Welcome to an economy characterized by fiscal profligacy, frequent borrowing from multinational institutions to temporarily overcome economic crises, and Rupee trade deals with centralized and controlled economies as its greatest source of relief. With its credit ratings steadily downgraded, it is headed for a severe balance of payments crisis and defaults on its external debts.
Does this seem appropriate for today’s Sri Lanka or Pakistan? No, it’s India.
Come to the last weeks of the 1980s and look around. We have a collapsing economy and major political leaders are all busy planning political hunts. Rajiv Gandhi is working hard to unseat the Janata Dal government; the ruling party is about to split under heavy pressure from the feuds, and the BJP is planning a Rathayatra to focus on Ram Mandir. It’s business as usual.
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Then came 1990, the Reserve Bank of India saw disaster fast approaching, and in August it wrote to the government explaining the urgent need to approach the international financial institutions. Then Prime Minister VP Singh decided to ignore it.
The consequences followed: India’s foreign exchange reserves fell from 1.2 billion dollars in January 1991 to half in June of the same year. The nation was now about three weeks away from having no way to import the essentials it needed and defaulting on its external obligations. She therefore had to suffer the ignominy of promising 67 tons of gold to obtain an emergency loan from the IMF.
And then a Prime Minister by chance took over. What did he find around him?
The common man, blissfully unaware that India was about to slide down the path of a failing economy, still had firm faith in a protective and controlled system. Privatization was blasphemy and industrialists were seen as enemies of the people. Worse still, captains of industry and business, mortally scared of competition from foreign entities, loved a closed economy.
Prime Minister PV Narasimha Rao had two options before him: patchwork and gain popularity in the short term, or undertake bold and necessary initiatives and be seen as the one “who sold out the nation”. Rao decided to play the role of Nilkantha, and that too out of conviction, because he could see what no other top leader, and certainly not the mainstream, could see: the beacon of a great future for India. .
Thus, 1991 became a pivotal year in the history of India. Rao chose Manmohan Singh, a technocrat in economics and a favorite of international institutions, and allowed him to go forward as Rao saw fit.
Within months, a plethora of macroeconomic, fiscal and structural reforms radically liberalized and opened up India, and connected it to the global economy. The socialist regulatory framework was dismantled, trade policy was changed, the door was partially opened to foreign direct investment, while the banking sector was put on notice.
While Rao was branded as anti-poor and pro-industry, the sage actually knew that the Indian government could not afford to care for the poor. He was convinced that the government would only serve the poor meaningfully if it earned enough revenue, and that the government could only earn high revenue if the economy grew at a high rate and industrialization spread.
It was Rao who decided how far and no further. He served the bitter pills in his very first year, then waited to see how things went. He did not allow his finance minister to go ahead with labor reforms although the latter openly defended them, as Rao knew that too much medicine could kill the patient.
The most astonishing fact is that Rao played the crucial role of chief architect of India’s economic reforms while leading a minority government in a tumultuous political atmosphere. He could have been impeached by his own party at any time because he was not a mass leader.
Thirty years later, it is difficult to understand what all this meant for contemporary India. If even today a government with a solid majority panics to cling to the necessary agricultural reforms, imagine the courage of the modest man of Andhra.
Rao didn’t live long enough to see the seed he sowed grow into the fifth tallest tree in the world. The man who turned a grim curse into a happy blessing died unrecognized and forgotten in 2004. Of course, he deserved it, for he was a visionary who also walked ahead of his time.
(The author is a Kolkata-based journalist and author.)
Disclaimer: The opinions expressed above are those of the author. They do not necessarily reflect the views of DH.