To the Brink and Back: India’s 1991 Story

TO THE BRINK
AND BACK

Other Books by Jairam Ramesh

Mobilizing Technology for World Development
(co-editor)

Kautilya Today: Jairam Ramesh on a Globalizing India

Making Sense of Chindia
(also in Chinese)

Green Signals: Ecology, Growth and Democracy in India

Legislating for Justice: The Making of the 2013 Land Acquisition Law
(co-author)

Published by

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Copyright © Jairam Ramesh 2015

The copyright for the cartoons by R.K. Laxman vests
with RK IPR Management Limited. Reproduced with permission.

Photograph inserts courtesy
Hindustan Times,
India Today
and the Press Information Bureau.

The views and opinions expressed in this book are the author’s own and the facts
are as reported by him which have been verified to the extent possible,
and the publishers are not in any way liable for the same.

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Men make their own history, but they do not make it as they please;
they do not make it under self-selected circumstances,
but under circumstances existing already,
given and transmitted from the past

K
ARL
M
ARX

Contents

Key Dates and Events between June and August 1991 Covered in This Book

  
1.  Narasimha Rao’s Entry

  
2.  The Economic Crisis of Early 1991

  
3.  The Inevitability of Dr Manmohan Singh as Finance Minister

  
4.  The Flap on the Roll-back of Prices

  
5.  The One-pager to Our Man in the IMF

  
6.  The Devaluation Trauma

  
7.  The Continuing Gold Sales Controversy

  
8.  The Default Option Remembered

  
9.  Statements: Right and Left

10.  Jyoti Basu Writes to the Prime Minister

11.  Chidambaram in Quick Action

12.  The Curious Case of the Prime Minister’s 9 July Speech

13.  The Sanskritist Prime Minister

14.  The K.N. Raj Interview

15.  The Industrial Policy Reforms Drama

16.  Dr Singh’s Day Out: The Budget of 24 July

17.  The First Review by the Finance Minister

18.  The Prime Minister’s Gorbachev Goof-up

19.  The Last Week of August 1991

20.  And That’s It!

21.  A Final Word

A Note of Thanks

Annexures

Index

Key Dates and Events between June and August 1991 Covered in This Book

or around ninety days, beginning 3 June 1991, I was catapulted into a ringside seat, as Indian economic policy was being transformed. As an aide to P.V. Narasimha Rao—first as he took over
as Congress president and thereafter, in the days immediately after he became the prime minister of India—I witnessed profound changes in the trinity of industrial, trade and fiscal policies. I had a Sherpa’s role in the design of some of these changes, particularly as they related to industrial policy. This book is based on my own recollections, conversations with some key players in that drama, written records like parliament debates
¹
that are not available easily, contemporary newspaper accounts based on official briefings, hitherto unpublished material from Narasimha Rao’s archives, minutes of key Congress meetings, along with my own personal notes and papers from that period. The book, therefore, is a personal story, one ‘participant-observer’s’ narrative of the action-packed days of June, July and August 1991, during which time dramatic steps to liberalize and globalize the Indian economy were taken.
²

To be sure, there had been earlier attempts at reforms. The first two years of
Rajiv Gandhi’s tenure (1985-87) as prime minister saw a flurry of initiatives to give greater incentives to the private sector to expand. Some economists have written that the growth turnaround of the 1990s and thereafter is anchored in these initiatives. Earlier,
Indira Gandhi herself had cautiously begun the process of giving a new direction to regulations when she set up the
Economic Administration Reforms Commission under the chairmanship of
L.K. Jha; a committee to examine the principles of a possible shift away from physical to financial control under the chairmanship of
M. Narasimham; and a committee for restructuring the public sector with
Dr Arjun Sengupta as its head. India’s first major reform that partially decontrolled the cement industry took place in 1982. Earlier, in May 1979, the Committee on Controls and Subsidies set up by the Morarji Desai government under the chairmanship of Vadilal Dagli submitted its report. Going back even further in time, following the hugely controversial devaluation of June 1966, new measures to attract
foreign capital had been announced.

What Rajiv Gandhi began in January 1985 was very important; the process of systematic unshackling undoubtedly started with him. Indeed, in September 1986 he had asked the
Planning Commission to prepare a detailed agenda for
industrial policy reforms. I was entrusted with this task. A comprehensive action plan titled ‘New Industrial Policy Initiatives’ had been prepared (Annexure 1). It had advocated, among other things, a more liberal policy towards foreign investment, a loosening of restrictions on the growth of private companies, and the creation of a regulator for capital markets that was to later result in the Securities and Exchanges Board of India (SEBI). But for some strange reason—perhaps having to do with the fact that the politics of the country changed dramatically in April 1987—that note did not go further, even though it was scheduled to be discussed in a meeting of the full
Planning Commission.