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Who took India to the brink?
In The Hindu dated 4 April , economic journalist TCA Srinivasa Raghavan wondered as to who was responsible for the 1991 BoP crisis, Rajiv Gandhi or V P Singh, but concluded wrongly.
TCA HAD FIRST worked for the Indian Express, later for the Business Standard and still later the Business Line. He enjoyed view from a ringside seat to government’s functioning. He has narrated a tale that missed out several vital facts.

The trigger for profligacy was in the 1980s. After Indira Gandhi liberalised the auto sector, Rajiv Gandhi opened up the floodgate for imports through CKD and SKD packs for expanding telecom and television.  

Remember, Rajiv, reluctant to enter politics, had risen to prime ministership in the grim aftermath of a grave tragedy, the assassination of Indira Gandhi. The nation voted him  to office with a thumping majority. After all, he was young, westernised in outlook and was India’s first yuppie politician.  But good intentions alone don’t work in life.

In just a decade of the 1980s, public debt rose from Rs 56,115 crore to a staggering Rs 314,558 crore. And for 5 full years of that decade Rajiv was head of government. Fiscal deficits and inflation, which were low and modest for years, shot up to unmanageable levels that led to the foreign exchange crisis. The position was so bad that in 1991 India was forced to do the unthinkable: she had to pledge her gold with the Bank of England and get a bail out by the IMF with stringent conditions.

During this period the nation also witnessed the curious spectacle reminiscent of the arubathu moovar procession at Mylapore at the beginning of summer - with  one new finance minister a year between 1986 and 1991. A record of sorts, indeed!

The rightist, the leftist…

During Rajiv Gandhi’s stewardship,  S Venkitaramanan, was Finance Secretary (1985-89).  A man known for his rightist leanings, he had earlier helped SPIC turn around. From an ugly duckling, thanks to Venkitaramanan, SPIC had turned into a beautiful swan.

Now assessing a looming fiscal crisis in India, Venkitaramanan sounded out the IMF for a loan. The latter was only too willing to make $ 5 billion available with no conditions. Gopi Arora, a leftist, was Secretary-PMO and Bimal Jalan was the Chief Economic Adviser. Though Rajiv Gandhi himself was a rightist, the other two would not agree with Venkitaramanan.

With his proximity to the MA Chidambaram and Ambani families, Venkitaramanan was privy to the practices of large corporations, especially, their recourse to the legal route to defer payment of large sums involved in tax disputes. Leading legal luminaries like Nani Palkhivala would help them in this tactics. After all, in the Courts, the Palkhivalas were big names.

The amounts involved were humongous. At one point, ITC was involved in tax disputes of over Rs 800 crore of excise duty  claims through the stock transfer route. Venkitaramanan once told economic editors that any amount of persuasion didn’t work to make the corporations cough up the dues. So he adopted a different route.

When a large company wanted to import a moth-balled steel plant, North Block just sat over the project for months and hinted at the imperative for the government to collect the disputed amount. The ploy worked! When asked if he was making a blacklist of companies, Venkitaramanan in his characteristic way responded: you may call it a brown list! In the long list of civil servants, SV was exceptionally brilliant.

….and the Vedic economist

Bimal Jalan became the Finance Secretary during the tenure of V P Singh in 1989-90. He attended the AID India Consortium meeting at Paris. In a detailed presentation Jalan submitted that for 5000 years India had grown without foreign aid. He held that the on-going trade deficit was a temporary problem and that the country would survive and grow with or without foreign aid. So, the IMF offer was not encashed. His approach earned him the moniker Vedic economist.

Over the next few months, the situation deteriorated. The Deputy Governor of Reserve Bank, Dr C Rangarajan, and Economic Adviser Shankar Acharya were hurriedly despatched to Washington to negotiate a loan. But by the time the Indian officials landed in Washington the VP Singh government had collapsed and S Chandrasekhar had taken over as Prime Minister. The new government advised the representatives to continue the dialogue and finalise the agreement with IMF, this time agreeing to all the conditions. Dr Manmohan Singh was then the Financial Adviser to the government.

Budget 1991 prepared in February was presented in July 1991  

The budget for 1991-92 with Yashwant Sinha as the Finance Minister was prepared with the usual rigour and secrecy. The Expenditure budget was approved by the Prime Minister in early February 1991. Two weeks later, the police cleared the security area for electronic surveillance and a 120 strong team entrusted with the printing of the documents was locked in with total surveillance by IB and CBI.

When the budget papers were finalised and went for printing, Rajiv Gandhi pulled the plug out of the life-support system and the Chandrasekhar government fell. An interim budget was presented with no tax proposals. The nation went to polls. It was the bloodiest poll in Indian history that saw the assassination of Rajiv Gandhi. The Congress scampered to power. A septuagenarian  politician was pulled out of semi-retirement to become India’s prime minister. And a retired bureaucrat,  Manmohan Singh, was brought in as Finance Minister.

Dr Singh presented in July almost to the word, the script that was drafted in February.

Now you can be clear who was responsible for the 1991 balance of payments crisis.

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