(PV Narasimha Rao – A tribute by his son)
June 28, 2020, marked the 99th birth anniversary of PV Narasimha Rao, the former Prime Minister of India, whose term from 1991 to 1996 laid the foundation for the rapidly-growing Indian economy of today. One of the statesmen-politicians of India, Rao’s term as Prime Minister was one of the most transformative periods in the history of post-independent India.
Father of Economic Reforms
The idea of economic reforms was not new but its time came only in 1991. It is said that if a miracle has to happen three ingredients are needed – the man, the moment and the idea. In this case, the last two ingredients – the idea of economic reforms and the opportunity to reform were available to prime ministers before 1991 – in fact, this was a much-discussed idea in the corridors of power since the 1970s. However, 1991 saw the emergence of the third ingredient – the man – PV Narasimha Rao. Once Rao assumed power, the miracle called economic transformation happened, resulting in a paradigm shift in the thinking of people not only within India but also in the way other countries perceived India.
The catalyst for the reforms was the unprecedented economic crisis, in essence, a Balance of Payments crisis, of 1991. Many economists have described this in great detail. Loans taken earlier had to be repaid to the IMF in dollars and India simply didn’t have those dollars. This crisis was the culmination of a long-standing BoP problem that plagued Independent India, barring a few years. In the initial decades, Budget deficit was met by concessional assistance flowing into the country. By the 80s, the deficit had to be met through non-concessional loans, mostly borrowed at market terms from the IMF. The result was a debt-driven economy where borrowed foreign exchange loans were used for imports as well as investments instead of growing the exports. This was a completely unsustainable model that led to the near collapse of the economy. By 1990-91, most of these loans became due for repayment. Adding to the woes, the flight of NRI deposits and drastic reduction of dollar inflows from the Middle East NRIs because of the Gulf War aggravated the situation. The final assault came from the tripling of oil prices and consequent depletion of foreign exchange reserves. It was a crisis unprecedented in Independent India. It was at this juncture that Rao became the Prime Minister of the country.
Within 45 days of taking over, Rao changed policy and procedure to accommodate liberalisation of the economy by bringing in trade reforms, devaluation of rupee by 20%, tariffs and subsidies, and introduced free exchange regime. He unshackled the private sector industry by abolishing the Licence Permit Raj and by connecting it to the global markets. He also allowed foreign investment in literally every sector, save 18 specific areas. Rao’s big bang reforms were comprehensively targeted to overcome the BoP crisis but also saw an opportunity to create a new economic structure. The reforms demolished the three pillars of the old dispensation – state spending on the public sector, shackled private sector and the Indian economy getting cut off from the rest of the world. The new economic policy of Liberalisation, Privatisation and Globalisation replaced the old model.
Reforms with a ‘Human Face’
While ushering in such far-reaching reforms in the economy, Rao believed that creating wealth and its redistribution equitably to the masses were two sides of the same coin and were interdependent. He would go on to say at various fora that economic reforms were the tools used to meet the same objective as always – serving the poorest of the poor and ensuring their well-being. He stressed upon the different roles of the market and the government, explaining that they should complement each other and not replace each other.
He was always committed to inclusive growth, as clearly visible in his thought and action in the five years of his tenure. His tenure not only saw economic reforms but also some firm steps towards poverty alleviation. His speech at Davos in 1993 elucidates the thought behind the economic reforms – “In the newfound enthusiasm for change, the government should not go overboard and plunge large chunks of people into mass misery. We have to find solutions, which involve reforms but with a human face. Each society has to find its middle way suited to its genius and circumstance. We accept the change because it is necessary, not because we are helpless – definitely not because there is no other solution – voluntary acceptance is the crux of the matter.”
PV was, therefore, of the opinion that while economic reforms result in accelerated development of the economy, simultaneously benefits should also accrue to the socially deprived section of society – an idea that is an early expression of today’s catchphrase of ‘Inclusive Growth’. He believed that economic reforms should not create disparity or social tensions. The fruits of reforms should reach the lowest rung in the social pyramid and ensure that they become self-reliant and lead a life of dignity and freedom. Not just inclusive growth, his ideas of reform and development also encompassed another buzzword of today – ‘sustainable development’. He strongly believed that the process of economic reforms should depend on three considerations – level of material benefit necessary for a human being to attain his full creativity, level of exploitation of nature consistent with its need to replenish itself and the need to ensure comparable benefits to the vast mass of people and life. — (To be concluded)
— By PV Prabhakar Rao
(The author is president of Swami Ramananda Tirtha Institute of Socio-Economic Research and National Integration, a member of Swami Ramananda Tirtha Memorial Committee, and Managing Director of a not-for-profit company he started in the name of his father, statesman politician PV Narasimha Rao)
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