To the Brink and Back: India’s 1991 Story (9 page)

What might
Rajiv Gandhi have done vis-à-vis gold? The Congress was vocally critical, no doubt, but what is to be made of this oral recollection by
S. Venkitaramanan, while taking part in a symposium organized by the
Rajiv Gandhi Foundation in November 1994, two years after he had retired as the governor of the RBI? He recalled thus:

I was Governor of the Reserve Bank and we had this severe crisis. I had the permission of Chandra Shekhar to interact with him [Rajiv Gandhi]. I had gone to him and said: ‘Sir, it worries me that we should have this country going through tremendous crisis of foreign exchange and we have three billion dollars’ worth of gold in our reserves. I want to use it. I know that your party colleagues are against it and publicly you have expressed, your party has expressed this view.’ He [Rajiv Gandhi] said: ‘It is nonsense. How can you allow this country to go through with this situation without using the gold you have? If you want, I will come out and say [it].’
⁴²

Alas, that never came to pass.

³⁹
The law specifically states: ‘Of the gold coin and gold bullion held as assets, not less than seventeen-twentieths shall be held in [India].’

⁴⁰
Statement of Finance Minister Dr Manmohan Singh on gold transactions, Lok Sabha, 18:00 hours, 18 July 1991.

⁴¹
Under various borrowing windows of the IMF, India took US$660 million during July-September 1990 and US$1.8 billion in January 1991. India was to later borrow US$221 million in July 1991, US$639 million in September 1991, US$117 million in November 1991, US$265 million in January 1992 and US$650 million in February- March 1992. This demonstrates vividly how precarious the economic situation was and how dependent we had become on the IMF for balance-of-payments financing well after the reforms blitz of July 1991.

⁴²
See
Rajiv Gandhi’s India
, Volume 2, volume editor V. Ramachandran (New Delhi: UBS Publishers, 1994).

n June-July 1991, one issue kept nagging the prime minister—that of
debt rescheduling. It was obvious that some political leaders and their economist-friends had got to him. Thus, one of his early queries to me was: ‘Why can’t we renegotiate our
loans like we had done in the 1960s?’ It is not that he was suggesting a default or anything close—but certainly, the matter bothered him.

My response was that the two situations were not comparable. In the 1960s all our debt was to multilateral institutions like the World Bank and to bilateral aid agencies. It was certainly true that the Aid-India Consortium,
⁴³
as it was then called, had renegotiated India’s
debt obligations. But the situation in 1991 was totally different. This was short-term debt and debt owed to commercial institutions. This was more like the Latin American situation and I told the prime minister as much. I allowed myself a rare moment of levity in one of these meetings when I repeated the well-known line to him: ‘Sir, it is true that when you owe somebody 500 dollars, you should be worried; but when you owe somebody 5 billion dollars,
he
should be worried.’ The prime minister was not amused. Therefore, on a more serious note, I reminded him that his finance minister had been crying himself hoarse that India would not default and there should be no ambiguity on this matter.

I had never known the finance minister to be aggressive. His style was measured and calibrated. But on this subject, I found him unusually strident—and rightly so. There were far too many voices raising the issue of debt rescheduling. On 23 June, just a day after assuming office in the North Block, the finance minister, while speaking to the United News of India, had categorically stated that there would be no default on repayment. He had said that India had a reputation for ‘financially sound behaviour’ and went on to add that ‘we will build on that and do whatever is necessary to maintain the country’s credit-worthiness and honour all our commitments’.

The matter got raised in the Rajya Sabha again during question hour on 16 July
1991, as the following exchange will reveal:

Shri Sukomal Sen (West Bengal; CPM): […] Sir, the question is, India is heavily indebted, true. Not only India but many other third world countries are also heavily indebted to the IMF or other commercial banks and they have the same problem. Now, if the Government of India wants to review the situation in a broader perspective, I would like to know from the hon. Minister whether instead of sending out gold immediately and going to the IMF, the Government unitedly with other third world countries would demand a moratorium on all foreign debts for the next few years so that India and other third world countries can tide over this crisis.

Dr. Manmohan Singh: Mr Chairman, Sir, that is a different question. I have stated categorically.

Mr. Chairman: He wants to know whether India will try for a moratorium in cooperation with other countries in a similar situation.

Dr. Manmohan Singh: The Prime Minister has stated it categorically and I have stated it categorically that we are honour-bound and duty-bound to honour all our commitments. About what happens in collective forums of the third world, I think, we will consult all other countries. We have been doing so before and we will continue to do so hereafter. But let nobody get any impression that this country is out to renege on its international obligations. That will be a sad day for India and we will avoid it under all conditions.

I thought the idea of debt rescheduling had died in the prime minister’s mind because of the tough stand taken by the finance minister. But I was to discover later that it may have still lingered there. On 20 September 1992, I attended a lecture by Dr
I.G. Patel in memory of
Govind Ballabh Pant in New Delhi titled ‘Freedom from Foreign Debt’. The prime minister must have received a garbled version from some of those present, for the next morning I received a call from him. He asked, ‘Jairam, has IG [as Patel was often referred to] called for debt rescheduling?’ Fortunately, I had the circulated text of the lecture handy and read out the paragraph that had set the prime minister thinking. Patel had said:

On a more general plane, there is no reason why we should seek a reduction in our official debt by negotiation. If debts to much richer countries like Poland and Egypt could be written off, there is no reason why we should be singled out for martyrdom simply because we have honoured all our obligations so far.

I encouraged the prime minister to read the full lecture, and sent it across to him. That was the last I heard of it.

⁴³
The Aid-India Consortium, led by the World Bank, was organized in 1958 as an international network to support the economic development of India.

n 1 July 1991, four of the country’s most distinguished economists-cum-economic administrators issued a joint statement supporting what Manmohan Singh had set out to do. The finance minister himself gently nudged P.N. Dhar (or
PND, as he was often called) to take the lead, assemble the influential quartet, and, as a united force, support bold liberalization. Manmohan Singh had worked with PND in the 1970s when the latter was secretary to Indira Gandhi and Singh was chief economic adviser in the Ministry of Finance.
⁴⁴

Apart from PND, the other three names suggested themselves.
I.G. Patel had held senior positions in the Government of India and had, as we know, been governor of the RBI between 1977 and 1982 and later served as the director of the London School of Economics.
M. Narasimham, a grandson of
S. Radhakrishnan, had a distinguished career in the RBI, the World Bank, the
IMF, the ADB and the Ministry of Finance.
R.N. Malhotra was an IAS officer who had specialized in economic management and had been at the helm of affairs in the RBI between 1985 and 1990. The four were very close professionally and personally, not only amongst themselves but also with the finance minister. The prime minister knew of M. Narasimham and had great respect for IG, having considered him briefly for the post of finance minister.

I had some idea that a joint statement from these four gentlemen was in the works. The noted journalist and former MP,
R.K. Mishra, then chairman of the
Observer Research Foundation (ORF), had told me about it and I had then alerted the prime minister. ORF had, in fact, organized the release of the joint statement on 1 July at the Parliament House Annexe with both the finance and commerce ministers present, along with P.N. Dhar. Another such function took place on 5 July. When the statement finally came out, it received wide media coverage because of the impeccable credentials and reputation of the signatories. I called up the two I knew well—
PND and
Narasimham—and conveyed to them the prime minister’s deep appreciation for their statement. Besides, I knew that
PND was close to senior Congress leaders and felt that the statement would be read by these leaders with great interest and seriousness (Annexure 5).

After a couple of days the statement was forgotten, but suddenly it hit the headlines again. In our enthusiasm to give the statement the widest possible circulation, I think I suggested to the finance minister that perhaps we could send it to all MPs. The finance minister liked the idea and so did the prime minister. But instead of sending the statement to the MPs under a separate cover, we allowed ourselves to have it sent to the MPs along with the usual papers that get distributed to them by the Lok Sabha and Rajya Sabha Secretariat.

On 11 July 1991, as soon as its session commenced, all hell broke loose in the Rajya Sabha as the following extract from the proceedings will reveal:

Shri Dipen Ghosh (West Bengal; CPM): Sir, I have addressed a letter to you. Two days ago among the parliamentary papers package there was one statement purported to have been signed by Mr.
I.G. Patel, Mr. Narasimham,
Mr. Malhotra and [one] other economist. (
Interruptions
)

Mr. Chairman: I have received your letter. (
Interruptions
)

Shri Dipen Ghosh: Why [is] this statement being circulated among other papers? They are neither ministers nor Members of Parliament. How can this paper be circulated? (
Interruptions
)