Dr Subramanian Swamy
In November 1990 when I took over as Commerce Minister, the Indian economy was on verge of defaulting on external debt repayments, and the Gross Domestic Product (GDP) growth rate had slumped to minus 0.2 per cent. Non Resident Indians (NRIs) had also begun withdrawing their remittances, and we were left with just two weeks to meet the challenge of the balance of payment crisis. The crisis was compounded by the looming Gulf War-I which meant sky rocketing oil prices and further drain on foreign exchange reserves. It was a gloomy scenario.
The crisis was caused by two factors: First, in 1985, as PM, Rajiv Gandhi had decided to lift the ban on the private corporate sector taking loans in foreign exchange abroad from capital markets to buy industrial sector machines and spares. He forgot to specify that they could only take long term loans. As a consequence of this lapse corporate sector took a huge amount of loans of short term, i.e., 3-5 years maturity, which are easier to get to import machinery. Industry boomed as a consequence raising industrial growth rate to the highest rate ever in modern Indian history, but the loans became repayable in foreign exchange by 1989-90 for which there was not enough pre-existing reserves. Second, the VP Singh government which came to power in 1989 chose to write-off bank loans taken by farmers and backward classes. This nearly pushed banks into bankruptcy and in any case drastically reduced investment from fresh loans to the industrial sector. Added to this, the NRIs began pulling out their remittances in panic and their was skyrocketing import oil prices. No foreign government was willing to help, and the World Bank and International Monetary Fund (IMF) were putting impossible conditions for even small loans.
I told PM Chandrashekhar when he asked me to help out that we must scrap the Soviet economic model which had wrecked our capacity to export to the US and Europe, and had reduced us to the rupee trade with the Soviet bloc. This meant that we could not build foreign exchange reserves over the forty years 1950-90, and instead depleted the huge post World War II reserves we had gathered at a huge sacrifice for so-called British imposed War effort. I told him when the Soviet economic model had not worked in the Soviet Union how could it in India? As an example I told him of the USSR Ambassador calling on me on behalf of the Gorbachev government to seek a loan of 2 million tons of wheat to meet their food shortage. Fortunately a ship carrying 2 million tons of wheat purchased earlier by the VP Singh government from Australia was headed for the Chennai port. India did not need that wheat, and the purchase had been made to earn commission for some Minister in the VP Singh regime. So I asked that it be diverted to a Soviet port and as an anti-Communist got psychic pleasure doing so. Chandrashekhar only said to me: Kuch karo aur desh ko bachao.
Thereafter I called my Commerce Secretary Montek Singh Ahluwalia and asked him to draft the first document on ‘Economic Reform with Reference to the Export Sector’. It was adopted by the Cabinet on March 11, 1991, on the day the Congress led by Rajiv Gandhi withdrew its support to our government.
However, the successor PM, PV Narasimha Rao who took office in June end, after fresh elections to the Lok Sabha, called me on the very first day to ask for the Reform document and also to join his government. Being a close friend of his for many years, I readily gave him the document but joined his government only in 1994 with Cabinet rank as Chairman of a Commission known popularly as “GATT Commission”. I declined his offer to join the Congress, as I had been earlier with Rajiv Gandhi.
The credit for economic reform must go only to Narasimha Rao for his political sagacity in getting implemented the entire reform package. But Sonia Gandhi hated him, so the Congress never honoured him for what a great service he did to the nation— next only to Sardar Patel. A future NDA government must bestow the Bharat Ratna on him for this contribution.
Today we are back on the same tail spin, with Rao’s Finance Minister, Dr. Manmohan Singh. If he was as FM the architect in 1991-96, then why not as PM in 2004-14? There hangs a tale to be told later. This much I can say: Manmohan Singh was often frightened of the socialist howls in Parliament during 1991-96. Each time Rao used to cajole him to carry on, telling him to inform the socialists that it was he (Rao) who was pushing him to “go capitalists”. Rao told him “I will deal with them”.
Today therefore, we shall have to await the NDA II to come to power to implement the second generation reforms. Manmohan Singh cannot carry out any structural reforms because unlike Rao he cannot disregard Sonia Gandhi. She has only one ideological goal—control of all economic levers to collect commissions in hundreds of crores of rupees through corrupt practice in allotment of resources such as NREGA or now the Food Security Ordinance, or to discretionary allotments on bribe, of natural resources such as Spectrum, coal blocks, and oilfields, and laundered through Participatory Notes.
To know what reforms to initiate, we must first know which of the problems to focus on and prioritise for action. The immediate concern is of two debilitating deficits—Fiscal Deficit and Current Account Deficit. In the medium term is the decline in agricultural growth rate and failure to generate sufficient employment in the industrial sector. In the long run we need to tap our demographic dividend and educate the young population not only to develop cognitive intelligence, but also emotional, moral, spiritual and innovational intelligences, along with questioning minds and a healthy risk taking attitude, and thus become valued citizens.
In the short run, the two deficits are alarming. Fiscal Deficit, Centre and State combined
[a] The Indian state has to be minimalist in regulatory interventions in social and economic matters, maximalist in providing the quality of life needs, and optimalist for maintenance of law & order, in opposing terrorism while being politically accountable to the people in a democracy,.
[b] The key goal of the state is to empower the individual through a modern education that blends the essential concepts of spiritual commitment of Sanatana Dharma with material pursuits, to enable the individual to be self-reliant and yet have strong character. The state is thus guided by Integral Humanism.
[c] A social ethos based on the Hindu concepts of trusteeship of wealth, philanthropy and voluntary group action is encouraged by religious sanction for the better distribution of income and for minimising economic contradictions and deprivation.
[d] The individual is persuaded by the state by incentives and not by coercion. That the state will make no promise to the people without specifying the sacrifice to be made.
[e] India can make rapid economic progress to become a developed country only through a globally competitive economy which requires assured access to the markets and technological innovations of the United States and its allies. This has concomitant political obligations which must be accepted as essential for national renaissance.
[f] Such a rapid progress would require a national security strategy for a peaceful environment which necessitates strong security ties with such as of those countries with which India has no intrinisic clash of interests.
[g] At present, generally an Indian has loyalty to the family but is apathetic to the community where he lives. An Indian does not easily acknowledge the accomplishment of others, respects intellectual endeavour but not dignity of labour, and is more concerned with form than content. Moreover, an Indian feels less accountable for his actions the higher he rises in authority. These are character flaws that have come from two centuries of deprivation and are incompatible with a people forming a great nation. These flaws can be rectified by developing a strong and coherent concept of national identity whose defining characteristics can be culled from a correct perception of Indian history.
(The writer is former Union Cabinet Minister for Commerce)