This week, 25 years ago, India was informed of the enormity of the crisis of 1991. It was this week that India shifted its gold reserves, pledging it with the Bank of England to avert default and preserve its honour. The story was broken by this columnist.
The scoop appeared in this newspaper on July 8. The graphic images of trunks with gold being shifted onto an aircraft of Heavy Lift Cargo Airlines brought home to the nation the magnitude of the crisis in the economy.
The front page exposé forced Prime Minister P V Narasimha Rao and Finance Minister Manmohan Singh to explain to Parliament and the nation at large the why and what of the 1991 crisis. It was Rao’s leadership that enabled the implementation of the blueprint for the 1991 reforms—as was effectively established in my book Accidental India published in 2012.
Sadly, the Congress party has refused to acknowledge Rao’s contribution—and even Manmohan Singh waited till the tenth and his last Independence Day Speech as Prime Minister in 2013 to salute Rao’s primacy in the tectonic change. Of course some myths persist—one of them is that reforms were indigenous and voluntary. Whether reforms were born out of conviction or compulsion, designed or dictated, must and will be addressed in another column.
The question that begs to be asked today, a quarter of a century after the pledging of the nation’s gold reserves, is if the 1991 crisis did, in fact, impact the manner in which India manages its economy? Standing inside the Customs enclosure at Sahar Airport, watching gold being loaded on the aircraft, I had wondered if this was the best a nation could do—await the eleventh hour to act. Ironically, it has become fashionable to say that big bang reforms can happen only when there is a crisis. Truth is that the post-1991 period is marked by wholesale politics and retail reforms.
The popular thesis about India’s reforms is that there has been no reversal of any reforms. True. But it is also a fact that almost every major reform has taken a decade or more for fruition. The stand of political parties is essentially determined by where they are sitting—in treasury or in opposition. The saga of GST illustrates this best—it owes its origin to a 1999 decision and has been proposed and opposed both by the BJP and Congress. The issue of land acquisition—which has been mercifully left to the states—has had a similar journey and has travelled from the 13th Lok Sabha to the 16th Lok Sabha. Ditto for the Companies Act and for Pension Reforms.
The basis for dismantling the licence raj was to open the economy to competition—private and foreign. Almost every major reform witnessed in the past 25 years, however, has followed the yo-yo swing route. It is the entrenched interests—political and corporate —which have dictated the terms of reforms. The trajectory and force of reforms is determined not by any ideological conviction, but by political convenience.
The FDI policy illustrates this eloquently. Take aviation. Thanks to political support for a local player, the United Front regime and then the NDA in the 1990s had to back off from opening up aviation for foreign airlines—the tie-up between Singapore Airlines and Tatas had to be jettisoned. In 2016, Jet Airways is co-owned by Etihad, Tatas have stakes in Vistara and Air Asia, and others are hunting for suitors. Consider telecom. There was a time when it was sacrilegious to suggest 49 per cent FDI in telecom. Currently, the FDI cap is 74 per cent and two of the largest players are co-owned by companies from Singapore and Britain. The idea of 49 per cent FDI in insurance took a generation—from Yashwant Sinha to Jayant Sinha. FDI in defence equipment mooted first in 2003 became a reality a decade later. The most salacious story is that of FDI in multi-brand retail. It was first suggested by NDA. The Congress and BJP opposed it in turns while in Opposition. In 2016, the policy on multi-brand retail is a cocktail of old and new—and the discourse is about e-commerce.
In India, frequently, the saga of what is not done illustrates the state of affairs best. Agriculture is the largest private sector enterprise in India. The thesis of viability demands that the sector be liberated. Yet it is the most controlled in the economy—from access to credit to the cost of credit, from price of inputs to pricing out output. Worst is the lack of choice on access to markets and the interventionism of politics. Middlemen rake profits on risks undertaken by the farmer, exports are allowed or banned depending on political exigency, and imports are deployed to suppress legitimate profit opportunity.
Reforms are—and must be—about systemic change. Every year, Indians lose over `1 lakh crore to power theft. Yet successive regimes have balked at creating parallel—not necessarily private—distribution channels to enable efficiency. Must state electricity boards be bailed out every few years? The rot in public enterprises is essentially about political management—not government ownership. It is visible in the losses of over `25,000 crore piled up by public sector enterprises and the spiralling stack of NPAs in banks. The solution is in divorce of ownership and management, but it is not an idea that finds subscription.
The idea of minimum government is not about the size but about what government must do and what it must stay away from. Between 1991 and 2016, the size of government has only expanded. There is the questionable logic for the existence of ministries—steel, textiles, chemicals, fertilisers, civil aviation—when the sectors are best served by efficient regulators. There is also the encroachment of the Centre in domains of the state —the biggest allocations in the budget are indeed state subjects.
India’s many deficits and the rankings in global surveys—on ease of doing business or on human development indices—are simply a reflection of wasted opportunities. It is evident that the promise of betterment and imperative of efficiency has been waylaid by politics. Theory says good times are best for change. In India, politics prefers to await crises.
shankkar.aiyar@gmail.com
Shankkar Aiyar is the Author of Accidental India: A History of the Nation’s Passage through Crisis and Change