This day 25 years ago changed India decisively. At about 12.50 p.m., P.J. Kurien, the Minister of State for Industry and now the Deputy Chairman of the Rajya Sabha, got up in the Lok Sabha and read out a brief statement: “Sir, I beg to lay on the table a statement (Hindi and English versions) on Industrial Policy”. That was it: a bland statement to usher in a radical transformation of Indian enterprise and open up a whole new future for Indian entrepreneurs. The statement made a bonfire of all licensing controls. The occasion was made more ironic by the fact that the junior minister’s heart was not in the revolutionary contents of the new industrial policy. Indeed, at various points, he and his officials had acrimonious disagreements, and Finance Minister Dr. Manmohan Singh had to tell him that he had to fall in line to avoid international embarrassment. Perhaps this tepid introduction had been provoked by a fear of protests from political parties and trade unions. In fact, I had reason to believe that lobbying by some prominent figures of industry — nervous about the bold approach to attracting foreign investment — had delayed the approval of the new industrial policy. The Left parties were opposed to whatever Prime Minister P.V. Narasimha Rao and Dr. Singh had embarked upon 33 days earlier, while the Bharatiya Janata Party under the leadership of Atal Bihari Vajpayee was very critical of the duo’s approach to foreign investment, arguing that Foreign Direct Investment would be detrimental to India’s interests. Even Yashwant Sinha, who has argued his case for being the “original reformer”, was very critical of the industrial policy reforms when he spoke in the Rajya Sabha on August 7.
The new industrial policy almost did not happen. It was rejected by the Cabinet when it was first taken up on July 19. Many ministers objected to the sweeping changes being proposed, saying that it was a wholesale and unwarranted condemnation of over four decades of planned development. Some were not convinced that a strong case had been made out for these far-reaching changes. It is only after consultations in a Group of Ministers, and some political repackaging and repositioning, that the Cabinet had approved the proposals on July 23. Thereafter, they were given the go-ahead in a special meeting of the Congress Working Committee (CWC) in which Dr. Singh quoted chapter and verse from the Congress’s 1991 Lok Sabha election manifesto to demonstrate that he and Rao were only implementing what might be considered Rajiv Gandhi’s last will and testament. As Dr. Singh was coming out of the CWC meeting, his senior Cabinet colleague Arjun Singh told him: “Doctor Saab, you have read the manifesto more thoroughly than all Congressmen”.
A huge paradigm shift
The new industrial policy electrified the atmosphere leading up to the presentation of the Budget. Dr. Singh had helped prepare seven Budgets in the 1970s. But the July 24, 1991 Budget would be the first he would not only conceive and write (most of it, at least) but also actually present. While the May 1957 Budget of T.T. Krishnamachari, which was to give him his reputation of ‘tax, tax and kill’, and the March 1985 Budget of V.P. Singh bearing the imprint of Rajiv Gandhi, have been heralded as milestones (the former actually a millstone as it turned out), the 1991 Budget must rank as the most historic of all. It was made all the more difficult since the Finance Secretary and the Chief Economic Adviser were not on the same wavelength, to put it mildly, as the FM. Thus the speech came to have the personal imprimatur of the FM himself, much more than usual. Dr. Singh delivered a hugely moving speech. Its contents, of course, marked a huge paradigm shift in economic thinking and charted out a course that has remained steady for a quarter of a century — a course that has been embraced by all political parties when they have been in power. The speech also revealed a hidden side of the always serious-looking FM — his fondness for Muhammad Iqbal just as P. Chidambaram was to reveal his fondness for Thiruvalluvar five years later.
The new industrial policy had been made public four hours earlier. The new trade policy to dramatically change the environment for exporters and ease their access to imports had been announced by the Commerce Minister, P. Chidambaram, on July 4 (a second instalment of trade policy changes was announced on August 13). Devaluation of the rupee had taken place on July 1 and 3. Almost 47 tonnes of gold had been transported to the Bank of England between July 4 and 18 enabling the country to borrow about $400 million at a time when the country’s foreign exchange reserves had dwindled to a measly $900 million. But what was missing was the master narrative of what had gone wrong and what needed to be done. This is exactly what the July 24 Budget did. It also articulated a new fiscal policy which Dr. Singh unveiled to reorient the nature and pattern of public expenditure with one of his favourite aphorisms — you can’t spend your way to prosperity. He also announced the constitution of two committees that were to change the face of India: one on financial sector reforms that was headed by M. Narasimham and the other headed by Raja Chelliah to prepare a road map for reducing import duties.
The July 24 Budget has deservedly earned its place in our history. But what happened after its presentation was equally momentous. Normally, Finance Ministry officials have a detailed press briefing after a Budget is presented. But on July 25, the FM himself made an unscheduled appearance at the customary post-Budget press conference to ensure that the message of his Budget did not get distorted by less-than-enthusiastic officials. He painstakingly defended his proposals to increase fertilizer, petrol and LPG prices and in the context of today’s headlines, it is worthwhile to recall that he also spoke on the anti-black money scheme introduced in his Budget.
Bouquets and brickbats
The Budget met with its predictable quota of bouquets and brickbats. But what unnerved the PM and the FM was the revolt in the Congress party itself. This forced Rao to convene meetings of the Congress Parliamentary Party (CPP) comprising all party MPs. These meetings took place on August 1, 2, 3, 27, 28 and 29. It would not be an exaggeration to say that barring Jawaharlal Nehru’s time, the CPP had not been as active or interactive as it was in August 1991. In all these sessions, the PM kept quiet and allowed the MPs to attack Dr. Singh who ended up having only two colleagues speak up for his Budget — the veteran Nathuram Mirdha who was convinced by Dr. Singh’s honesty and integrity, and Mani Shankar Aiyar who believed that Dr. Singh was taking forward Rajiv Gandhi’s thinking.
June 21 to July 24, 1991 witnessed an intellectual revolution, but it was an evolutionary one — both the crisis and the response were some years in the making. To borrow an analogy from the great historian of ideas, Isaiah Berlin, if Dr. Singh was the hedgehog who knew only one big thing and that is economic reforms, Rao was the crafty and cunning fox who knew many things. It was this unusual jugalbandi that rescued India at its darkest moment when India could well have mirrored Greece in 2015. There are many lessons to be drawn from what the duo did and more importantly how they did it, lessons that have great contemporary relevance as well.
Jairam Ramesh, MP, is the author of To the Brink and Back: India’s 1991 Story where the events of 1991 when he was the PM’s aide are recounted in detail
