The chairman’s room in the government bungalow that houses the Sanjay
Gandhi Memorial Trust is sparsely furnished. In a corner stands an ordinary
rectangular table. The air-conditioner hums, as it fights a desultory
battle against the scorching June heat of the capital. Behind the desk
sits P.V. Narasimha Rao. Across it is seated Pranab Mukherjee, long-time
friend and Cabinet colleague.

The relationship between Rao and Mukherjee had subtly altered. A few
days ago, Rao had been formally elected president of the Congress. In
just over a week, he would be sworn in as India’s ninth prime minister.
The man who had held portfolios from defence to human resource development
(HRD), and from external affairs to home, had never really handled a
full-blown macroeconomic crisis in his long and varied political career.
So he had summoned Mukherjee to 12 Willingdon Crescent Road, where they’d
be undisturbed by telephone calls, to brief him on policy options.

Rao set the ball rolling. “Pranab, I do not know much about economics.
You are the expert. You will have to brief me.” And Mukherjee replied:
“Of course, PV, of course.” In this and other meetings that followed
over the next few days, Mukherjee and Rao talked about the implications
of the Congress party’s manifesto, the budget that had to be presented
and the new government’s immediate economic tasks. Mukherjee told Rao
that the new government would have to take tough measures and had no
alternative but to seek a loan from the International Monetary Fund
(IMF), and that an IMF loan could be managed. He also said that something
dramatic had to be done to strengthen the public sector.

Rao heard Mukherjee out, listening and rarely speaking. He broke into
the conversation only infrequently, once to say that something should
be done to attract non-resident Indian (NRI) investments and, on another
occasion, to say emphatically that privatisation did not mean selling
the family silver. An aide would later say that Rao was obsessed with
the subject of attracting NRI money. And Rao had obvious misgivings
about privatising state-controlled companies. He later brought Congress
heavyweights N.D. Tiwari and Arjun Singh into the discussions on the
public sector. Both opposed privatising it.

Those meetings in the capital set the stage for one of the most dramatic
episodes in India’s post-Independence economic history. In the span
of barely 100 days, the Rao government swept away a vast number of rules
and controls. It devalued the rupee, introduced new industrial and trade
policies, diluted the country’s monopoly law so as to allow businesses
to grow, amended the Foreign Exchange Regulations Act (FERA) in order
to open up to foreign companies, announced a drastic fiscal stabilisation
programme, and launched a public sector share disinvestment drive. The
story of how all this was done has never been fully told. In essence,
a minority government altered India’s economic landscape by ramming
through an economic reforms programme without much debate and without
taking most of the ruling Congress party into confidence.

“Those 100 days were critical”, admits a former government functionary
who worked closely with the PM and the finance minister. “More decisions
were taken in those three months than in the rest of the Narasimha Rao
government’s tenure. Till the budget was presented on 24 July, it was
a period of extraordinary activity. The trade and industrial polices
were being formulated, and negotiations with the IMF were on. A lot
of the decisions were presented to many ministers as a fait accompli.
There was no debate. There was just a group of people who were doing
all this.”

Even more remarkably, all this happened even as the majority of ministers
in the Rao government and at least two senior finance ministry bureaucrats
expressed serious reservations about replacing the old socialistic model
of development with a more market-oriented system. In Cabinet meetings,
ministers such as Arjun Singh, Madhavsinh Solanki, M. L. Fotedar and
B. Shankaranand found many of the new policies difficult to digest.

What follows is based on discussions with many of those who had a hand
in overturning the regulations raj. Almost five years later, memories
have faded or been distorted. But a broad enough picture remains of
events as they unfolded then, to piece together what happened.

Rao’s first job was to put together a team. It was a task he had given
thought to in early June, on the campaign trail in Uttar Pradesh. He
wanted former HRD secretary Anil Bordia, and civil servant Ramu Damodaran;
on board. “When I become PM, I would like to have Ramu Damodaran, Ramu
is like a son to me,” he told an aide.

Rao also hoped to draft the Janata Dal’s former Karnataka chief minister
Ramakrisha Hegde. “Hegde is a fine person, I would like to get him on
my side. We should somehow utilise him,” he said. Damodaran did join
the prime minister’s office (PMO), but it’s not dear if Hegde was sounded
on crossing floors.

The key post Rao had to fill in the government was the finance minister’s.
In early June, Rao placed a telephone call to economist and former London
School of Economics director I.G. Patel and sounded him on joining the
government. Contacted last month over the telephone in Baroda, Patel
said cautiously: He was not offered anything specific then.” Patel also
clarified that he was not offered the finance minister’s slot before
the offer was made to Manmohan Singh, as has been widely believed.

Patel had, in fact, been considered for the finance ministership. But
P.C. Alexander now Maharashtra governor – who recommended several people
(A.N. Verma, Manmohan Singh) to Rao, argued that Singh was a better
choice. Singh was accepted internationally, had better credentials as
a socialist than Patel and so would be more acceptable to the Congress
party. That proved to be the clincher.

Singh had been deputy chairman of the planning commission during the
time Rajiv Gandhi called commission members a pack of jokers. He would,
according to a minister in the Rao government and a prime ministerial
aide, later refer to Gandhi’s economics as “wonky” or “wobbly”. Singh
had also been economic advisor to the previous PM, Chandrashekhar, but
was distinctly uneasy in his slot. He told economist and Chandrashekhar
confidant S.K. Goyal, who was chairman of the planning commission’s
programme committee during the Chandrashekhar regime, that he could
not prove effective in his post. “You should have been here. I cannot
convince Chandrashekhar,” he said.

Singh would, however, be in sync with the new regime. At about 8.30
a.m. on 21 June, Rao telephoned him at his house and told him that he
would be finance minister. As Rao telephoned Singh, the six or seven
officials who were present there looked at one another in wonder. One
of them later said: “We had one thought: Manmohan Singh ko kya ho
raha hai (what is happening to Manmohan Singh)?” Singh attended
office at North Block before his portfolio was officially announced.

Next, the PM turned his attention to India’s fiscal crisis. The country’s
foreign exchange reserves were a paltry $400 million – Rs 1,480 crore
– (the banks had an additional $600 million, but they had overextended
themselves on the basis of the $600 million). A flight of capital was
underway, with NRIs withdrawing deposits. The Reserve Bank of India
(RBI) was scrambling for foreign exchange so that India wouldn’t default
on loan repayments. The earlier regimes had sought and obtained IMF
loans. In January 1991, the IMF had disbursed $1.8 billion to India.
But much of the money had gone to pay for imports, and the new government
would be forced to seek a structural adjustment loan from the IMF, with
all the conditions attached to it. These included devaluing the rupee
and cutting subsidies.

A day after he was sworn in as PM on 21 June, Rao called chief economic
advisor Deepak Nayyar and Manmohan Singh and asked for a briefing on
the economy. When the briefing ended, the PM said: “I realised the position
was bad but I did not realise that it was this bad.”

The next day, Rao confided to an aide that the IMF was turning on the
heat. “Look, I am under pressure from the IMF. Manmohan says I have
to announce some visible evidence of our commitment, and they have identified
a cut in some major subsidies and devaluation of the rupee.” Rao then
wondered aloud which would be a better option – devaluation at one shot
or a two-phased devaluation.

A few days later, Rao and Singh jointly met major opposition party leaders
at South Block and informed them that the government intended to seek
a loan from the IMF.

Yet Rao could have confined himself to fiscal adjustment and a couple
of tough decisions (devaluing the rupee, cutting subsidies). This was
what finance ministry officials were pressing for. The IMF and the World
Bank had for years been urging successive governments to eliminate the
licensing system and open the economy to foreign goods and companies.
When Rajiv Gandhi was PM, the Bank had demanded that the State Bank
of India (SBI) and the Industrial Development Bank of India (IDBI) be
privatised, in exchange for a $500 million financial sector loan, a
demand it would reiterate in 1992. So Rao did not really have to proceed
as far as he went. What made him do so? Says Jairam Ramesh, who joined
Rao when he was elected Congress president in late May as a speechwriter
and aide: “Manmohan Singh was stressing fiscal consolidation and fiscal
adjustment right from the beginning. The PM saw the need to have something
in addition to fiscal reform.” Temperamentally, Rao was no radical reformer.

He had a sharp sense of what would go down well politically. He put
his foot down on privatising the public sector. Some aides recall arguing
with him that the India Tourism Development Corp’s Ashok Hotel in the
capital, for instance, could be privatised and the money used fruitfully
to build schools. The political fallout would be minimal if it was widely
publicised that the proceeds of privatisation were being put to social
use. But Rao refused to budge. At first, the PM shared the view of several
of his ministers that it would be unwise to open the floodgates to foreign
companies. “The PM came around I think essentially because Manmohan,
Chidambaram and others tried to convince him that, in many areas, unless
you do it simultaneously, you will never have the real competitive edge,”
says P. Rangarajan Kumaramangalam, then minister of state for law, justice
& company affairs. Chidambaram recalls telling the PM: “For 20- 30 years
you were raised on a diet of controls and regulations which you thought
was the right thing. To suddenly say that we want to decontrol and delicense
can be quite traumatic.” Rao smiled and said: “Yes, for some of us it
is difficult because it is not an easy thing to make a break with what
we thought was the right course.

But Rao broke with the past, and decisively. A key government secretary
notes that the PM gave the broad directions, with the finance minister
handling the detail. Jairam Ramesh claims that he urged the PM to proceed
down the reforms road, that Rao asked him to submit some ideas and that
he proceeded to do just this.

By 22 June, the nation got an inkling of what Rao intended when, in
his first address after becoming PM, he said that a time-bound programme
would be worked out to streamline industrial policies and programmes
and that the government was committed “to removing the cobwebs that
come in the way of rapid industrialisation.” It was a theme Rao would
return to that evening, when he addressed key government secretaries
at South Block. According to one official who was present there, the
PM told them that the government intended to “sweep away the cobwebs
of the past and usher in change”. The group was then told to proceed
to North Block with Singh for a more detailed briefing.

Over the next few days, Rao, Singh and Chidambaram cleared an 11-point
deregulation agenda, which Ramesh drafted. This included industrial
delicensing, amendments to the Monopolies & Restrictive Trade Practices
(MRTP) Act, changes in FERA, a public sector undertaking (PSU) disinvestment
programme, a cut in export subsidies, a package for the involvement
of foreign companies in oil exploration, a package for the participation
of the Indian private sector in the power sector (foreign power companies
had not been considered; the idea was to allow Indian power companies
to expand), all to be done in the first 7-10 days. The budget would
announce increases in the prices of fertilisers, sugar and food grains
and a freeze on dearness allowance to government employees. The basic
tactic was to be seen first to be deregulating; the tough steps were
timed with the budget. It’s another matter altogether that it didn’t
quite work out that way (the new industrial policy, for instance, was
announced much later, on 24 July, along with the budget, as a tactical
move).

There was also the question of the IMF loan. According to one source,
the IMF had set a deadline of 30 June for the government to sign a letter
of intent on what it would do. The suspicion has since been voiced that
the letter was drafted in Washington by the IMF because words in it
such as ‘labor’ are spelt the American way. But a source who was in
Washington then says that the lMF commonly draws up a draft, which it
then sends to the government that is seeking aid, and the government
draws up its own draft, which is what the Indian government did. He
also denies that a deadline existed. Says IMF deputy director for central
Asia Bijan B. Aghevli on the subject: “No letter is drafted completely
by the IMF. It is a commitment by the government. It is not true that
we sat here, drafted and faxed it and the minister signed it. If we
could just send it to the country to sign, that would not be worth the
paper it is written on. It is a long process that culminates in a letter
and a memorandum of understanding.” He says that the question of a deadline
arises only when an IMF board meeting is scheduled to discuss something.
“Once that date is set, there is some pressure to sign. To my knowledge,
there was no pressure on India.”

But a source who was in the PMO says that around 22 June, Singh met
Rao and told him that the letter had to be signed that day to meet the
deadline. The PM told an aide to read it. The aide pointed out that
the letter implied that the government was committing itself to raising
the prices of several items (petroleum products, fertilisers, sugar).
But Singh said it was too late to get into these issues since it had
to be signed that day. Rao then cleared it, and Singh signed it. It’s
tough to determine which version of all this is correct. But the IMF
certainly had to be informed of the government’s complete agenda. This
was typed on a single sheet of paper that carried no government letterhead
and faxed to Gopi Arora, India’s executive director at the IMF in Washington.
At around 7 a.m. on 28 June, the PM telephoned Arora in his Washington
flat and instructed him to meet IMF managing director M. Camdessus the
next day. Rao told the former finance secretary that he should urge
Camdessus not to set harsh fiscal targets for India in view of all that
the government planned on doing, which Arora proceeded to do. Several
government functionaries would later say that the IMF managing director
was most sympathetic, and wanted to see a success case in India. So
the government was now committed to devaluing the rupee, introducing
a new trade policy and a new industrial policy and presenting a budget,
all within a month.

On devaluation, the government at first favoured an unofficial depreciation
of the rupee over a 7-10 day period, or the so-called crawl. This offered
the advantage of not attracting a political outcry. Finance secretary
S.P. Shukla, RBI governor S. Venkitaramanan and Singh met Rao who cleared
devaluation, but on a crawl basis. But Venkitaramanan went ahead and,
in consultation with the finance minister and RBI deputy governor C.
Rangarajan, devalued the rupee in two stages. On 1 July, the RBI devalued
the rupee by 9.5% against the dollar. The next day, Singh flatly denied
to the press that the rupee had been devalued. Business Standard reports
him as saying: “It is the routine function of the RBI which takes various
factors into consideration.”

The PM was none too pleased with the sharpness of the devaluation, and
told Singh so in no uncertain terms. On 3 July, the RBI further devalued
the rupee by 10.6% against the dollar. So in the span of three days,
the rupee had been devalued by over 20%.

Did the Reserve Bank governor and the finance minister flout the PM’s
directive by opting for a two-stage devaluation? Venkitaramanan says
that when he flew back to Mumbai after meeting the PM in the capital,
he found that the market was anticipating a sharp depreciation in the
rupee. He recalls, “When we did the first step, we wanted to do it sufficiently
sharp so that even if it remained like that, that would be enough to
correct the imbalance. And, then, after assessing the reaction, I wanted
to do another step.

When a devaluation takes place, the market normally expects the second
devaluation to take place after a month. So wanted to take the market
by surprise. I had general clearance at that time to do it and I did
it in consultation with the finance minister. The fact is that Manmohan
Singhji, I found, would act with the concurrence of, and in consultation
with, the PM.” Even as the government was preparing for the second round
of devaluation on 3 July, Singh called Chidambaram and Montek Singh
Ahluwalia (then commerce secretary) to North Block in the morning, informed
them that the second devaluation was underway, and asked them to abolish
cash compensatory support (CCS) because of the change in the exchange
rate. Chidambaram told Singh he had no problem with that, but no commerce
minister could start his tenure by abolishing CCS; the move would be
seen as being unfriendly to exporters. When Singh continued to insist
on the abolition, Chidambaram said: “I am sorry, I disagree.” But Rao
had summoned them both, and they decided to take the matter to the PM.

Both went to South Block. Seated behind an expansive bare desk. Rao
asked them what they had discussed. Chidambaram said that Singh and
he had no disagreement on abolishing CCS, repeated what he’d told the
finance minister, namely, that a commerce minister could not begin his
tenure with an exporter-unfriendly act, and that he had announced at
a press conference the previous day that he would introduce major changes
in the trade policy in two-three weeks. Rao then asked the commerce
minister when he would be ready with the policy. Chidambaram’s startling
reply: “I will be ready tonight.”

Chidambaram headed back to his office at the capital’s Udyog Bhavan,
which houses the commerce ministry, called Ahluwalia and D.R. Mehta,
who was then the chief controller of imports & exports, and asked them
to draft a paper. By around 7.30 p.m., Chidambaram went across to Singh’s
office and presented the file to the finance minister. Singh read and
signed it. They and Ahluwalia went to the PM’s house. Rao still lived
at 9, Motilal Nehru Road. In the drawing room, principal secretary to
the PM A. N. Verma, Shukla and Ramesh were seated. Rao was bathing.

When the PM emerged wearing a shirt and lungi, he asked: “What have
you decided?” Chidambaram sat next to him and briefly outlined the new
trade policy: the import of several products would be decanalised, export
subsidies would be suspended, and replenishment licences would become
the principal instrument for imports and would be renamed Exim scrips.
Rao turned to Singh and asked him whether he had seen the file. When
the finance minister said he had, Rao took out his pen and signed it.
By then, it was past 9 p.m. A senior bureaucrat later said: “I was very
impressed that the trade policy could be changed between 10 a.m. and
9 p.m.” On Chidambaram’s instructions, Ramesh and Deepak Nayyar that
night rang the editors of leading dailies to inform them that CCS was
being abolished; the editor of one national daily was roused from his
bed.

Yet the fact remains that the trade policy was decided by just three
people -the PM, the finance minister and the commerce minister. It did
not go to the Cabinet. Chidambaram felt that this was a matter between
Rao, Singh and himself. This was not the case with the other policy
changes. The new industrial policy, for instance, wound its way tortuously
through many ministerial hearings, after the political leadership steamrolled
it through the bureaucracy. Some observers maintain that the team that
was responsible for the new industrial policy consisted of the PM (who
held the industry portfolio), A.N. Verma, industry secretary Suresh
Mathur, industry ministry economic advisor Rakesh Mohan and Jairam Ramesh,
with Ramesh playing a key behind-the-scenes role. Says Venkitaramanan:
“The industrial policy draft was done essentially by Jairam. Mathur
and Mohan also were extremely cooperative.” At one level the policy
was discussed informally by Verma, Shukla, Nayyar, Mohan, Mathur and
Ramesh, with the group meeting every day. This would later become the
steering committee on economic reforms, which met every Thursday at
the PMO.

At these informal meetings, a heated debate broke out over foreign investment.
The majority of those present argued at first that major changes in
foreign investment policy were not called for quicker clearances were
required. Around that time, Federation of Indian Chambers of Commerce
& Industry president S.K. Birla had publicly stated that a rush of foreign
investments was undesirable. The group soon split, with Nayyar and Shukla
favouring the status quo and the others willing to permit foreign companies
to hold a 51% equity stake in enterprises.

It would be a familiar divide: the two finance ministry functionaries
would constantly argue that the government shouldn’t open the economy
so hastily and urge their colleagues to concentrate on cutting expenditure,
raising taxes and working towards a deeper, more sustainable fiscal
adjustment. Says, a participant in these meetings: “They kept on saying,
this is too radical, this is not needed, we are going too far and too
fast.” On the trade policy, for instance, the finance ministry bureaucrats
were not in favour of expanding the role of Exim scrips.

All this didn’t go down well with the liberalisers in the government,
who soon came to view the duo as being on the opposite side of the ideological
fence. Eventually, both would move out. The government offered Shukla
a posting at the Asian Development Bank in Manila, he refused the offer,
the government posted him anyway, and he bowed out. Nayyar too shifted
to New Delhi’s Jawaharlal Nehru University. Nayyar and the finance minister
had been friends, but the two now meet only when they run into each
other at public occasions. Nayyar has told friends that he is disillusioned
and saddened by the turn the relationship has taken.

However, on foreign investment, even Singh “was a bit hesitant in going
the whole hog,” says a source. Singh feared that it would be tough to
sell the policy to Parliament and to the Congress party unless foreign
manufacturers of consumer goods, for instance, were compelled to balance
their dividend outgo over a seven-year period with export earnings.
He said: “We can’t have liberalisation of foreign investment unless
you bring a dividend balancing criteria. Even in China, I am told, there
is a dividend balancing criteria. So the proposal is not acceptable.”
So a dividend balancing clause was tagged on to the policy.

This is now cited to suggest that Singh was then not the great liberaliser
he is made out to be, that the moving force of reforms was the PM. Says
a former government functionary who interacted closely with Singh and
Rao: “He (Rao) has this image of being indecisive, but he took all the
decisions. The buck stopped there. It was Narasimha Rao all the way.
Manmohan had been thrown in at the deep end and was not decisive then.”
Confirms Ramesh: “It was the PM who was aggressive on reforms.” One
official who interacted with Rao every day during the first few months
of the government says admiringly that the PM was hardworking and not
a slouch: Rao had read by the next morning 12-pagenote which the official
had submitted the previous night.

However, Chidambaram testifies to Singh’s role as a liberaliser. And
Mathur is convinced that Singh was the industrial policy’s helmsman.
He says that within the first fortnight of taking over as finance minister,
Singh called a meeting of several bureaucrats, induding Ahluwalia, Verma,
Deepak Nayyar and Ramesh, and told them dearly that the government intended
to delicense industry. Says Mathur: “He told us, this is the position;
I would strongly recommend that you do this.” Another bureaucrat who
was present at the meeting adds: “The finance minister said all this
had been discussed with the PM, we’re in the business of making changes,
and anyone who has reservations should speak up. The message was very
clear – this is what we want.” Singh asked Mathur to produce a paper
for the Cabinet on the new policy, which he and Mohan did within the
next few days. And whenever he confronted a doubt, he’d consult Chidambaram.
Says Mathur: “I asked him whether the phased manufacturing programme
should be abolished or not. His point of view was, go and abolish it.”

The paper was sent to the PM -and it recommended the abolition of the
directorate general of trade & development (DGTD), the scrapping of
price and other controls in the pharmaceuticals industry, fewer core
sectors, permission for foreign companies to hold a 51% equity stake,
and delicensing for an array of industries, including sugar and milk.
Mathur had some reservations about delicensing the milk industry, and
was amazed when the proposal sailed through. But the policy ran into
considerable flak at a ministerial meeting in South Block. As a result,
it could not be announced when it was scheduled to have been announced,
just after the 4 July trade policy.

For the draft mentioned an exit policy. That triggered off an uproar.
Says Kumaramangalam: “I said the term was something which I was allergic
to. I said in a country where there is such a large unemployment problem,
I don’t believe that ‘exit’ is an answer.” Arjun Singh cut out the sentence.
Adds Kumaramangalam: “The PM did stand by me, surprisingly. He said,
you have got a point. That’s his way of saying it. He won’t say more.”
Rao dearly was lukewarm on introducing an exit policy.

Serious reservations about the industrial policy were expressed by Arjun
Singh, Solanki, Fotedar and B. Shankaranand, all of whom felt that it
represented too radical a break with the past. Confronted with this
budding revolt within the ranks, Rao summoned Ramesh and told him: “Please
go to Fotedar and Arjun Singh and explain to them what we are trying
to do.” Ramesh met Arjun Singh and Fotedar separately. Singh told him:
“Theek hai, but political mamla hai, it is not an economic issue.” Fotedar
too said that it was a political matter, that it should have been raised
first at a party forum and that the party hadn’t been taken into confidence
– which, of course, it hadn’t.

To pacify the dissidents, Rao asked Ramesh after the Cabinet meeting
to discover a link between the party manifesto and what the government
proposed to do (one minister, however, says this happened after a Congress
Working Committee meeting). He also formed a Cabinet sub-committee comprising
Arjun Singh, B. Shankaranand, Solanki, Fotedar and Chidambaram to look
at the policy in some detail.

The committee first met in Parliament House, at the conference room
for Cabinet meetings. Apart from the ministers who were committee members,
others were present too: A.N. Verma, Manmohan Singh, Naresh Chandra
and Jairam Ramesh.

Arjun Singh, who was then HRD minister, opened the proceedings by saying:
“This policy is a very dear departure from the past; it is politically
unacceptable. You have to show how it is linked to the past, that it
is part of a continuous process. There are serious objections on that
score.

Arjun Singh’s reservations were echoed by Fotedar, but the latter went
a step further: he argued that the industrial policy was anti-Nehruvian,
and anti-Indira Gandhi. Shankaranand made an other point: “There is
nothing in it about cooperatives.”

As the criticism went on, the finance minister interrupted: “No, no,
it follows from self-reliance; self-reliance means trade and not aid.”
And Chidambaram rose for the defence: “This has nothing to do with Nehru
or Indira Gandhi. The only nationalisation Nehru did was of the Life
Insurance Corp of India. After that all nationalisations took place
between 1970 and 1977. What have these to do with Nehru? Yes, Indiraji
said the state must play an interventionist role. This was inspired
by the philosophy of Mohan Kumaramangalam, C. Subramaniam, to some extent
I.K. Gujral and Mohan Dharia. You cannot attribute it to Nehru.” But
it looked as if the new policy was in trouble.

However, the PM was keeping tabs on the discussions. He told Chidambaram
to withdraw the draft and deal with the objections that had been raised.
So the commerce minister called Verma, Mathur and Ramesh to his Udyog
Bhavan room and told them: “We can have a paragraph from Nehru, a paragraph
from Indira Gandhi and a paragraph from Rajiv Gandhi to show the continuity.”
He then dictated the three paragraphs and handed them to Rames to polish
up the language. When the draft went back to the cabinet sub-committee,
Fotedar was exultant. He patted Manmohan Singh and said: “Aapne Kamal
Kar Diya” (you did a good thing). It seemed that the policy would
go through.

Thats’s when external affairs minister Solanki dropped a bombshell.
He pointed out that the government was going to give up control of deciding
where industrial units would be located, that this was unacceptable
to him and he would not allow the policy to go through. But Chidambaram
argued that the government had a separate growth centres scheme, that
it would be foolish to tag on a locational criterion when it was delicensing
and deregulating, that to deal with the problem of decaying cities you
had to allow new industrial activity and that was what the policy attempted
to do. Solanki let it go.

But the crux of the problem was how the new policy would be politically
perceived. By the simple expedient of paying obeisance to Nehru and
Indira Gandhi, the government salvaged victory from the jaws of defeat.

When the draft of the policy went to the Cabinet, defence minister Sharad
Pawar urged that the sugar industry be delicensed. And Chidambaram of
all people shot that down by raising a host of questions. What would
happen to the sugarcane control order and to cane growers? Who will
they supply cane to? If the sugarcane control order is repealed, how
will the farmer get his price? Will he have to bargain with the mill?
But time was running out, and the PM said the sugar industry could be
delicensed later. It never was.

The policy eventually went back to Rao. He cleared it and decided not
to make an official announcement on it lest and it should attract unwanted
attention.

But before the industrial policy was cleared, the underlying ideas were
the subject of some debate in the Rao ministry. Most ministers favoured
an initial period of opening the economy to further internal competition
before allowing foreign enterprises in. That would have meant continued
protection for industry through high tariffs. And at meetings at the
PM’s house and over private dinners, views were aired on specific industries.
While all ministers were unanimous that the car industry had to be opened
to further competition (“there was a general view that motor car technology
is very bad,” a former minister chuckles), ministers were divided on
opening the scooter industry. Opposition was also voiced in the areas
of steel, textiles and small-scale industry. “The mood was of uncertainty
because they did not know whether this was the right thing to do,” says
a minister. “The older ministers couldn’t argue against the new ideas
nor support them wholeheartedly. They had never examined their faith
in the earlier policy; they had just accepted it. I don’t think the
foreign debt, the fiscal deficit and the current account deficut had
much of an impact on them.”

On occasions, some of the older ministers were bypassed. Vijay Bhaskar
Reddy, the Cabinet minister for law, justice & company affairs, had
very little to do with amending the MRTP Act. He resisted the amendments,
yielding ground only at the very end. His minister of state Kumaramangalam
took up the idea of scrapping the asset ceiling for big business with
A.N. Verma. Both jointly met the PM in the afternoon at South Block.
Rao said: “If you are convinced, go ahead. You have my support.” A day
later, Manmohan Singh called Kumaramangalam at 6 p.m. and urged him
to change the MRTP Act. “Your father was responsible for creating MRTP,
he would be the happiest man to learn that his son was responsible for
dismantling what is dearly an unproductive piece of legislation, ” he
said, adding: “He was a supreme pragmatist. “

Kumaramangalam was only too happy to agree. He had long felt that the
law’s very purpose had been defeated since big business had only grown
in the years the Act had been on the statute books. So he went ahead
and amended it, confident he had Rao’s backing. While the government
eventually issued an ordinance to push through the amendments, the to-ing
and fro-ing on the industrial policy pushed its deadline back. The PM
finally decided to unveil it on 24 July, in the hope that it would be
drowned in the media hype over the budget on that day. But in the end,
neither the industrial policy nor the budget attracted flak -the fertiliser
price increase did. Suddenly, the Congress party was up in arms. At
around 7 p:m., agriculture minister Balram Jakhar, Solanki and communications
minister Rajesh Pilot met at Jakhar’s house. They agreed that, the higher
fertiliser price was unacceptable. The sound of protest rent the air.
The government caved in, and partially rolled back the urea price increase.

This was not the only occasion that the party would protest. When Singh
addressed the Congress Parliamentary Party, he said bluntly that it
was not possible to roll back the prices of items such as kerosene,
a promise the party manifesto had made. When word got back to the PM
of what his finance minister had said, Rao put his head in his hands
and said in despair: “What am I to do with these technocrats. He later
summoned Singh, who told him that a note had been submitted to Rao during
his early discussions with Mukherjee. This dealt with the financial
implications of the economic promises and showed that the promises were
untenable. Rao was livid. He summoned an aide who told him that the
note had indeed been submitted. Rao had not read the note. Eventually,
he asked Singh to explain the government’s policies to the party.

With the policy on foreign investment dear by now, the question arose
of clearing projects. The committee of secretaries was too unwieldy:
one official described it as a pandiayat. So in mid-August, Rakesh
Mohan and Ramesh went to the finance minister and told him: ” Sir, we
think the committee of secretaries will be too big, and you should intervene.”
Singh felt that the agency to clear foreign investment proposals should
be located in the PMO. He called a meeting of Verma, Mathur, and Ahluwalia.
They decided to set up a Foreign Investment Promotion Board (FIPB) with
four core members: the principal secretary to the PM, the finance secretary,
the industrial development secretary and the commerce secretary.

Ramesh took the file to the PM’s residence and Rao then signed the file.
That’s how the FIPB came into being. With the FIPB in place, the govemment
was desperate to demonstrate that it would clear new foreign investment
proposals quickly. So Kellog’s proposals to enter India was cleared
rapidly. And IBM’s proposal to tie up with the Tatas sailed through.
Before this could happen, however, one official jumped the gun. In a
bid to speed up clearances, Ramesh told Reuters that the government
had cleared IBM’s proposal to enter India, and this was a signal that
the new government wanted to clear projects with the speed of lightning.
The report appeared in more than one newspaper around the world.

One snag: the government hadn’t yet cleared the project. In mid-August,
a policy for the small sector was introduced. Rao spent far more time
on this than on the industrial policy.

“He had the belief that the small-scale sector is the final answer to
our unemployment problem, ” says Kumaramangalam, who was also associated
with the formulation of the policy. Meanwhile, the foreign exchange
crisis was reaching a flashpoint. Like the previous governments V.P.
Singh and Chandrashekhar, this one too was pinning its hopes on NRIs
and other governments bailing out the country. Says a former finance
ministry functionary: ” All the PMs wrote to heads of governments and
NRIs. But it was a pie in the sky. Yashwant Sinha and even Manmohan
Singh travelled abroad seeking money.” But Singh himself once gloated
to a journalist: “Yashwant Sinha travelled an over and couldn’t get
any money. Without leaving this room, I got money.”

With the prospect of defaulting on loans real, the RBI wrote to the
finance minister seeking permission to continue shipping gold abroad
to raise further loans. The RBI governor argued that the Congress government
could always turn around and say that the Chandrashekhar government
had cleared this. But Manmohan Singh blew his top, relenting only when
the crisis mounted further. And with no foreign exchange to be had,
the government soon began clutching at straws. Singh sent Venkitaramanan
to Switzerland to touch the Bank for International Settlements (BIS)
for a $1 billion loan. India would have been willing to settle for anything,
perhaps a few hundred million, but BIS officials told Venkitaramanan
that they’d lend money only after the IMF cleared India’s structural
adjustment programme.

As word got round the international community that India was heading
for the rocks, the government instructed a first secretary in the Indian
embassy to telephone the finance secretary every morning and infom him
which bank was dosing its line of credit to India. The quest for cash
took REI officials all over the world. The governor of the central bank
frequently flew to Washington to tap international banks, but more often
than not drew a blank. He, in turn packed off REI deputy governor R.
Janakiraman to Venezuela because the Venezuelan finance minister had
said that Venezuela was a friend of India.

But Janakiraman received the same answer his boss had at BIS. And though
Venkitaramanan had some success in Japan (the Japanese government was
willing to advance over $200 million), his efforts endangered India’s
bid for an IMF loan. Japanese government offidals were told that India
was not as broke as it had told the IMF it was: it had $1 billion in
reserves. That was true, but the published figure included $600 million
that had been given to the banks. “I said this to the Japanese finance
secretary,” says Venkitaramanan. “The Japanese finance secretary immediately
conveyed this to his colleagues at the IMF. And they said: ‘Look, the
government of India is giving two figures.”‘ A desperate Venkitaramanan
called M. Qureshi who was then at the World Bank and explained the position.
Qureshi conveyed the message to the IMF.

For several weeks, it was touch and go. In July, Venkitaramanan frantically
telephoned IMF managing director M. Camdessus. He was holidaying in
Paris. The phone call came at around 3 a.m. local time, and Camdessus
was woken up. Explains the former governor: We had a problem. The money
had not come in. Various tranches had to be released. He said that he
would do something. He did help. Camdessus was remarkable.” But for
quite some months, the government never quite gave up on its hope that
NRIs would come to its rescue. It launched an indemnity scheme under
which the source for money that came in from overseas would not be questioned.
In October, it launched an India Development Bond, which ultimately
netted the country $ I. 7 billion. The crisis eased only after the IMF
arrived at a 20-month standby arrangement with India for a $2.26 billion
loan in October.

A key question surfaces in hindsight. Were the Rao government’s reforms
the outcome of the IMF and the World Bank holding a gun to India’s head?
The Left has insisted that this was the case. In November 1990, the
World Bank presented the government a confidential report titled Strategy
for Trade Reforms, a copy of whim Business World obtained. This charted
out a strategy for opening the economy that is remarkably similar to
the government’s trade reforms package (among other things, the report
recommended that the rupee be devalued by 22%). Several critics seize
the point that the trade policy was altered in a day. How can a trade
policy be put together so rapidly? Unless, of course, the commerce ministry
was working on a readymade game plan that had been crafted by the international
lending agencies. Pose that question to the commerce minister, and he’ll
tell you that P.C. Alexander had written a report on foreign trade,
that former commerce secretary and planning commission member Abid Hussain
had written a report on liberalisation, that former Hindustan Lever
mainnan Ashok Ganguly had submitted a report, that the commerce ministry
had prepared a paper during the Chandrashekhar era for the Cabinet Committee
on Economic Affairs (CCEA), whim went to the CCEA on 11 March 1991 and
was formally cleared by it, and that the ministry had all these reports
With them.

There’s no denying either that after the initial burst, the reforms
programme slowed down. As IMF’s Aghevli puts it: ” As things improve,
there is less and less urgency. If there is a heart attack, you correct
it or die. As you get better, you worry less.” Till the next time round,
that is.