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The reluctant liberaliser

JUST as the hoopla over 25 years of economic reforms has subsided, Finance Minister Arun Jaitley has criticised the view that former Prime Minister Narasimha Rao was the force behind the liberalisation drive.

The reluctant liberaliser

Fair’s unfair: History will perhaps be more kind to Rao.



Sushma Ramachandran

JUST as the hoopla over 25 years of economic reforms has subsided, Finance Minister Arun Jaitley has criticised the view that former Prime Minister Narasimha Rao was the force behind the liberalisation drive. His comments may actually find resonance with a section of the Congress that has always sought to downplay Rao’s role in the launch of economic reforms. The then finance minister, Dr Manmohan Singh, is invariably described as the architect of the economic reforms of 1991 that transformed the moribund Indian economy. The role of Prime Minister Rao is always mentioned in a low-key manner, as if he was  just an innocent bystander. Mr Jaitley’s comments go a step further, insisting that Mr Rao was not at heart a liberaliser or keen on economic reforms but was forced into taking these measures because of the desperate state of the economy at that time.

It is, of course, correct that the government had been pushed to the wall and only then decided to make the big gamble of reversing the economic policies of the previous 40 years in one fell swoop. But to take that decision was a big risk. If it had failed, the government could have ended up with egg on its face. Such a political decision could only have been taken by the head of the government. And it was indeed the then PM Narasimha Rao who took the tricky political decision to go ahead with industrial delicensing and the raft of economic reforms charted out by his finance minister Manmohan Singh. The boldness of these steps need to be viewed in the current context where subsequent governments have not had the courage to go ahead with equally bold and unconventional measures. The barrage of changes in 1991 and the following few years have not been matched by any government since then, whether led by the Congress or the BJP. Even the tenure of Dr Manmohan Singh as Prime Minister did not lead to any transformatory measures to the economy. It can, of course, be argued that most of the dramatic changes to the system had already been effected in 1991, of converting a license raj administration to a liberal economic setup. However, there were a host of steps that still needed to be taken to ensure that ease of doing business improved in this country. It is the lack of such ease that delayed the pick up in foreign direct investment flows into the country. These grew only slowly since 1991 and increased significantly just in the past five or six years. In other words, it took two decades for FDI inflows to pick up to a level that could come somewhere near that of China. There was thus much that could have been done to push forward the reforms effort after Rao ended his term as Prime Minister.

As for his not being a liberaliser at heart, this is possibly also a correct assertion. But this was true of most political leaders in most political parties at that time. The BJP notably had its vociferous advocates for retaining the Nehruvian approach of import substitution that resulted in quantitative restrictions on imports as well as keeping duty barriers high to prevent easy import of foreign products. The swadeshi lobby in the BJP, in fact, was strongly resistant to the continuance of reforms by the NDA government when it took over in 1998. The Swadeshi Jagran Manch, a wing of the Sangh Parivar, had been opposed to multinational corporations and believed in containing market forces. Former HRD minister Murali Manohar Joshi was also a supporter of the swadeshi movement which opposed liberalisation in foreign investments. Fortunately, however, the Vajpayee-led NDA, however, played little heed to this group and went ahead with the same set of policies as the Rao government. It also became a signatory to many agreements under the multilateral World Trade Organisation, as a result of which it phased out QRs and reduced import duties.

Narasimha Rao, like most political leaders in the 90s, opted for economic reforms simply because there was no option if India’s economic condition was to improve and to push the pace of development beyond the so-called Hindu rate of growth. Had this not been the case, the Vajpayee government could have followed the swadeshi route which had strong roots in the party and tried to reverse or, at least, put a halt to reforms. In fact, it had been widely speculated before the NDA government came to power that it would review many of the policies of the previous government. This did not happen and much to the surprise of many commentators, it went ahead with deepening the reforms process.

As for Rao being the only reluctant liberaliser in the government, one must recall that even his finance minister, Dr Manmohan Singh, had to overturn his carefully laid down policies of decades in the reforms process. It is to his credit, indeed, that Dr Singh did not hesitate to demolish the structure that he himself, as a long time bureaucrat under successive Congress regimes, had actually set up.  Perhaps not a reluctant liberaliser but surely a man who must have thought long and hard before taking an enormous risk in the hope of equally enormous gains for the country.

Even so, it was ultimately the responsibility of the Prime Minister for all the radical measures being taken at the time. As Harry Truman famously put it “the buck stops here”. Rao would have got all the flak if the reforms had failed. Fortunately, the reforms were a success as they put the country on a high growth path for the first time since Independence. Sadly, this success has never been attributed to the man who gave the green light for new policies. Neither in his own party, and now, not even in others. One can only say that history will surely judge Narasimha Rao more fairly and will record that this was the man who changed the face of the Indian economy in the 20th century.

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