Thirty years down memory lane
It is gratifying that one lives to walk down memory lane to 30 years ago. It is more gratifying that many of the key actors are with us, older but wise as always.
The captain was, no doubt, PV Narasimha Rao, the truly accidental prime minister (PM) whose centenary was on June 28. I remember the day in 1991 when he declined to contest the Lok Sabha elections and decided to return to Hyderabad. The star striker was Dr Manmohan Singh. While he had flowed with the prevailing wisdom for several years, as finance minister (FM), he brought into full play the knowledge and wisdom he had accumulated, and changed the India-narrative forever. The words to describe his tenure are “courage of conviction”.
I was the commerce minister and I had to learn very fast. I had excellent teachers: Mr Montek Ahluwalia, Dr YV Reddy and Mr Jayanta Roy. The silent playmaker was AN Verma, the principal secretary to the PM. There were two solid defenders in the Reserve Bank of India (RBI) — Mr S Venkitaramanan, governor, and Dr C Rangarajan, deputy governor.
The government had assumed office when the economy was on the verge of collapse. I remember, on one of the first 10 days, when the RBI duo called on Dr Singh. I was present when the governor pulled out a slip of paper and said in a low voice that the foreign exchange reserves had fallen to one-half billion dollars, barely sufficient to finance imports for 15 days.
Dr Singh was evidently prepared. He had the paper written by Dr Rakesh Mohan on industrial reforms and the M Document whose principal author (then anonymous) was Mr Ahluwalia, the commerce secretary.
On July 1, 1991, RBI depreciated the rupee. There was fierce political opposition. Narasimha Rao, who had approved devaluation, had second thoughts. He asked me to go across and suggest to the FM to put any further devaluation on hold. I ventured into Dr Singh’s chamber and conveyed the PM’s suggestion. His response was equivocal. He said he would speak to Dr Rangarajan. By arrangement — I am absolutely certain — Dr Rangarajan made himself “unavailable” for several hours (!), and the second-step of devaluation was taken on July 3.
The world paused to take a hard look at the new government. Many observers believed that the government meant business and it would not be “business as usual”.
July 3 was an action-packed day. Dr Singh summoned me and Mr Ahluwalia to his chamber and told us, as firmly as the gentle doctor could, that he had the approval of the prime minister to abolish the “cash compensatory support (CCS)” to exporters. His economic logic was impeccable, his political judgement was wrong; no commerce minister could start his innings by abolishing the only crutch to the doughty exporters who were tied hand and foot by the Red Book. Dr Singh and I stuck to our respective positions. Dr Singh suggested that we go together and meet the PM.
Narasimha Rao heard us patiently. He asked me to suggest a way out. I suggested that I may return that evening with a “package” in which one of the elements would be the abolition of CCS. Everybody agreed.
Mr Ahluwalia and I returned to Udyog Bhavan, worked through the day to draft a “package” and took the file to Dr Singh. The key feature was the intent to introduce Exim Scrips as a precursor to convertibility of the rupee and embrace free trade. He readily agreed and signed it. The appointment with the PM was late in the evening. Narasimha Rao, after a shower, entered the room in his lungi and vest. He heard my presentation for a few minutes and asked me if I had signed the file. I said, yes. He turned to Dr Singh and asked him if he had signed the file. He said, yes. Without another word, the PM took the file and signed it. Thus, the first set of trade reforms became government policy! On July 13, further measures were announced as part of comprehensive trade reforms.
The real authors of the new Industrial Policy Resolution were Dr Rakesh Mohan and AN Verma. They brought a draft to the cabinet that proposed abolition of most industrial licensing. There was stout opposition from Arjun Singh, M L Fotedar and some others who decried the deviation from the “Nehruvian” policy. Narasimha Rao said it would be redrafted. After the meeting, he called me and AN Verma to his office and asked us to “do something” and bring back the draft. We adjourned to my office at Udyog Bhavan. Mr Ahluwalia, Dr Mohan, Mr Jairam Ramesh and a few others were present. We decided to add a few introductory paragraphs and take the draft, with the original text intact, to the cabinet. The draft traced the evolution of industrial policy and emphasised “Continuity with Change”. The proposal passed with hardly any debate!
The new Industrial Policy Resolution was tabled in Parliament on the morning of July 24. In the afternoon, at 5 pm, the finance minister presented his first, and path-breaking, budget. The rest is history.
P Chidambaram has served as India’s finance, home and commerce minister. He is a Rajya Sabha MP and senior Congress leader.
This special, by invitation, piece was written at the request of HT as a part of a series on 30 years of reforms, of which the writer was a key architect
The views expressed are personal