Tuesday, Oct 04, 2022

30 yrs ago, 90 mins that changed India’s history

It were these crucial 90 minutes that paved the way for India’s historic decision to liberalise its economy in 1991. Rao was told that foreign exchange reserves had dipped to Rs 2,500 crore, only enough to meet three months’ imports.

Then PM-designate PV Narasimha Rao at Andhra Bhawan on June 20, 1991 - the day he gave the go-ahead for accepting IMF loan. (Express archive photo by Ravi Batra)

THIRTY YEARS ago, the Congress Parliamentary Party unanimously elected Narasimha Rao as its PM-designate. After the meeting held in Central Hall, Rao, accompanied by Arjun Singh, went straight to Rashtrapati Bhavan to stake claim to form government.

That day, June 20, 1991, also bore witness to another tectonic resolve: the PM-designate gave the go-ahead for accepting a controversial IMF loan, thus paving the way for the country’s economic liberalisation. And, this historic event happened in a most dramatic setting. Congress leaders and ministerial aspirants had collected in large numbers at Rao’s Teen Murti Lane residence when he received the presidential invite. It was past 2 pm. The first thing the PM-designate did was to go to 10 Janpath to seek Sonia Gandhi’s blessings.

While returning, Narasimha Rao received a message from Cabinet secretary Naresh Chandra. He sought an urgent appointment. It was not a case of customary briefing every PM-elect gets from the chief bureaucrat. Naresh Chandra insisted the appointment could not wait any longer. Present at the meeting were the finance secretary and an array of senior officials with files. The presentation by the finance secretary lasted about 90 minutes, and all the while party leaders anxiously waited at Teen Murti Lane for Rao’s return.

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It were these crucial 90 minutes that paved the way for India’s historic decision to liberalise its economy in 1991. Rao was told that foreign exchange reserves had dipped to Rs 2,500 crore, only enough to meet three months’ imports. This forced the Finance Ministry to pawn 47 tonnes of confiscated (smuggled) gold lying in SBI’s vaults. Rating agencies had also downgraded India to the ‘dangerous’ level. External debt was about 22% of GDP and internal public debt 56%.

Under the looming political uncertainties, the officials revealed, they had initiated preliminary negotiations with the IMF in Washington for a standby loan of $2.3 million for a 20-month period. For this, the IMF insisted on a set of written and unwritten conditionalities. Now, the Cabinet Secretary said, it was for the political leadership to decide whether to carry forward the negotiations. Rao sought a few clarifications. He was firm and curt. He directed the Cabinet Secretary to go ahead with the negotiations. This was followed by a 10-minute separate meeting with Naresh Chandra. All this happened before Rao took oath as PM.

Back at Teen Murti Lane, Rao greeted the waiting well-wishers and went in to hold consultations with senior leaders such as Arjun Singh, Pranab Mukherjee and M L Fotedar. None of them had any inkling about his go-ahead for the IMF loan. While political discussions were going on, P C Alexander contacted I G Patel and asked if he could take over as finance minister. Ailing and weak, Patel said he was in no position to do so.

Alexander next rang up Manmohan Singh, who did not take the offer seriously. He accepted it only when Rao made a personal request. This forced Singh to cancel a scheduled dinner with friends.


When they met, Rao gave a free hand to Manmohan Singh. According to Devendra Dwivedi, the late former additional solicitor general and a close Rao aide, soon after taking oath at Ashoka Hall, Manmohan Singh gave the PM a handwritten note. The first suggestion was to not place reform-related matters at Cabinet meetings where the colleagues were certain to block it. The note contained step-by-step measures to fulfill the IMF conditionalities.

As per this plan, devaluation of rupee by 9 per cent was announced on June 30 that year and another 11.83 per cent on July 2. Next day, Commerce Minister P Chidambaram announced the new trade policy. He scrapped the quota system and removed restrictions on exports. It contained a whole range of trade liberalisation measures as per IMF prescriptions. In his first reform budget, Manmohan Singh announced a steep hike of 26% in prices of petrol, diesel and LPG, new taxes to net Rs 2,617 crore and an amnesty scheme to net black money.

There was fierce political opposition. Most Congress leaders were sceptical of dismantling the Nehruvian structure. Rangarajan Kumaramangalam and Harish Rawat warned the Congress will lose the following elections. The opposition BJP was sharply divided, with then party president Murli Manohar Joshi and a dominant section claiming that the IMF conditionalities severely undermined India’s sovereignty.


On June 26, Rao separately briefed V P Singh, L K Advani, Harkishan Singh Surjeet and Chandra Shekhar on India accepting the IMF conditionalities. The next day, the PM and FM explained to Opposition leaders about the inevitability of taking the IMF loan. Advani, George Fernandes, Madhu Dandavate, Surjeet and Yashwant Sinha said they were opposed to conditionalities like subsidy cuts.

On July 4, 1992, IMF chief Michel Camdessus expressed satisfaction over implementation of the conditionalities.

P Raman is a senior journalist and author of Post-Truth Media

First published on: 13-06-2021 at 03:56:32 am
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