When Chandra Shekhar formed the government in November 1990, I was keen to become Minister of External Affairs, not Finance. Though I was a bit disappointed, I realised we had a full-blown crisis on our hands. Petroleum crude prices had gone through the roof due to the Gulf War, and our foreign exchange reserves were depleting very fast. Non-Resident Indians were withdrawing deposits, and exporters were delaying bringing in their dollars in the hope that the rupee would be devalued. The fiscal deficit and budget were in terrible imbalance, inflation was raising its head. You had a first class-crisis in the economy. The severest part, of course, was the balance of payments problem.
The five years of the Rajiv Gandhi government in particular led to the crisis, which, according to I.G. Patel, was created because we lived in an era when money didn’t matter. You spent your dollars or rupees as if there was no tomorrow, and left behind a burden on the country, both in terms of fiscal deficit and short-term debt. Maybe Rajiv Gandhi’s successor V.P. Singh, with Madhu Dandavate as Finance Minister, could have done more, and gone immediately to the International Monetary Fund (IMF), but there is a very strong opinion in this country against the Bretton Woods institutions. Towards the end of their tenure, however, they realised there was no option but to go to the IMF.
War room woesThe Finance Secretary, Bimal Jalan, had been shifted before I joined, so I brought in S.P. Shukla from the Commerce Ministry. We had a very good team with Ashok Lahiri, K.P. Geethakrishnan, Deepak Nayyar and C. Rangarajan (as Deputy Governor, RBI). Manmohan Singh, as advisor to the Prime Minister, was also fully involved. Under pressure from the Congress, RBI Governor R.N. Malhotra had to be changed, and I was given the unpleasant task of asking him to quit. S. Venkitaramanan, during whose earlier tenure as Finance Secretary the seeds of the crisis were firmly sown, was appointed. However, he was a very competent governor.
In December 1990, I presented a mini-Budget and introduced new indirect tax levies to show the world we were serious about raising resources. I was confident we would be able to get over it with some temporary relief from the IMF — about $1 billion by January 1991 — and a full loan of $5-6 billion after the budget. The PM was pragmatic and did not allow ideology to come in the way of doing what the country needed. He didn’t have the hesitations of history, and when we permitted the refuelling of U.S. planes, he was roundly criticised by the Congress. But since then, there are two significant changes in our polity: there’s a near consensus on economic reforms among the two major parties (though they unfortunately hold up each other’s legislation, like on Goods and Services Tax), and an overwhelming support for friendship with the U.S.
We were feverishly working on the Budget, but unfortunately politics intervened. In early February, I was told to shelve the full Budget and present only an interim one. I reached out to the Congress. Even President R. Venkataraman, a former Finance Minister, urged them not to rock the boat. That was a severe blow because I couldn’t present a vote on account and then seek help from IMF. So that route was closed. I had severe limitations while presenting the interim Budget but I did mention the idea of disinvestment. Fate had intervened and taken away the opportunity from me to present the same Budget that the Congress later presented and won kudos for. I was surprised at Dr. Singh’s appointment as my successor because he wasn’t into politics then.
The interim Budget didn’t help, as soon after, the issue of two Haryana constables outside Rajiv Gandhi’s house came up and the Congress brought down the government when the motion of thanks for the President’s address came up for discussion. We had no option but to resign.
Over the next few months, as a caretaker government, we had to ensure there was no default, especially on the short-term debt of over $5 billion, which was equal to the reserves we had at the best of times. We could only prevent a default in three ways: pay some, postpone some and keep raising money wherever we could. The RBI kept an hourly tab on what was becoming due and what we couldn’t reschedule, we paid. At the Spring Meetings of the IMF and World Bank, I urged finance ministers of donor countries to expedite loans already sanctioned. I made the same request in Japan and met financial institutions who had advanced short-term debt to India, pleading for a rescheduling. We were trying to persuade exporters to bring their money back to India. We also went in for strict control of expenditure to curb the fiscal deficit.
The only credit I can claim was we tried to be self-reliant by imposing new levies and mortgaging gold that got us about $400 million and instilled a sense of confidence in our lenders abroad. We were certain we were going out as a government, but we did it so that the coffers were not empty for the next one.
Some people suggested we could sell some of our assets abroad. I didn’t agree. Rationing petroleum products was another idea, but we knew it was totally impractical. The only unpleasant option we picked up was the mortgage of gold. It chases me to this day. Every election, my opponents have tried to raise the issue that I am the chap who sold the country’s gold.
It’s politics, stupid!It was not really a case of two Haryana policemen pushing the economy to the brink. The lesson I learnt was that in India, “It’s always politics, stupid!” Nineteen-ninety-one is a lesson that, come what may, whatever the depth of the crisis, we will not give up politics, the nation be damned. Look at the record of the Congress. First they created the crisis, then they created a second crisis by preventing me from presenting the Budget. A non-GST regime won’t create a crisis like we faced then, but the GST Bill is pending.
Reforms are a continuous process. In the wake of the 1991 crisis, a lot of reforms took place in capital markets, banking and industrial policy. This was very impressive, but then did we continue down the path of reforms? The dynamics of the Congress ensured that reforms were given up the moment the crisis abated. I don’t agree 100 per cent with Dr. Singh that we only act in crises. In the Atal Bihari Vajpayee regime, reforms were carried out autonomously, not because it was crisis-driven.
We have done nothing on administrative, judicial, police or municipal reforms. Reforms have remained confined to the economic part. In India, the history of reforms has been stop-go, stop-go, and the pace has been very slow. We have not moved at the speed which China or the East Asians have, because in a democratic set-up, we have to build a consensus. In 2001, I introduced the Bill on reducing banks’ stake to 33 per cent. In 15 years, there’s no movement, while China would have done it overnight.
Yashwant Sinha has served as Finance Minister in the Chandra Shekhar and Atal Bihari Vajpayee governments
