By Anjan Roy
Bestowing Bharat Ratna on former prime minister, P.V. Narasimha Rao, is a partial correction of neglect and, often, heaping of indignities on him. Well into his twilight era after his prime ministership, Rao used to lead a forlorn life in a bungalow on Man Singh Road, when hardly anybody would come to see him.
And when he died, he was not given even a funeral in Delhi. His dead body was flown to Hyderabad and a funeral of a former prime minister was unattended by any dignitaries. It was not surely a funeral fitting for a prime minister. No memorial could be erected to his memory either.
Narasimha Rao was chosen as prime minister in circumstances post the tragic death of Rajiv Gandhi in the midst of political campaigning. He was then all set to go back to his native city, Hyderabad, and retire from the hectic life in the national capital. He was retiring from his long political career.
He was believed to be non-controversial and not a strong man. However, once in the seat, Narasimha Rao turned out to be a sagacious politician who could manage contradictions and pushes and pulls with the ease of magician. He was pulled out from his retirement.
Thereafter he had managed with aplomb and turned a crisis in independent India’s history into its crowning glory. The nation’s economy was in deep crisis from the policies followed since Independence. The socialist pattern and its economic counterpart, the mixed economy, had many gaps and pitfalls.
Economic policies followed in the early days were tuned to meet shortages of food, foreign exchange and to fight inflation. The policy makers had thought a closed models, based on restrictions on private sector, which resulted in the shortages which fed inflation. These policies in turn had resulted in a severe shortages of foreign exchanges.
It was so bad that India had foreign exchange resources for hardly a few weeks when Rao took over in June 1991. As a correspondent covering the union finance ministry, I had the unique opportunity of having an insider view. A measure of the crisis could be gauged from the fact that a special group was created of select top bureaucrats in the North Block to interact with the Reserve Bank of India. The group would take a review of the exchange resources hand and payables on a day to day basis.
The country was heaped with indignities at the international level when India had to pledge its gold reserves to raise funds for meeting external liabilities. It was so insulting that India was told to physically transfer its gold reserves to London. The usual practice was not to insist on physical transfers of gold but only some accounting transfers.
The real logistics of gold transfer from Reserve Bank’s vaults in Bombay to the London repository has been described by some of the top officials in the then finance ministry, including a nerve wrecking break down of the truck carrying the gold horde from RBI headquarters on Mint Road to Bombay airport.
It was in the midst of such a collapse that Narasimha Rao was to take charge. He realised the crisis needed best professional help, who had some recognition in the global circles. He had called up former Reserve Bank governor and director of the London School of Economics, Dr I.G. Patel, to assume the position of finance minister.
I.G. Patel by then had gone back to his home town in Gujarat. On hearing from Narasimha Rao, Patel had politely recused himself. He said after a life time of itinerant living, moving from one city to the next, he had just built his own home and would like to enjoy his retired life quietly.
Patel, in turn, suggested the name of Dr Manmohan Singh, as the best candidate to take over the responsibilities. Dr Singh had been one of the most experienced economic managers in government at the highest levels, including a stint at the Reserve Bank.
Economic reforms launched by the Narasimha Rao government were not so very unknown. Yashwant Sinha, a former finance minister, had often claimed that the blueprint for reforms were ready to be launched during his tenure at the North Block, but before any such move, the earlier government under Chandrasekhar had collapsed.
Elements of the economic and structural reforms were in place, what was lacking was the political courage and determination to implement these. What Narasimha Rao had brought in was the political support to the finance minister to pursue these reforms. Without his steadfast support, the reforms measures could not have been pursued by a beleaguered finance minister alone.
This was a political gamble as well. Economic reforms at the time had shown some very alarming results. Russia’s dismantling of the restrictive economic policies of the socialist and Soviet era policies had created a full blown crisis. Russian economy had virtually melted down. The worry was to introduce reforms at a pace which would not lead to a similar situation in India. Narasimha Rao’s sagacity and keen political sense had helped turning of the reforms and its synchronization.
In an international atmosphere of hostility and uncertainty of those days, the reforms introduced in the first three years of Rao government laid the foundations for today’s prosperity. The new government of Narasimha Rao, as a first measure, scrapped the Industrial Policy Resolution of 1956 which had directed and in effect constricted India’s industrial development.
The other path-breaking departure from the policies of the earlier years was the introduction of the market-based exchange rate regime. Until then, the value of the Indian rupee used to be administratively determined, which in effect meant holding the exchange rate artificially high. That encouraged imports and discouraged exports.
Dr Singh had insisted on this reform measures in the first push of the reforms process. Narasimha Rao had insisted on a phased approach. It was because of his insistence, the team of experts, headed by the then deputy governor of RBI Dr C. Rangarajan, formulated a two-stage approach, in which the rupee was made partially convertible with a dual exchange rate system. It was only after a while that a unified market based exchange rate system was introduced.
The immediate consequence of the freeing of the rupee exchange rate was its devaluation. This step had, among other impact, made smuggling of gold into the country uneconomic. Trade reforms were simultaneously introduced, which had been generally involved drastic cuts in protective tariff rates. These were criticised by the then Leftist leaders, led by the ones from Bengal. As if, problems do not come alone.
By 1992, the Harshad Mehta scam had emerged which had rocked the Indian financial system. It was inevitable that overall structural economic reforms cannot be even partially effective without wide ranging changes in the financial sector.
These involved major recast of the public sector banking industry and opening up the financial markets. The government had allowed stock market reforms and let in foreign investment institutions. These spelt an end of the closed stock and capital market culture, controlled by a few established brokers in Bombay Stock Exchange.
I remember in about two years from the launch of the reforms programmes, in a meeting in the Constitution Club, Montek Singh Ahluwalia himself was surprised that from scrapping the bottom of the barrel, India was enjoying a bountiful foreign exchange reserve in about a couple of years, something which had not happened ever since Independence.
In fact, after the initial spurt in reforms by the Narasimha Rao government, fundamental reform measures have been avoided even till now. No government had stood up to the reform achievements of the Rao government in which a hardcore politician had combined with a hardcore technocrat.
Today, when wallowing in the flood lights of India’s economic achievements, it is often forgotten that without Narasimha Rao in the high office, India’s current economic profile could never have been achieved without those courageous moves to brush aside cobwebs of laws and restrictions. But, Narasimha Rao remained in the shadows, never really recognised as the architect of a new India.
By conferring the Bharat Ratna the country has recognised the seminal contributions of the soft-spoken, erudite politician. (IPA Service)