It is hogwash to say that Manmohan Singh was the architect of the reforms that won India its independence from Nehru in 1991.
Forget “desi” paternity. The Indian reform process sprang from the emphatically foreign loins of IMF mandarins. They imposed conditions on India in exchange for an emergency loan of $2.2 billion, secured by 47 tonnes of gold reserves which had to be hauled to the UK. Another $600 million was secured by pledging 20 tonnes to the Union Bank of Switzerland. Bharat wasn’t always “mahaan”.
Narasimha Rao unveiled some reforms a few hours before Singh’s maiden budget in Parliament. But the reason Singh was given “architect” status (as Swaminathan Aiyar has argued in a recent blog) was that he’d be the nerdy fall guy if things went awry. As a respected technocrat with no political base, there’d be little opposition to Singh’s recommendations.
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By June 1991, when Chandra Shekhar was leading a caretaker government with Yashwant Sinha as finance minister, India’s pyjamas were around its ankles: Foreign reserves had dipped to $600 million, just enough to cover three weeks of imports. The government sought emergency help from multilateral agencies and international banks, and eventually raised $6.6 billion. The rupee was devalued by 57 per cent in three days.
That year was not the first time India experienced a balance of payments crisis. The “forex” kitty India inherited at Independence had been squandered by 1956. Jawaharlal Nehru focused on import-dependent heavy industry and India’s food import bill soared. As would become characteristic of Indian policy, India responded by devaluing the rupee and imposing sharp restrictions on imports while doing diddly squat to promote exports. India became a basket case, the world’s greatest recipient of foreign aid.
After the righteous war with Pakistan in 1971, India became a Soviet client-state. Indira Gandhi and Leonid Brezhnev signed treaties covering defence, food and energy — to be transacted in rubles, thereby mitigating India’s hard currency horrors. But India continued to suffer balance of payments problems through the oil shocks of the 1970s and sought help from the IMF in 1981, soon after Mrs G returned to power.
However, this time was different. Having learnt from the bedraggled 1960s, India approached the IMF before another severe crisis erupted and volunteered its own reforms. These weren’t earthshattering, but this was the first such approach made by a developing country to the IMF. The Reagan administration was opposed to the loan but didn’t say no. India received the largest loan to date by the IMF to a developing country: $6 billion, to be disbursed in three tranches.
With the Green Revolution and Bombay High, India’s food and energy bills were lower. The country didn’t need the final tranche of the loan, and also repaid the first two loans early. However, when Rajiv Gandhi came to power, India went on an extraordinary debt binge — Rajiv’s greatest legacy — which eventually led to the crisis in 1991. At the time, India had the third highest level of external debt after the usual suspects, Brazil and Mexico. Gracias, Rajiv!
India’s economic reforms have mainly sputtered since then, a tale of three steps forward and two back. Other than in sectors that didn’t exist before 1991 (such as mobile telephony and IT), the heavy hand of the State still grips most of the economy. Narendra Modi has shown few signs of letting go.
By privatising slivers of State-owned companies and allowing public-private partnerships, the government has been able to raise capital from the private sector; but very little real reform has happened after 1996. In most traditional industrial and service sectors, government- owned companies dominate. India has been fooling itself about both the architect and the extent of its reform programme for 25 years. Manmohan Singh has wrongly taken credit for a liberalisation that was half-cocked at its inception, and has been quarter-cocked ever since.
In India, entrenched political interests and crony capitalism always win. One can only wonder where India would have been today if Rao and Singh had implemented the kind of reforms that Beijing started 10 years earlier.
Modi’s most recent state visit wasn’t to China: It was to another planet.
Tunku Varadarajan is the Virginia Hobbs Carpenter Research Fellow at Stanford University’s Hoover Institution.