Selling the country’s jewels

When banks found the Indian government selling gold to meet obligations, they were assured that the state would go to any length to avoid a default.

August 01, 2016 12:10 am | Updated 12:13 am IST

Short-lived: “The Chandra Shekhar government submitted its resignation before the Budget could be passed.” Chandra Shekhar being sworn in as PM by President R. Venkataraman in New Delhi in November 1990.

Short-lived: “The Chandra Shekhar government submitted its resignation before the Budget could be passed.” Chandra Shekhar being sworn in as PM by President R. Venkataraman in New Delhi in November 1990.

Prime Minister Chandra Shekhar had ordered a three-year term while appointing me as Cabinet Secretary in December 1990, but I felt his government was not going to last that long, so why suffer the indignity of curtailment of tenure? As it turned out, the government submitted its resignation before the Budget could be passed.

The numbers of the Indian economy were quite bad. We lacked the power to service large loans, and lenders were legitimately asking if we were slipping into a debt trap, and flagged the need to get our house in order. It was a very simple economic crisis — even a layman like me could understand it. Everybody knew, but the political scenario was a distraction.

Naresh Chandra

The challenge was how to get the constitutional machinery going. Despite all these crises, Prime Minister Chandra Shekhar was putting out all the bush fires. Some very strong decisions were taken. The Tamil Nadu and Assam governments were dismissed; some Governors were changed. Even on foreign policy issues, there were some significant political decisions: allowing the U.S. planes to refuel and allowing gold to be airlifted. Despite all this the situation couldn’t be turned around because the political support that was required was not available to the government. So, legislative business couldn’t be done. We did not consider taking any big policy decisions during that period because we lacked the political mandate.

The political trigger The incident of two Haryana constables outside Rajiv Gandhi’s house was highly exaggerated. It was a simple case of hatchet police work, where some officer might have been trying to impress the Chief Minister that he was getting him up-to-date political information. Now, some Haryana politician keeping watch on who goes in and out of 10, Janpath is not a national issue. They could have been rebuked, which they were. But as part of the overreaction, we were told by interlocutors from Rajiv Gandhi’s side to dismiss the Haryana government. That was constitutionally not possible and that’s what we advised the Prime Minister. It was refused point-blank. So they started putting more pressure, but Chandra Shekhar was not a man who would yield to blackmail.

On the day the government resigned, he had given time till 12 p.m. for Congress MPs to reach the Lok Sabha. We reached the official gallery just in time to see him stand up and say, “Since they have not come… I don’t blame anybody. A person can only act to the extent he has the wisdom to act… but the government cannot be carried on like this. So I am calling a meeting of the Cabinet and going to the President to resign.” The Cabinet wanted to dissolve the Lok Sabha. I said, “This can’t be done because you gentlemen have to at least pass a Vote on Account and the Budget has to be presented. You have to persuade parties to attend Lok Sabha and do the needful, otherwise there will be no payments made to government employees from April 1. It was like, who’s going to pay me, you gentlemen can’t leave.” So we hastily drafted a letter to the President citing the prevailing circumstances and requesting that arrangements be made to seek a fresh mandate. That would enable him to alert the Election Commission without having to dissolve the Lok Sabha, because if we did, then who would pass the Budget? Although some said the President could issue an Ordinance, we said that’s not possible.

After the Vote on Account, we continued talks with the International Monetary Fund. A committee of economic secretaries that usually met occasionally met every week. Normally, Reserve Bank (RBI) Governors don’t care about the Cabinet office at all, but we had the good fortune of the RBI Governor coming almost every week.

Gold and other options Finance Minister Yashwant Sinha was not in Delhi at the time when we decided at an official level that we had to send out gold. It was my job to convince the Prime Minister. He was most reluctant since elections had been announced, and felt why take a decision under his watch. It was a legitimate worry, but we told him there was no time to waste. The conversation went something like this. “I don’t want to be known as the Prime Minister who sold the country’s silver.” To which we said: “You would hardly like to be known as the Prime Minister who declared bankruptcy. It was between the devil and the deep blue sea.” He said: “Go ahead, but take the President’s approval.” I said it wouldn’t be fair... one can always seek his advice, but we can’t hold him responsible for the decision.

Even before consulting the Prime Minister, I had requested the RBI Governor not to send a report of any default and said he had full powers of the Government to do what he liked. The idea was not to give any alibi to the RBI. He said, “no”. We said, “Under the RBI Act, if we are not mistaken, the RBI can do what it likes with 15 per cent of the gold reserves.” But he said it was a policy decision and the Centre must direct him. We said, “When you raised the retirement age of RBI officers, that was also a policy decision, but you never consulted us!”

When I went to meet President R. Venkataraman, he was very patient and asked if we were convinced there was no other alternative. We told him we wouldn’t have troubled him otherwise. He said: “First, sell the gold that is with the government, not the gold lying with the RBI.” I think 25 tonnes was lying with the government, so we used it.

Unused options At that time, the issue of the Nizam’s jewels came up. Christie’s, the auction house, was willing to give Rs.850 crore. I remember they were valued at Rs.265 crore by a Supreme Court judge, which was a gross underestimation. But since export of antiquities was not allowed, the international market price was irrelevant. Chandra Shekhar was against it, and said we were already sending out gold. So the idea was kept pending. But we did ask Finance Secretary S.P. Shukla to go to the RBI and check if the jewels were actually there. He reported to me that those jewels were there, but you’d be surprised that 80 per cent of the value was from just three items. Later on, Prime Minister Narasimha Rao also asked if we really expected him to allow the export of jewels from Hyderabad!

Another prospect was selling our Indian embassy property in Tokyo, for which around Rs.900 crore was offered as it’s in a commercial district. But the External Affairs Ministry turned it down. We said, you can’t waste this resource when you would get prime land in the diplomatic area at a tenth of the price. But we still own this property and our Ambassador rides a white elephant.

How much money did we get from gold? Just about $400-500 million. But the most important thing was the intention. Banks that had doubts of our capability were also doubting our willingness to pay. When they found us selling gold to meet our obligations, they were completely assured that the Indian state would go to any length to avoid a default. This reignited interest and they started offering us money.

(As told to Vikas Dhoot)

Naresh Chandra served as Cabinet Secretary from December 1990 to July 1992.

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