chakravartty—who had tried hard to dissuade him from taking the IMF route in early-June—wrote in his column in
Mainstream
on 10 August 1991:

Dr. Singh had begun with fairly plausible credentials. As the Secretary-General of the South Commission he was known to be trying to sensitise world opinion about the fearsome dimension of Third World debt, about the expediency of the Uruguay Round in tackling world trade imbalance and the negative character of the IMF with its conditionalities. Ironically enough, the very week that saw Dr. Manmohan Singh present his Budget—preceded by the announcement of the new industrial policy—that very week found Julius Nyerere, the head of the South Commission in New Delhi, on his way back from Beijing.
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One wondered if the Chairman of the South Commission could convince himself with equal felicity about the line of consistency between the Commission’s views and Dr. Singh’s prescriptions for our country’s economic ailment.

Along with such censure from a few influential and respected personalities, what was also immediately apparent was the extreme unease within the
Congress, especially about the
subsidy cut proposals. The prime minister asked me to gauge the sentiment amongst the MPs. I spent time in the Central Hall of Parliament talking to various Congressmen and came to the conclusion that we had a mini-revolt on our hands. It was a double whammy. Many MPs were apprehensive about the ‘bonfire we had made of industrial controls’ (a phrase that had been used earlier by both
I.G. Patel and
Jagdish Bhagwati), and on top of that, urea prices had increased by a whopping 40 per cent—the first time this was happening in a decade. While the increase in
petrol and LPG prices was also under attack, it was the increase in fertilizer prices that was the particular target of the ire of a wide cross-section of
Congress MPs.

I am sure the prime minister had got similar feedback from his floor managers, the most prominent of whom were
Ghulam Nabi Azad,
V. Narayanasamy
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and
Rangarajan Kumaramangalam.
Rao looked grim when I reported my findings to him on the mood of
Congress MPs. His only comment to me was, ‘You people must learn to function in a political system.’ He went on to add, ‘Manmohan should have been more careful’—forgetting that as prime minister he had listened to and approved of the budget being read out to him by his finance minister before it was presented.