3 years

OPENOMICS: THE RAO EFFECT

PV Narasimha Rao: The Outsider Who Dared

PR Ramesh is Managing Editor of Open
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PV Narasimha Rao needed somebody who would be adept at tackling the immediate problems, come up with out-of-the-box solutions, and take courageous decisions to pull the country back from the precipice. He plumped for Manmohan Singh

“I didn’t know it was this bad.” That was Pamulaparti Venkata Narasimha Rao reacting to his Cabinet Secretary Naresh Chandra’s briefing on the state of the economy. It was 20 June 1991, and the next day he would be sworn in as India’s first Congress Prime Minister who was not from the Nehru-Gandhi dynasty. In retrospect, from those words began the narrative of India’s most radical economic transformation.

It was indeed very bad. The coffers were almost empty; bankruptcy and insolvency looked inevitable. The would-be Prime Minister had his work cut out. And Rao would live up to the challenge: his first 100 days in office set the tone for a historic shift in an economy steeped in socialist shibboleths.

It was as if history had intervened to change Rao’s retirement plans for India’s sake. A month before the swearing in, the scholar politician was packing his formidable library in anticipation of a life away from the hurly-burly of realpolitik. Everything changed on 21 May 1991, when Rajiv Gandhi was assassinated in a suicide-bomb attack in Sriperumbudur, Tamil Nadu. For India and the 70-year-old Rao, a long-time retainer of the dynasty, the tragedy marked a new beginning.

In the early 90s, political India was in a whirl. Separatist flames had engulfed Punjab and Kashmir. India’s integrity and the Nehruvian socialist economy appeared under threat. The USSR, on which India had relied for global guardianship as well as defence supplies, was unravelling. With almost no foreign exchange left to pay for essential imports, India was on the verge of an economic breakdown.

Within the Congress, regional satraps such as Arjun Singh, Sharad Pawar and ND Tiwari had a hidden agenda when they reached a consensus on Rao as Prime Minister after the party won the Lok Sabha elections of 1991, on a sympathy wave. They saw the first Prime Minister from south India as an interim leader, and wanted to dethrone him at the earliest opportunity to capture power for themselves.

The crisis in the country’s economy, however, was far more acute than Rao’s own innermost fears. What shekels were left, as Chandra told Rao, were barely enough to keep the country running for the next 15 days. Urgent measures were called for. In the third week of June, an unassuming PV, as he came to be known, placed a call to economist IG Patel, his first choice for the Finance Minister’s job. He needed a man who would boldly tackle the immense problems of a nation gone bust. Patel politely turned down the offer. Rao needed somebody who would be adept at tackling the immediate problems, come up with out-of-the-box solutions, and take courageous decisions to pull the country back from the precipice. Finally, Rao plumped for Manmohan Singh.

That would prove to be a smart choice. Singh was put in charge of a high-level panel to restructure the Indian economy. The Prime Minister made it a point to protect the panel from criticism and intrusions by other Congress stalwarts, and waited for its recommendations to be spelt out on how India was best launched onto a dramatic new economic path.

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Nehru’s socialistic vision for India was one of protectionism, marked not only by import substitution and public sector dominance, but by bureaucratic red tapism that spawned the notorious ‘Licence Quota Raj’ and all the corruption associated with it in almost all sectors of the economy. The battle to break free from this entrapment, liberalise the economy and unleash market forces in a country of such poverty called for more than just an ordinary leap of faith. To undo the Nehruvian inheritance called for determination and—to a large extent— even ruthlessness. Rao, behind that unassuming façade, proved to have both in good measure.

Just hours after becoming Prime Minister, Rao’s first address to the nation on 22 June offered a glimpse of his plans: “We are committed to removing the cobwebs that come in the way of rapid industrialisation.”

On 1 July, before his opponents within the Congress could anticipate his next move, Rao devalued the rupee. Two days later, he devalued it once again. On 24 July, Rao’s first Budget was presented.

The new Prime Minister, in a televised address on Doordarshan, decided to tell it like it was. “Desperate maladies call for drastic remedies,” he said, outlining the austerity programme on the anvil, “This is only the beginning. A further set of far-reaching changes and reforms is on the way… We believe the nation, as well as the Government, must learn to live within its means… There is much fat in government expenditure. This can, and will, be cut.” Rao followed that address up with plans to deregulate industry, delicense the private sector, open up several sectors to foreign investment, extend tax sops to private corporations, drastically cut farm subsidies and clamp down on labour protests.

That, however, proved to be the easier part. The reforms represented a decisive break from the Nehruvian economic paradigm, and the fight for support within his own party for them was to prove significantly tougher, even for a seasoned politician like Rao. It called for deft machinations to push through changes as radical as the ones he launched.

Rao had kept the Industry portfolio to himself, and as the head of this Ministry, he had put together a liberalised Industrial Policy. The trouble was that it still had no official seal of approval from his Congress party. He had to come up with a plan, a stealthy one if need be, to push it through. Arjun Singh, ML Fotedar, Madhasinh Solanki and B Shankaranand were among the senior Congressmen who Rao thought were determined to stymie his blueprint for industrial freedom and growth.

The Prime Minister quietly summoned Jairam Ramesh (who, incidentally, has recently published a book on the first 100 days of the Rao Government) and directed him to meet Arjun Singh and Fotedar separately. The two were putting up the stiffest resistance and were of the view that this was primarily a political matter rather than an economic one and some sort of ‘continuity’ would have to be established if Rao’s Industrial Policy were to be adopted. To placate them, Rao decided to set up a sub-committee that included the naysayers. But next to them, he also seated some selected yea-sayers, such as P Chidambaram, AN Verma, Manmohan Singh, Naresh Chandra and Jairam Ramesh. The idea was to skew the views in favour of the new Industrial Policy.

The panel met in Parliament House. HRD Minister Arjun Singh was the first to cast a stone, arguing that Rao’s Industrial Policy was a “very clear departure from the past” and “politically unacceptable”. Fotedar was harsher still in his comments, dubbing it “anti-Nehruvian and anti-Indira Gandhi”. These views were quickly countered by Manmohan Singh and Chidambaram, both playing to a script. Singh insisted that the policy flowed from the “self reliance” of Nehru’s broader vision. It meant trade and not aid, Chidambaram argued, contending that the original policy had little do with nationalisation, which only involved the LIC of India. Indira Gandhi’s position that the state must play an interventionist role, he maintained, was inspired by the philosophy of Mohan Kumaramangalam, C Subramaniam, IK Gujral and Mohan Dharia. “You cannot attribute it to Nehru,” he asserted. But the Industrial Policy still seemed in trouble and needed stronger backing, especially in its key argument for privatisation.

A new strategy had to be devised quickly, a kind of last- ditch effort. Rao came up with a fresh plan that would sneak his policy into action right under the noses of its hardiest opponents. At the behest of the Prime Minister, Commerce Minister Chidambaram asked Verma, Suresh Mathur (the then Industry secretary) and Ramesh to find one suitable paragraph each from Nehru, Indira Gandhi and Rajiv Gandhi that could show how the party’s avowed ‘self reliance’ position gelled with Rao’s proposal.

It was a clincher. The new draft, airbrushed by Jairam Ramesh, was hailed even by those most stoutly opposed to the proposed policy changes. The speed with which it brought around the so-called Nehruvian stalwarts within the Congress was amazing. After the policy won approval all around at the inner-party meeting, Fotedar’s face now wore an expression of glee. “Aapne toh kamaal kar diya,” he exulted to the Prime Minister. A liberalised Industrial Policy crafted by Prime Minister Narasimha Rao and his Finance Minister Manmohan Singh was through.

As a result of the reforms, investment from overseas—both Foreign Direct Investment and capital from abroad in search of Indian assets—shot up to $5.3 billion in 1995-96 from $132 million in 1991-92. Most significantly, Rao is credited with removing production limits and industrial licences in most fields of business (leaving just 18 sectors that needed licences). Industrial regulations that had been bugbears for the private sector were loosened if not entirely stripped away. And foreign companies were allowed in, fostering market competition that would raise efficiency levels all around and help turn even homebred players globally competitive.

A quarter of a century after those momentous moves, several political commentators dismiss Manmohan Singh’s copyright to all that was done to turn India’s economy around. In 2014, political writer Kapil Kommireddi held that ‘if Jawaharlal Nehru ‘discovered’ India, it can reasonably be said that PV Narasimha Rao reinvented it’.

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Despite his future-shaping stint as Prime Minister of an India liberated of its economic shackles, the Congress party has been shamefully petty in refusing Rao his place in history. Out of power, he was treated as a non-entity by the Nehru-Gandhi family.

He was kept out of the all-powerful Congress Working Committee although he was an ex-AICC president and a former Prime Minister. In 1998, when Sonia Gandhi formally took charge of the Congress party, the multilingual scholar was humiliated further by those who were now busy currying favour with Rajiv Gandhi’s widow when they refused to designate him even one of innumerable special invitees to the CWC.

The Congress of Sonia Gandhi was determined not to let Rao have even a footnote in the history of the Congress party, casting him instead in the role of an ‘outsider’ and an ‘upstart’. Shortly before his death in late 2004, Rao referred to his time after Prime Ministership as his “ugly past few years”. By some accounts, the ugliness included an outrageous plan in the Congress to pin the blame for Rajiv Gandhi’s assassination on him. The lack of grace displayed by the top leaders of his party at his cremation only added to the impression of its wanting nothing to do with him.

It took a whole decade after his death, in 2014, for a memorial to be allotted to the author of India’s economic liberalisation— and this was done by the NDA. What 21st century India, soon to be the youngest nation on earth, takes for granted, from the cars it drive to the phones it uses, are the living symbols of the man’s vision. India is indebted.

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