Sunday, November 1, 2015

What was experiencing the economic reforms 1991 like - a primer

What did the economic reforms 1991 do to India? To begin with -
  1. they made consumerism desirable, brought in the first wave of multinational goods into India and made fancy consumer goods suddenly visible
  2. they made the IIMs a brand worth chasing; suddenly everyone wanted to be an MBA
  3. they changed the whole political and social discourse in India
Deng Xiaoping Sandeep Manudhane PT education SM sir Indore youth
The cat and its colours
Much like the Deng Xiaoping era witnessed in China after 1979, when he would exclaim that "to be rich is glorious", India was to witness its own Deng moment.

Allow me to offer a detailed insight. I was lucky to have witnessed, analysed, taught and lived the entire phase of the first generation economic reforms started by the team of PM Rao, FM Dr Singh, and Commerce Minister Mukherjee, beginning 1991. I was doubly lucky to have witnessed the tumultuous 1980s, when India witnessed a chaotic political scene, and ultimately which forced the Rao government's hands in 1991 to bring in economic liberalisation.

I distinctly remember the entire period of the first wave of Indian economic reforms (1991-1995), as that was the time I was in college (1989-1993), about to graduate, and making plans for my life. No one had expected that the Indian government would suddenly change track, and open up the floodgates of economic reforms so soon. But it happened, and India and its contours changed dramatically in just a span of 5 years. Almost each day brought with it headline news of government relaxing the rules of the game! Imagine an ET headline - "Government scraps Industrial Licensing" - that's how dramatic it was.

Let us start with the period 1983 to 1991 first. Many of the historical threads that led to the 1991-1995 period originated here. The following developments took place:

Indira Gandhi Bright Sparks Sandeep Manudhane PT education Indore Youth SM sir
Indira the iron lady
  1. The death of Indira Gandhi : She was a very strong lady, who had made it through the rough and tumble of Indian politics, after her father Pandit Nehru had passed away (1964), and much against the wishes of other senior Congresspeople, especially stalwarts like Morarji Desai (and Ram Manohar Lohia who called her a goongi gudia  - silent doll). She came down heavily on the Syndicate by nationalising banks in India (1969-70 and 1980), and changed the basic structure of the Indian economy by bringing it much closer to the socialistic model her father had envisaged. Through the 1970s, when I was a kid, India went through - a massive war in the East (liberation of Bangladesh, 1971-72), refusal of the world to help (influx of Bangladeshi refugees), overt threats by the US and UK (possible entry of 7th fleet in the Bay of Bengal, 1971 which was stopped only by USSR's intervention), Emergency (launched on 25 June, 1975 when the Allahabad High Court overturned Indira's 1971 election victory), excesses of the Emergency (forced sterilisation etc.), death of Sanjay Gandhi (infamous 1980 plane accident), collapse of the Congress government and launch of the first non-Congress coalition government (post 1977 elections), several landmark Supreme Court decisions upholding the independence of the judiciary (basic framework concept), rise and fall of J S Bhindranwale (the Sikh extremist leader demanding an independent Khalistan, killed in Operation Blue Star 1983), and the assassination of Indira Gandhi on 31-10-1984 by her bodyguards.
  2. The sudden rise and fall of Rajiv Gandhi : Indira's death sent shockwaves through India, and brought an introvert Rajiv Gandhi to the hot seat. The murderous anti-Sikh riots almost brought India to a standstill for weeks in Nov-1984. Finally, in the general elections of December 1984, Rajiv scored a clean 404 on 533! The Congress won an unbelievable
    Sam Pitroda Rajiv Gandhi PT education Bright Sparks Sandeep Manudhane SM sir
    Talk India, talk!
    majority in the Lok Sabha - the highest so far ever. No one had expected Rajiv to do well, but he picked up nicely. He brought in the first few steps that can qualify genuinely as economic reforms - reduced the import duty on computer hardware, and with the help of the talented Sam Pitroda, started the STD-PCO revolution across India. It truly connected India like never before. The yellow boxes sprang up overnight across India. TCS had existed in this period, a small private company led by F C Kohli that no-one had heart about!
  3. The mess called coalition politics : Rajiv Gandhi would have taken India down the road of reforms much earlier than when P V Narasimha Rao did, had he not tumbled due to 3 major bumps - (a) the Bofors scandal (when his own Finance Minister V P Singh revolted), (b) the Sri Lankan mess (when the Indian Peace Keeping Force IPKF sent there faced nasty headwinds) and (c) the Shah Bano case (that severely strained the Executive-Judiciary relations). By 1989, the Rajiv government had lost its mojo, and elections were declared. Congress could not muster good numbers, and V P Singh became the PM with support from many other parties. However, internal power struggle led to chaos, and soon came the Mandal Commission announcement. Rajiv was assassinated in 1991, while campaigning in Tamil Nadu. The Congress was left headless, and multiple regional leaders started gunning the top spot, including the Sharad Pawar lobby. This was the time there were no mobiles or internet to be seen anywhere in India!
  4. The Mandal Commission upheaval : V P Singh had played the masterstroke of implementing the Mandal Commission report, guaranteeing a huge chunk of reservations (in government jobs etc.) to the OBCs. Protests erupted everywhere, including Delhi, and I was a part of protests when groups of IIT Delhi students would join others in blocking the various
    Rajiv Goswami's self-immolation
    junctions culminating in a major showdown on the AIIMS junction one fine night (1990-91). An extremely volatile period it was. Self-immolation by students was not uncommon, with Rajiv Goswami being the first (remember that Mohammad Bouazizi's self-immolation in 2010 in Tunisia brought down governments across the Arab World as part of the Arab Spring). This also prompted the BJP to initiate its Rath Yatras under the leadership of L K Advani. The overall impact of all this was that our economy went downhill.
  5. Sharad Pawar or who? There was no clarity, post 1991 general elections, as to who will lead India. One of the strongest contenders was Sharad Pawar, and it was only the surprise last minute manoeuvring that saw the most-unlikely (and a compromise) candidate Shri P V Narasimha Rao emerge as the PM candidate.
  6. PV Narasimha Rao it is! : People felt that Rao would last a few months at the most. He ended up being the longest serving non-Gandhi family PM of India (till 1995-96). Faced with an economic disaster (our forex reserves were barely $ 1.5 billion, and manufacturing had slumped). The USSR had collapsed (they saved us in 1971). Rao made a crack team
    Pranab Mukherjee PM Rao Manmohan singh PT education Sandeep Manudhane SM sir
    Come on India! (L to R - Pranab da, PM Rao, Dr M Singh)
    comprising himself, Dr Manmohan Singh (FM) and Shri Pranab Mukherjee (Commerce Minister). They launched the most bold series of policy decisions ever taken by any Indian government. Over a span of just 5 years, India had changed for ever. By the way, PM Rao was a true polyglot who could handle 14 languages! His "Look East" policy brought the much needed change in Indian foreign policy approach.
  7. Welcome to India! : The first change was that the government now wanted the private sector to be a partner in India's growth, and not an undesirable second cousin to the mighty PSUs. This was rather a shock - and the so-called Bombay Club started figuring in news, which was an informal coming together of big industrialists who (it was alleged) wanted to slow down the opening up. But the government was firing on all cylinders, and all old shibboleths came crashing down.
  8. Some dramatic news items -
    (a) PM Rao addresses IAS officers that liberalisation is the way forward
    (b) Licence - Quota - Permit raj came to a sudden end (and resurfaced in multiple different forms later!)
    (c) Young Indians suddenly felt that India has a promise. Many decided to stay back.
    (d) Multiple scams emerged, including the maha-infamous Harshad Mehta scam. PM Rao never commented on any, except "The law will take its own course".
    (e) Hundreds of new consumer items and tens of TV channels arrived. The daily life of an Indian suddenly spiced up with this volatile mix of luxury goods, consumerism, 24x7 news, rising salaries and 100% instant placements from the IIMs! Mr Pradeep Shah was reported to be the first Indian to receive a Rs 1 crore p.a. package from an MNC.
    (f) It felt that India had surely arrived! The LPG - liberalisation, privatisation, globalisation - wave had swamped India.
    (g) The Indian IT sector - for the first time - started appearing in news media. Names like Infosys and TCS started getting household recognition. There indeed was a time when their turnovers were barely a few hundred crore rupees p.a. !

The question mentioned "protests". There were many, but the determination of the government was so intense, that nothing came in the way of LPG getting implemented. This despite the fact that PM Rao headed a minority government initially.

Overall, an epic era that totally transformed the way the world looked at India. We haven't looked back ever since. Kudos to the trio!

[ The prime reason I remember this period with a certain intensity is that a senior of mine at college taught me how to read the Economic Times! And I fell in love with the newspaper, and similar publications like The Economist etc. This made me feel I am very close to what was happening at policy level (though I was not even a graduate)! I realise it today that without this reading habit, my understanding of the economic reforms would have been plain simple wrong.]


Rajesh Kumar said...

Good article very balane and thoughtful insight

Unknown said...

THANK YOU sir.This article provided the real and clear picture of Indian economic reforms to me and learned about chain of events that occured in that era which were difficult to learn without a proper link.This introduced several names in my notes Mr.Pradeep Shah and Rajiv Goswami.

Hitesh said...

Sir, please tell us how to read the Economic Times and also The Economist. Any suggestions from you is most welcome :)

Vatsal Bhogayta said...

But what about the going Third Generation of Economic Reforms?when will they achieve their desired goals and what about the Politically sensitive"Factor Market Reforms?" are they gonna see the light of the day in near future?