‘I believed in a long-term political vision. But I have realised that a week is sometimes too long in politics’

• You brought many of them into the policy structure. Many of them have then run India’s economy.

Yes, in fact, Bimal Jalan was one of the persons I picked up for the Ministry of Finance when I became the chief economic adviser. Montek Singh Ahluwalia was another distinguished economist whom I brought to government…Rakesh Mohan is another distinguished economist…

• But Dr Singh, tell me something, you taught economics here between 1969-1971, before that at Punjab University, at Oxford, and later lecturing on commerce and trade… It was very different from the economics you practiced when you became the Finance Minister.

Well, times have changed. In the ’50s and ’60s there were very few people in the world, including those in the West, who differed from what India was trying to do. Those were the days of the take-off into self-sustained growth… that all you need for an economy to take off was a large dose of public investment and thereafter the economy will look after itself. We had, I think, in the late ’50s, an MIT project — the MIT people were closely involved in planning the economic policy of India, and there was no difference between our Planning Commission and the advice that came from the distinguished economists of the MIT.

• Sort of East Coast academic advice, because the US economy was going in a different direction.

Well, obviously nobody would say that India’s problems are the same as that of the United States. I think that was the period when most people believed that in developing countries, because of the lack of adequate development of entrepreneurial skills, private sector limitations, public sector had to be…

• When did you realise that this had changed? That maybe some of what has been taught to you, or you have taught, was either a myth or that times had left it behind…

No I don’t think it’s a myth. I think, what India did in the late ’50s and the ’60s laid the foundation of what has happened to India since then. If Pandit Jawaharlal Nehru had not invested in the modern temples of India, the massive irrigation project, the public sector investment in steel, the institutions of higher level in the department of atomic energy, space programme, India would not have been able to reap the benefits of globalisation which we are now to able to claim in the changed environment.

• Let me take you back to the summer of 1991. What happened when you were actually in the hot seat?

Well, I had no indication that I would be called upon to become the Finance Minister. I had come back from the South Commission, and India was well in crisis. The then PM, Mr Chandrashekhar, asked me to help him as an advisor to the PM. I saw at that time that India was in the midst of a crisis and I started thinking what to do. In my convocation address at the Indian Institute of Management, Bangalore, long before I became the FM, I set out the elements of stabilisation-cum-structural adjustment programmes which I though India needed. But at that time no indication…

• But when did you realise that Indian economic thinking and the way in which Indian economy was managed now needed such a big turnaround? I won’t say about-turn, but such a big change?

Well, I was convinced from the early 1970s. When I became the chief economic adviser, the first paper I did for Prime Minister Indira Gandhi was what to do with the victory. At that time I said we had gone too far in imposing unrealistic control structures, that liberalisation of the private sector was required.

• So you first recommended the end of Licence Quota Raj in 1970s?

Early ’70s, in fact, the paper that I wrote was in 1972.

• But you got the chance of putting that into effect 20 years later.

Well, I was a civil servant…I was the chief economic adviser, also Secretary, Economic Affairs, then I became the Member-Secretary of the Planning Commission.

• But sir, in 1991, when you took over as the Finance Minister, how bad were things? Describe the crisis to me…I believe we didn’t have exchange even for a week’s imports?

India’s foreign exchange reserves had been exhausted. People who had lent money to the Indian banking system, they wanted their money back. And if we had gone that way, we would have to impose such drastic controls on imports that we would have unimaginable increase in unemployment. Sharp increase in inflation was already evident; when we came in prices were increasing at 20 per cent per annum… what we faced was a complete breakdown of the economic system of India.

• Would you say that this was the greatest crisis in India’s economic history? Was there any other comparable moment?

Well, I think we had crisis in foreign exchange in 1957-58, but in terms of consequences for managing the Indian economy, the 1991 crisis was probably the most severe.

• Tell me a few things that you did at that point. Your government didn’t have full majority, you had to get a vote of confidence…

The first thing I had to realise was that India’s exchange rate had to be checked.

• Was it too high?

Well, the rupee was at an unrealistic level, we had to depreciate it. But changing the rupee rate in India has always been a political problem. And here was a government which was a minority government, here was a government which had yet to win a vote of confidence…I went to the PM (and told him) we cannot wait till the vote of confidence…

• Because in India, in the popular mind, we link the value of rupee with national pride…

Yes. So the first thing we did was to adjust the exchange value of rupee in two doses. I had to do that because there were difficulties in going the straightforward way.

• What was the straightforward way? Announcing devaluation?

Devaluation…but the Cabinet was not prepared. There was opposition from the President. He said, ‘your government is yet to win the vote of confidence, how can you…’

• Mr Venkataraman?

Mr Venkataraman. So we found a way out. I instructed the Reserve Bank to announce a new intervention rate, after a few days I asked them to repeat it, and the result was that we brought about devaluation.

• Without announcing it…

About 25 per cent. The world got the message that here was a government, which, despite being a minority government, was able to take the toughest decisions. If you remember, the decision to adjust the exchange rate in the 1960s, I think the decision could not be taken over a period of three years…

• Until Morarji Desai came…

No, I think the World Bank had proposed the depreciation of Indian rupee in 1962, ultimately it was done in 1966. In between, there were tensions within the government; it was not able to take a decision. But within 10 days of the Narasimha Rao government, we took some of the most difficult decisions. Take for example the adjustment of the industrial licensing policy. We abolished the Licence Permit Raj within one month of our government and I was able to report in my Budget speech that India…

• Tell me something about your exchanges with Mr Narasimha Rao? Did he understand the need for change? Because both of you were brought up in a socialistic milieu, he more than you…

Well, Mr Rao was most supportive. Without his active backing I could not have done anything.

• But he knew the risk…

Yes, he knew the risk. And he told me that if this thing succeeds, we will all claim credit, and if things don’t work, well, we’ll sacrifice… And I was prepared for that.

• So you were marked out as a likely scapegoat…But were there moments of doubts, that things are going wrong?

Well, I had some doubts when I presented my first Budget, we had cut subsidies very sharply. Also, in the history of Indian business it’s never been done, we adjusted, reduced the fiscal deficit of the Central Government by full 2 percentage points of the GDP. Therefore we adjusted food subsidies, fertiliser subsidies. But then there was pressure from Parliament and the government developed cold feet. At that stage, I protested. I gave my resignation to the PM. I said if you are going to go this way then I am not able to… But I must say that Mr Rao backed me to the hilt, I think, in the first two years of our government.

• But there are those who say that this was like Manmohan Singh’s re-education. He taught and learnt something else, he was a socialist, and when crisis came, he made a complete turnaround.

Well, I’ve always been a socialist in the sense that I regard the quest for equity, the quest for social equality as fundamental to running a modern economy, a modern society. If by socialism you mean a passion for equality, I am a socialist even then. But I’ve never been a socialist in the doctrinaire sense of the term that all things must be done by the government.

• So what is it that this government is doing by way of reforms that you disagree with?

First of all, I do not agree with the way this government is handling the problems of the public sector. This government, for its ideological reason, wants to dismantle the public sector. Our view is public sector should be allowed to grow if public sector can compete on an equal footing with private sector. That profit-making public sector units, if they can compete, should be given every opportunity…

• But why shouldn’t they just become private? Why should the government run companies?

Because there is a distinction between private profit and public profit. When public sector companies make profits, that becomes the asset for the nation to expand for reinvestment. Where are resources for education, for health going to come from?

• What else do you disagree with?

Although this government talks of deregulation, it is a case-by-case deregulation. There is no consistent hand moving…

• When yourGovt was there, it was called suitcase-by-suitcase…

Well, I think, suitcase-by-suitcase people ended up in the BJP like Sukh Ram has.

• Is there anything that this government is doing which you not only agree with but also endorse? Maybe it’s peace with China or Pakistan, it may be economic reforms…

As far as peace with Pakistan is concerned, our party has had a structured approach… we’ve always been for talks of peace with Pakistan. Even at the height of the Kargil war, we were for talks of peace with Pakistan. Whereas what is the consistency of this government? The PM, one day, talks of aar-par, the other day he mobilises a million people, then suddenly there is a change, he goes to J&K, he talks of insaaniyat…There has been no consistent hand as far as this government is concerned.

• What is it that this government has done that you endorse? Give me one or two examples.

I think, one thing I would say is the National Highways programme. I would also say the fact that they came to power on the slogans of swadeshi. I think they have, over a period of time, not dismantled the reforms structure that we had set up.

• On that you see consistency if there is a change of government in the next elections?

How can one be sure? How does one know? Tomorrow, for example, there would be RSS…

• That is if NDA comes to power, RSS may block it. But if you come to power, you will not reverse it?

No, we will not.. When I became the Finance Minister, I said we are going to produce a model of adjustments and structural changes with a human face…that we will show to the world that there is a humane way of dealing with economic problems.

• If your party or your coalition comes to power, are you promising us even better, faster reforms?

Of course. Reforms which will address the problems of poverty, reforms which will address farmers’ problems, which will address the problems of the working class.

• So what is it that will change in the current scheme of things if you come to power?

As I said, we will have a more consistent…

• Are you going to stop privatisation of public sector?

We will not stop privatisation of loss-making public sector companies. But public sector units which are doing well, which can compete with private sector, both domestic and foreign, we will give them all opportunities to expand. But that does not mean that these public sector enterprises can’t disinvest. If they want to raise money in the capital market, we will allow…

• But government won’t give up control. And the same would apply to nationalised banks also?

We are against a system in which the banking system will be entirely in the private sector. The Congress government nationalised the banking system. We would like the Indian banking system to remain 51 per cent in the hands of the government.

• Talking of changes, tell me about the re-education of Dr Manmohan Singh in politics…

When I came to politics, I thought this as an opportunity for me to convert good economics into good politics. That has been my effort. But I have come to realise that politics, after all, is the art of the possible. And sometimes you have to compromise. But also, I came to politics with the belief that we need to have a long-range vision, that we must look at India’s problems from a long-term perspective. But I have come to realise that a week is sometimes too long a time in politics.

• And economics works in five-year plans. It was said that good economics doesn’t make good politics. Do you think it continues to be true?

No. If politics is the instrument of social change, if politics in this country has to serve the people of India to get rid of chronic poverty, ignorance and disease, it has to be based on good economics.

• You worked with many leaders of the Congress party, as a partyman and as a civil servant. How do you compare Sonia Gandhi with Rajiv or Narasimha Rao or Indira Gandhi before that?

Well, of course, Indira Gandhi was the most towering personality. I’ve worked closely with Mrs Gandhi, I’ve worked closely with Rajivji, I’ve worked closely with Narasimha Raoji, each one of them were men/women who have served India with great distinction. Soniaji, I think, is new to politics, but in the last five-six years that she had been the leader of our party, she has given the party a lead which has helped unify our people.

• What is her brief to you? What are you to achieve for the party and her in this campaign and beyond?

A progressive expanding economy, a socially just…

• We somehow don’t identify you with the din and dust of election. Are you going to campaign?

Well, I should campaign. I am a member of the Congress party and I will be campaigning.

• And are you going to contest?

I haven’t made up my mind.

• Pramod Mahajan has an interesting term: winnable candidate. In some sense you are not a winnable candidate because you did so much for the middle-class of India and yet South Delhi defeated you. Middle-class is so ungrateful.

Well, I have no regrets. I am not putting the blame on middle-class or anybody else. Maybe there was some defective link.

• But are you game if you are asked to contest again?

I have not made up my mind .

• That is the difference between a politician and an academic. There must be areas where you disagree with your party?

Well, I think, when you are a member of the party, you have to abide by the party discipline. But that also means that there are areas where sometimes you have to abide by the party decision even when you thank that is not the right decision.

• But at the same time you think you will have sufficient moral or intellectual strength to keep the party in the right decision whether or not it wins the elections — in terms of having a sensible view on the economic reforms…

I think there is no doubt on it. The Congress party, under Sonia Gandhi, has stood by the reforms. There are important reforms processes, say, the opening up of the insurance sector; it would not have been possible without the support of the Congress party. The new Electricity Bill, which is reform-oriented, it would have not been possible but for the Congress party. The Congress’s record is that when reforms are in the interests of the nation, we have backed it.

• So whether the Congress wins or loses, nobody should see any threat to the larger reforms process. As a citizen, investor, taxpayer I should not have any sense of insecurity…

Of course, let me say we are the original reformers, we are better reformers and our commitment to reforms with a human face, to work for a new India free from the fear of war, want and exploitation… there should be no doubt about our total commitment.