India’s 30-year journey on the reform highway has been an impressive haul. Though the potholes and gutters on the highway slowed the progress, India is now moving faster, whatever may be the counter-argument.
In Indian history, no government did so much for the economic changes as the Narasimha Rao government and the Vajpayee government did. The interim period between these two governments was an era of peacetime disaster. There were two governments between the era of Rajiv Gandhi and P V Narasimha Rao. Both the governments were also disasters for the country. These two interim periods between three strong governments pulled India many decades back. That showed how political instability could make the national economy worse.
The fight for power and position overrode economic interests. None had a vision and firm plan in hand to change India economically. We were busy boasting about democracy and pluralism. We were also busy praising our leaders even if they did not do anything for India’s sustainable economic growth. It took 40 years after the independence for the country to begin to talk about investments, the need of making the public sector productive, import alternatives, exporting, return from investments etc. In three decades, despite a brief period of political instability, India has come a long way. The growth would have been faster had the 10 years of Dr Manmohan Singh under coalition been mentored by someone like Narasimha Rao.
The 30 years of reform coincides with the centenary year of one of India’s most powerful Prime Ministers, who ruled the country a full term without a majority in the house. The era of reform also saw India’s biggest financial scandal worth ₹ 50 billion and the boldest financial reform step led by a non-politician. The stock market scandal rocked the entire Indian financial system. The scam accused Harshad Mehta even alleged Prime Minister Narasimha Rao of taking a bribe of ₹ 1 crore in cash. The allegation did not rock the Rao government. Be it financial market scandal or telecom circle auctioning scandal, allegations never stopped. Yet, Rao did not stop. He had full faith in his finance minister, Dr Manmohan Singh. Without any political agenda and vested interest in politics, he went ahead with his plans riding on the liberty that Prime Minister Narasimha Rao assured him. Narasimha Rao rarely had equals in Indian politics. Dr Singh could do what many stalwarts who occupied his place over four decades could not do. Good economics is bad politics.
Rajiv Gandhi as a young leader with dreams of modern India tried to do so many things but ended up messy because of the corruption, the biggest until then. The Bofors scandal had beaten his government badly. There were other controversies, which incidentally remained at the corporate level. The Ambani-Wadia row also had political links and affiliations. Several clever men around Rajiv Gandhi exploited every chance they smelled. The incompetent “advisors” like Sam Pitroda made Rajiv Gandhi’s dream plans move nowhere. The straightforward Rajiv Gandhi did not doubt even doubtable men inside his caucus. While the boastful claim of the telecom revolution remained in the air, citizens used to get the basic telephone connectivity several years after filling up an application with thousands of rupees until the mid-90s. Still, Rajiv Gandhi had a vision and heart for doing something good for the country. What Dr Manmohan Singh said in the introductory part of the first budget presentation was true. He said: “But his dream lives on; his dream of ushering India into the twenty-first century; his dream of a strong, united, technologically sophisticated but humane India. I dedicate this budget to his inspiring memory”.
Soon after the stunning election victory of Rajiv Gandhi in 1984, India slipped into an economic crisis triggered by twin factors of rising trade deficit at the cost of uncontrolled imports and soaring budget deficit. By 1991, India’s balance of payment (BoP) reached a peak, closer to repayment default. India had the foreign exchange in hand only enough to meet the import of three weeks. Dr Singh himself noted, the new government “inherited an economy in deep crisis”.
Rajiv Gandhi, relatively a newcomer in politics, did not have a grip among party men. After the assassination of Indira Gandhi, the expected party choice was PV Narasimha Rao, being the home minister then. However, Rajiv Gandhi reluctantly accepted the position. After the victory of the election, he blindly believed some leaders, who were but clever men. Old guards were unhappy. A veteran leader then warned the Prime Minister of power brokers. At the same time, Rajiv Gandhi had many limitations. In that atmosphere, none could have done anything that could satisfy everyone equally, especially when he faced many economic and political challenges and crises. The threat of his colleagues moving out to build a rival bloc were stronger. The election loss of Rajiv Gandhi in 1989 sent India through a governing stagnance and dirty agitations. The heavily borrowed Indian economy had a backbreaking headload of foreign debts. The internal public debt of the Central government had accumulated to about 55 per cent of Gross Domestic Product (GDP), as Dr Singh himself had admitted in his first budget document in July 1991.
The Gulf war of 1990 also left an adverse impact on India’s economy. The unstable governments in place at that time kept the crises boiling. The political cloud was darker. The elections through summer 1991 had a shock of Rajiv Gandhi’s assassination. Half the polls were done by the time. Until then, no one had a clue of who would be the next to lead India. The election of 1991 did not have a full mandate to anyone. However, after the election, Narasimha Rao, being the head of the Indian National Congress with the highest number of seats at 232 managed to form a government without a coalition, though short of 40 seats. Narasimha Rao had a plan. He firmed up his decision to change Indian and dismantle socialist conventions that enshrouded the Indian economy. That was the compulsion of the circumstance. The antagonists then used to call it a plan of the World Bank and IMF.
The folklore had it that international agencies rescued India temporarily on the condition of opening up the economy post-election. Though folklores do not have logical links one should not overlook substances. The plan of the Narasimha Rao government was said to be a sell-off to the international agencies. Rao picked up a non-politician to head the finance ministry. His first choice was I G Patel, a former Reserve Bank governor. The truth behind Rao’s final choice of Dr Manmohan Singh was a mystery. Whatever be it, Dr Singh was the right choice in that contest. As a non-politician then, his commitment was mainly to the economic logic rather than to the socialist welfare theory that India was grappling with over four decades.
Demands for reforms were not new in those days. Intellectuals were arguing for economic reforms and liberalisation. Such arguments were against the Nehruvian orthodox mindset. In the budget speech in the parliament, Dr Singh read out: “The origins of the problem are directly traceable to large and persistent macro-economic imbalances and the low productivity of investment, in particular the poor rates of return on past investments. There has been an unsustainable increase in government expenditure. Budgetary subsidies with questionable social and economic impact have been allowed to grow to an alarming extent.” That had summarised the real picture of the Indian economy. That also had summarised India’s big plan to move into the market economy to boost investment.
Nevertheless, in the beginning, India had crises in hand. A minority government and non-politician at the finance ministry were coincidental. That was the previous month the government took over the power from the interim government of Chandra Shekar. The first budget presented by Dr Manmohan Singh on 24th July 1991 dwelt extensively on reforms and liberalisation. India continued its journey on the highway opened by him, though his hands remained tied for a decade under coalition compulsion.
While the visionless interim governments were potholes, the corruptions were gutters on the highway of reform. Now India has come a long way with political stability. Corruption is waning. A stubborn government may not dilute the spirit of reform and liberalisation. The first stable government after India began its reform process can give hope.
