This week I read two books. First, "To The Brink and Back - India's 1991 Story" by Jairam Ramesh. The book was written around the 25th anniversary of the Liberalisation policy initiated by the Government of India in 1991. Jairam Ramesh who was working with the Planning Commission (appointed by Dr Manmohan Singh himself) was brought into the prime minister’s office (PMO) as a special appointee to facilitate communication between the Prime Minister and Finance Minister. The author had a vantage point to what transpired in those critical days of the Indian economy.
The book gives a peek into the political and economic situation during the key months of June to August 1991 when India unveiled its policy of opening the doors to foreign investments and also devaluing the currency to make its exports more competitive. While everyone is aware of these often narated facts the novelty of the book lies in the focus on the partnership between prime minister Narsimha Rao and his finance minister Dr Manmohan Singh, their hectic closed door parleys to muster the popular support and a bargain with the International Monetary Fund (IMF) and Bank of England (BoE) on various measures towards saving the failing economy.
According to the author, the process of modernising the Indian economy started under the leadership of Rajiv Gandhi (1984-89) but a shock defeat in 1989 derailed the process. The subsequent minority governments couldn't gather the political support to take the radical and bold move. The former finance minister Yashwant Sinha in 1990 did mention the need to take the immediate steps to arrest the falling economy but to no avail.
Rajiv Gandhi was expected to be reelected as prime minister in 1991 but his sudden demise in the middle of election campaigning jolted the Congress party and the nation alike. After Sonia Gandhi refused to be the leader of the Congress Party, Narsimha Rao was the chosen one. Congress emerged as the single largest party after the election and with the support of left parties, formed the government and Narsimha Rao was appointed as the Prime Minister.
Rao who was also the chairperson of the Congress manifesto committee of 1991 election, knew very well what the economy was staring at and the measures which Congress party was proposing to overcome the situation. Realising the gravity of the economic situation, there was a need for an individual who understood economics but also had experience in dealing with multilateral lending institutions like the IMF and World Bank. Hence, Rao broke from the tradition of appointing a senior politician as finance minister and instead opted for the noted economist and former Reserve Bank of India (RBI) Governor Dr Manmohan Singh. Other names considered were I.G. Patel and S. Venkitaramanan (the former and incumbent RBI Governor, respectively). While there was a unanimous agreement for Dr Manmohan Singh but the concern was whether he would be willing to join politics. Those concerns were laid to rest when he agreed to accept the offer and joined the Congress Party.
Not only did Rao appoint Dr Singh but gave him a free hand and fully backed him in those tough times. In order to support Dr Singh, Rao kept the Industry portfolio with himself and handed over the Commerce ministry to another trained economist, P. Chidambaram who later became a finance minister himself. The immediate significant measure announced was parking the gold with IMF and BoE and taking a loan to support the falling forex reserves (which were down to less than three months of country’s requirement) to avert the balance of payment crisis. In addition, the decision to devalue the currency to make exports competitive. But knowing the past instance of the devaluation of rupee in 1966, there was palpable concern regarding the market reaction and the implications of the same on the already crippled economy.
It was decided to devalue the currency in two phases, between seven to nine percent on 1st July and around 11 percent on 3rd July 1991. The market reaction was muted but the political backlash was strong. On the morning of 3rd July, at around 9.30 am, Rao asked Dr Singh to stop the second phase of devaluation. When the finance minister communicated the decision of prime minister to the RBI Governor, he informed that the second phase of devaluation was executed at 9.00 am this morning. Realising that it was already done, the prime minister than fully backed the finance minister.
Similarly, the days leading up to 24th July 1991, the day the most famous and transformative budget in Indian history was presented, the finance minister proposed tough measures which were economically sound but not necessarily a politically rewarding decision. As expected, the budget measures to reduce subsidy and increase taxes were met with ferocious opposition including from within the Congress party. However, the prime minister refused to budge on most of the measures taken, except for a drastic reduction in subsidy.
The book captures how even with differing political views, the politicians across the party line had a respect for each other and the bonhomie they shared, something that is rarely seen these days with falling standards of debates both inside and outside the parliament. How Dr Singh while presenting his budget in parliament credited Yashwant Sinha, his predecessor for the measures he initiated and L.K. Advani, the Bhartiya Janta Party leader for his proposals. Also, the exchange of letters between West Bengal chief minister Buddhadeb Bhattacharya and prime minister Narsimha Rao on the concerns of the subsidy reduction.
The book narrates an incident that confirms why even the staunchest critic will not doubt the integrity of Dr Manmohan Singh. Dr Singh who worked as the Secretary-General of South Commission in Geneva from 1987-90 had some modest dollar savings and the decision to devalue the Indian rupee would lead to an increase in its value. To avoid any untoward incident, he informed the prime minister that the “windfall” gain arising due to this decision would be deposited in the Prime Minister’s Relief Fund.
As for Narsimha Rao himself, the book sheds glowing light on the leadership of prime minister. How he managed the political opposition both from within his own party, allies and the opposition to administer the bitter pill which the economy desperately needed. Remember his government survived the floor test in parliament when they couldn't prove the majority but had more yes than no its favour after left parties walked out. The author who worked closely with Narsimha Rao has brought to fore a side of the former prime minister which is not known in the public domain. A strong leader determined to pull the nation out of economic uncertainty and thrust it with new vigour and energy and not cowing down to backlash and populism. The author also gives an impression that probably Rao was not given the due credit and respect by fellow congressmen once he demitted the office.
Excellent and lucid writing with the right number of and right words to invoke interest without divulging much details about the book. Keep up!
ReplyDeleteSuperb flow, very well written. I really want to read this book now.
ReplyDeleteIt makes for a interesting read.
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