In May 1990, when Prime Minister V P Singh went to Kuala Lumpur for a meeting of the Group of 15, he was taken aback by the rapid progress that Malaysia seemed to have made since his last visit to that country in 1985, when he was Commerce Minister in Rajiv Gandhi’s Cabinet.
Singh discussed this with Montek Singh Ahluwalia, the Additional Secretary in the PMO, who had accompanied him on the trip. Ahluwalia apparently told him that even though reform proposals were suggested in India, the political executive didn’t quite pursue or push them. That was when V P Singh told Ahluwalia to write a strategy paper on reforms.
Back in early 1980, soon after Indira Gandhi returned to power, there appeared to be a recognition of the fact that some of the policies she had pursued as Prime Minister in the previous decade had lost their relevance in the face of sweeping changes on the global economic front.
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The decade of the Eighties was marked by a shift in economic policy thinking, with an emphasis on free trade, a floating exchange rate, deregulation and macroeconomic stability — the prescription that formed the core of the so-called Washington Consensus. As officials of that era acknowledge, Mrs Gandhi realised that the time had come to be more pragmatic, and that keeping out foreign technology would turn out to be costly.
The wheels of change were slow to turn — but the thinking was reflected partly in the report of the Dagli Committee on controls and subsidies, and the committee to examine the principles of a possible shift from physical to financial controls headed by M Narasimham, a former Secretary, Economic Affairs, and Governor of RBI.
The Narasimham Committee submitted its report in January 1985, soon after Rajiv Gandhi became Prime Minister. It recommended easing of capital goods imports, foreign collaboration, abolition of control over capital issues, and a marginal easing on the foreign exchange front.
Apart from that, there was the Arjun Sengupta Committee on public sector reforms, the Arun Ghosh Committee, and the committee on trade policy reforms headed by the former Commerce Secretary, Abid Hussain.
At the fag end of his government in 1989, Rajiv Gandhi commissioned a report on reforms for the future by a two-member committee comprising Finance Secretary S Venkitaramanan and economist Vijay Kelkar, who at the time headed the Bureau of Industrial Costs and Prices, or BICP. The committee submitted an interim report after Rajiv Gandhi’s assassination in May 1991, but the V P Singh government did not act on it.
Interestingly, while going to polls in late 1989, the Congress tom tommed the country’s highest economic growth during 1985-89, and promised to consolidate those gains, accelerate growth, and expose Indian industry to further competition and remove bureaucratic controls. It is another matter that by that time India was almost on the edge of a macroeconomic crisis, with unprecedented fiscal expansion that would fuel a fullblown crisis two years later.
Given this entire background, Ahluwalia’s report took an integrated view of what needed to be done.
It talked of trade and exchange policy changes that were needed, Export Import (or Exim) Scrips and how to deal with them, the impact of tariff changes, and a host of other things. The report was discussed in the Cabinet Secretariat — Vinod Pande was Cabinet Secretary — which was in a way unique, as the Prime Minister’s Office normally doesn’t initiate notes or reports that are generated from individual ministries. The report also signalled a far bolder approach to reforms than some of the earlier committees, which had put out recommendations in more general terms.
But political trouble began after the report — later dubbed as the “M document” — was published by The Indian Express. V P Singh’s government tried to dissociate itself from the report. Soon afterward, the politics of Mandal took over, effectively leading to the jettisoning of the reform report. The economy was in a mess then, and in its dying days in late 1990, the V P Singh government had recognised the need to approach the IMF for support.
In retrospect, what the experience of these years shows is that while the IMF and World Bank funding and conditionalities did count in the turnaround after the 1991 crisis, India’s policymakers and the political executive led by Prime Minister Narasimha Rao also used that window to push homegrown reforms. And it worked because of bipartisan support.