Governors of the Reserve Bank of India often meet Prime Ministers one-on-one to brief them on the state of the financial sector and other issues. At one such meeting in mid-1998, Governor Bimal Jalan asked Prime Minister Atal Bihari Vajpayee to restrain his senior Cabinet colleagues from publicly expressing their desire for a strong rupee. The RBI was then grappling with the aftermath of the Asian crisis, which had singed the currencies of many East Asian “tiger” economies, and India’s foreign exchange reserves were relatively limited. Quietly, Vajpayee sent out the message on the need for restraint, helping the central bank keep currency speculators at bay.
Towards the end of Vajpayee’s term, Y V Reddy, who succeeded Jalan at the RBI, called on the Prime Minister — only to be told that he should deal with the Finance Minister. Vajpayee had only one question for the new Governor: “How do you handle the problem of unemployment?” In the Vajpayee years, the functional relationship between the government and RBI — the makers of fiscal and monetary policy respectively — was perhaps the best. The Finance Ministers of that time, Yashwant Sinha and Jaswant Singh, contributed greatly, but without the backing of Vajpayee, this may not have been possible. As Reddy put it, “He kept his eyes, ears, and mind open, but his mouth shut. But When he opened it, it was with a purpose.”
Highways of destiny
Like the years of P V Narasimha Rao, the Vajpayee era, too, will be remembered for its rich economic legacy. Rao dismantled controls, but the building blocks for a wide range of reforms — in infrastructure, telecom and information technology, the building of India’s foreign exchange reserves after the post-Pokharan sanctions by the US, and a law to check borrowings and bring about fiscal discipline — were put in place during Vajpayee’s tenure as Prime Minister. Fruits of these reforms are in ample evidence now — and topping them all was the Golden Quadrilateral, a big-picture idea that he articulated within weeks of his government taking over in 1998. A few years later, he was to say in a style that was typically his: “The highways we are building are the bhagyarekha (lines of destiny) on the palm of the nation. With these highways, we are writing a new destiny for India.”
In 1999, when bad loans to India’s telecom sector had swelled and firms were in trouble, Vajpayee backed, in the face of opposition from the Finance Ministry, a migration from a licence-based regime to a revenue-sharing model. Opponents alleged a scam in the proposal, and in the government’s move to allow telecom biggies Reliance Infocomm and Tata to offer limited mobility within their circles. The government won the legal test in the Supreme Court, and those gamechanger policies fuelled the growth of India’s telecom sector, which now has a billion subscribers.
It was during this period that India’s information technology sector got a big push — N R Narayana Murthy, Azim Premji, and others were to make India a major global force a few years down the line. In June 2001, on a visit to Infosys in Bangalore, Vajpayee said India’s IT bellwether represented a “happy confluence of Saraswati, Lakshmi and Shakti” — a reference to the knowledge economy and its potential to create jobs and wealth.
The progressive building of India’s foreign exchange reserves started after the post-Pokharan US sanctions — first as a protective shield with the launch of the Resurgent India Bonds and subsequently, the India Millennium Bonds. These bonds were expensive, but they helped bolster the country’s forex reserves — which, by the time Vajpayee’s government demitted office, had topped $ 100 billion. The rub-off was seen in economic diplomacy — extending of lines of credit to African countries — as well as in the prepayment of debt and virtual capital account convertibility for individuals, a signal of India’s coming of age economically.
Other battles, too, were waged and won — the bad loans mess that took over three years to sort; sectoral issues in steel and textiles, which were addressed through packages. Results began to show in the last couple of quarters of Vajpayee’s term — an experience that seems to be mirrored in NDA-II.
If the governments at the Centre and in the states are now far more mindful of fiscal discipline and revenue management, it has to do with the Fiscal Responsibility and Budget Management (FRBM) Act, which was approved by Parliament and notified. Vajpayee’s government did away with the British-era practice of unveiling the Budget at 5 pm, which help better analyse the statement of expenditure and revenue in more informed debates.
Cooperative federalism is a buzzword now — but it was Vajpayee’s government that gave it meaning with the way the formation of Chhattisgarh, Jharkhand and Uttarakhand were handled, and a debt recast package for the states was formulated.
The concept of a Finance Minister of an Opposition-ruled state heading the Empowered Committee of Finance Ministers was first introduced during Vajpayee’s time. That idea has now morphed into the GST Council — a great exemplar of cooperative federalism. The first building block for GST was, in fact, put in place during his government — when a Task Force headed by Vijay Kelkar recommended the introduction of GST with a 12% rate.
The first big push for disinvestment too, came during his government — with the formation of the Department of Disinvestment in 1999. Without his political backing, the concept of strategic sale, which saw state-run enterprises such as Modern Foods, Balco and Hindustan Zinc being put on the block, couldn’t have been possible.
It is a different matter that some of those divestments were mired in controversy. Besides the questions around telecom and divestment, there was the stock market scam of 2001 — which led to the formation of the Joint Parliamentary Committee — and the crisis in UTI, which led to the restructuring of India’s oldest mutual fund. But these controversies will always remain smaller than the achievements of the Vajpayee years.