33 years of the Open Era since 1991

33 yrs ago, 90 minutes that changed India’s history. It was these crucial 90 minutes that paved the way for India’s historic decision to liberalize its economy in 1991.

Before taking oath as then PM, Narasimha Rao received a message from Cabinet secretary Naresh Chandrabefore. He sought an urgent appointment. It was not a case of customary briefing every PM-elect gets from the chief bureaucrat. Naresh Chandra insisted the appointment could not wait any longer. The presentation by the finance secretary lasted about 90 minutes, and all the while party leaders anxiously waited at Teen Murti Lane for Rao’s return.

Rao was told that foreign exchange reserves had dipped to Rs 2,500 crore, only enough to meet three months’ imports. This forced the Finance Ministry to pawn 47 tones of confiscated (smuggled) gold lying in SBI’s vaults. Rating agencies had also downgraded India to the ‘dangerous’ level. External debt was about 22% of GDP and internal public debt 56%.

Rao gave a free hand to Manmohan Singh. According to Devendra Dwivedi, the late former additional solicitor general and a close Rao aide, soon after taking oath at Ashoka Hall, Manmohan Singh gave the PM a handwritten note. The first suggestion was to not place reform-related matters at Cabinet meetings where the colleagues were certain to block it. The note contained step-by-step measures to fulfill the IMF conditionalities.

As per this plan, devaluation of rupee by 9 per cent was announced on June 30 that year and another 11.83 per cent on July 2. Next day, Commerce Minister P Chidambaram announced the new trade policy. He scrapped the quota system and removed restrictions on exports. It contained a whole range of trade liberalization measures as per IMF prescriptions. On July 4, 1992, IMF chief Michel Camdessus expressed satisfaction over implementation of the conditionalities.

India’s New Economic Policy was announced on July 24, 1991 known as the LPG or Liberalization, Privatization and Globalization model. The main objective was to plunge Indian economy into the arena of “Globalization” and to give it a new thrust on market orientation. The policy was intended to move towards higher economic growth rate and to build sufficient foreign exchange reserves.

Manmohan Singh said, “Finance Ministers are much like zeros. Their value depends on what you put before them. The digit on the left is provided by the PM." Clearly, in 1991, politics was in command.”

Thanks.

Sundarraj.S

Leadership Coaching, HR Strategist and Risk free HR Compliance.