Govts changed, liberalisation consensus endured, at varying pace

When then Finance Minister Manmohan Singh delivered his Budget speech on July 24, 1991, there was little to indicate that he had brought in a tectonic shift in the Indian political landscape.

 

In the immediate aftermath of the speech, there was strong opposition both from the right and the left. But the Congress government, led by P V Narasimha Rao, persisted with the conviction that these were measures that had to be taken, no matter how politically fraught they were.

 

Indeed, there was little to indicate the scale of change if one were to go by the manifestos of the principal political parties, including the Congress, for the 1991 Lok Sabha elections, which concluded a mere fortnight before the first devaluation of the rupee on July 1.

 

However, over the next three decades, across the tenures of six prime ministers, with support of political parties of almost all ideological hues, subsequent governments embraced the basic tenets of the 1991 economic reforms — promoting privatisation, seeking foreign direct investments and ending licence-permit raj. 

 

In fact, “reforms” was the leitmotif of the election campaign of the Bharatiya Janata Party’s (BJP’s) prime ministerial candidate for the 2014 Lok Sabha polls, then Gujarat Chief Minister Narendra Modi. The BJP’s election manifesto mentioned “reforms” 22 times, and “investment” found 15 mentions.

 

By the time Modi delivered his 13th Independence Day speech, he could look back at the journey and declare: “When I am talking about reforms, reform is neither a compulsion for us, nor is reform a buzzword for us, this reform of ours is a conviction out of conviction,” the PM said.

 

In the three decades before that speech, successive governments built on the efforts of the previous ones to take the agenda forward — from the opening up of the economy under Rao, to the new telecom policy and disinvestment under Atal Bihari Vajpayee, to rural employee guarantee and Right to Information under Manmohan Singh as prime minister, and Modi’s introduction of goods and services tax and the Insolvency and Bankruptcy Code.

 

At the state level, too, the reforms brought in a big shift. M Veerappa Moily, who was the chief minister of Karnataka from 1992 to 1994, tells Business Standard that state governments felt more empowered to attract investments. “It was as if a weight was lifted off the shoulders of chief ministers,” he says. “We felt free that we could take our own economic decisions.”

 

Getting the ball rolling

 

In a recent interview with Business Standard, Congress General Secretary Jairam Ramesh said Prime Minister Modi uses the phrase reforms express frequently. “But the original reform engine was the June-July-August 1991 engine, which launched India on the process of economic reforms, and has served the country well with at least 6.5 per cent rate of growth over the last 35 years.”

 

However, the going was tough initially. There have been occasions over the last 35 years when political parties have found it challenging to explain the logic of reforms to the electorate. A survey by New Delhi-based Centre for the Study of Developing Societies (CSDS) in 1998 found that a large number of respondents felt “that the rich benefitted more than the poor” from economic reforms. It also found that the “the levels of awareness on economic reforms is low”.

 

In fact, governments both at the Centre and in states have occasionally been voted out for their inability to sell the reforms to the electorate.

 

The Congress grappled with this conundrum within five years of unveiling the economic reforms. In the 1996 Lok Sabha elections, the Congress leadership spent days mulling over whether economic liberalisation would affect the party positively or negatively. 

Prime Minister Narendra Modi with his predecessor Manmohan Singh in 2014 | Photo: Prime Minister’s Office, Government of India, GODL-India, via Wikimedia Commons

 

It decided to project reforms boldly in its manifesto, skipping such terms as fiscal deficit and foreign direct investment, to give it a populist face by linking reforms with employment. It coined the slogan, “Every rupee earned from reforms is a rupee gained for development.” And yet, it lost the election.

 

Eight years later, the National Democratic Alliance, led by Atal Bihari Vajpayee, confronted a similar situation. Its ‘India Shining’ campaign sank in the summer of 2004, paving the way for the United Progressive Alliance government.

 

This played at the state level, too. The electoral campaigns of reforms-oriented governments of Karnataka under S M Krishna of the Congress and Andhra Pradesh under N Chandrababu Naidu of the Telugu Desam Party failed as well.

 

However, the shift in political language was visible immediately after the reforms. For instance, The Congress manifesto of 1991 mentioned the word socialism, which found no reference in the 1996 manifesto, wrote CSDS’ Sanjay Kumar in the Economic and Political Weekly in 2004.

 

The 1996 manifesto promised to carry forward the momentum of economic reforms to achieve a higher trajectory of economic growth, efficiency and competitiveness in the production sector and to achieve 8-9 per cent of gross domestic product (GDP) growth.

 

The BJP, which in 1991 emerged as the principal opposition in the Lok Sabha, and had from the days of its earlier avatar, the Jana Sangh, advocated liberalisation in some form, declared in its manifesto that year, “The BJP is no prisoner of any dogmas.” It committed to “de-bureaucratise the economy to maximise production”.

 

It resolved to make the public sector productive and profitable by throwing open some of the public sector units to people’s participation. The BJP said it would invite equity participation in some of the public sector units with adequate safeguards, but “regards self-reliance as an over-riding component in our external economic relations, including the import of capital and technology. We will keep multinationals out of consumer industries.”

 

In the 1996 Lok Sabha polls, the BJP emerged the single-largest party, and formed a short-lived 13-day government at the Centre. In its manifesto, the BJP criticised the Congress’ 1991 economic reforms as having been half-hearted. “Despite the proclaimed deregulation, over the past five years, all earlier structures and institutions of the licence quota-permit raj remain intact.”

 

The BJP, the manifesto said, believes in confining the public sector only to strategic areas, and promised to constitute a Disinvestment Commission. The party said it “welcomes foreign investment, because we hold that it supplies knowledge, technology and know-how and sharpens the quality and competitive edge of our economy”.

 

In its 1998 manifesto for the Lok Sabha polls, the BJP said after the collapse of the socialist paradigm, “our entire establishment has defected to the type of free-market system that prevails in the Western countries” without any debate as to whether such a system can be wholly transplanted to India.

 

Even the Left was forced to change its views in light of the changed situation. In West Bengal, the Jyoti Basu-led Left Front government opposed the 1991 economic reforms, releasing a document titled ‘Alternative Policy Approach to resolve BoP crisis’, in which it called for an increase in income tax rates, unearthing black money and cuts in non-development expenditure.

 

However, three years later, Basu’s government announced an industrial policy that welcomed “new technology and investment in selective spheres” for the benefit of the economy and of “mutual interest”.

 

Six years later, the state’s most ambitious industrial project, Haldia Petrochemicals, was commissioned in April 2000. Several memoranda of understanding were signed with investors, but few translated into factories or jobs. Buddhadeb Bhattacharjee, who succeeded Basu in November 2000, made industrialisation the centrepiece of his agenda, and Information Technology (IT) companies’ campuses came up in Salt Lake and Rajarhat, while gleaming shopping malls and restaurants began to alter the commercial landscape of Calcutta, which was rechristened Kolkata in 2001.

 

In an interview with Business Standard, former Chief Economic Adviser Shankar Acharya highlighted that the consensus prevailed even at times of political instability. In 1996, Rao-led Congress was voted out, and the United Front coalition came in, which had two PMs, H D Deve Gowda and Inder Kumar Gujral.

 

“Those two years (1996-98), can be seen as both positive and negative. Negative, because not much new reform happened; positive, because there wasn’t backtracking on reforms already in place,” Acharya said.

 

Though the CPI (M) supported the UF government from the outside, while its ally, the Communist Party of India, was a constituent of the government, then Finance Minister P Chidambaram’s 1997 Budget slashed tax rates, and came to be described as a “Dream Budget”.

 

The reforms express chugs along

 

As mentioned earlier, the consensus on reforms persisted despite changes in government. Many proposed measures were embraced by successor governments and taken to their logical conclusion, each government building on what its predecessor had bequeathed it.

 

For instance, while the Rao government made the first move in opening up the telecom sector with its National Telecom Policy, the Vajpayee government took it further in its New Telecom Policy that opened it up decisively for the private sector. Similarly, though privatisation was a policy agenda in 1991, it was the Vajpayee government that created a dedicated disinvestment department and took it forward.

 

When the Vajpayee government fell, the Manmohan Singh government tilted the focus towards the social sectors, bringing in the Mahatma Gandhi National Rural Employment Guarantee Act that assured rural households of 100 days of employment and raised the wage floor. It brought in the Right to Information Act to make the government transparent, building on the efforts of some states.

 

In turn, its proposal on transforming indirect taxes, came to fruition under Prime Minister Narendra Modi, who brought in the goods and services tax that created a unified market.

 

Likewise, the Aadhaar introduced by the Singh government became the fulcrum of the architecture for digital governance delivery championed by Modi over the past 12 years.

 

And Singh’s civil nuclear deal that brought India closer to the US, became the foundation for the Modi government’s SHANTI (Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India) Act that opened the sector up to private players.   

The reforms express  

 

• Ending of the licence-permit raj: Restrictions were progressively removed on businesses and boardrooms could decide on matters without needing prior approval from the government
• Opening up of trade and capital markets: Improved access to foreign investment led to a flood of foreign money and modernised the Indian capital markets
• Disinvestment: The Vajpayee government set up a dedicated department for disinvestment, and undertook strategic sales and privatisation of public sector units
• Fiscal responsibility and Budget management: The NDA also brought in the FRBM law that for the first time put curbs on the deficits governments could run, to check profligacy
• National highways network: It laid significant emphasis on connecting India and improving logistics through projects like the Golden Quadrilateral
• MGNREGA: One of the initial significant moves of the UPA government, led by Prime Minister Manmohan Singh, was the enactment of the rural employment guarantee law that assured work and helped raise the wage floor
• Right to Information: It became a potent tool to check corruption by bringing in transparency
• India-US civil nuclear deal: It heralded a decisive shift in India’s foreign policy, signalling its rapprochement with the US
• Aadhaar and e-governance: The universal identification programme helped digitise delivery of government services, becoming the bedrock of social policy over the years
• GST: The goods and services tax had been discussed for a while but it was under Prime Minister Narendra Modi that it finally came to fruition
• IBC: The Insolvency and Bankruptcy Code provided a time-bound framework for dealing with insolvency, allowing stakeholders to maximise asset value
• Unified Payments Interface (UPI): The UPI transformed transactions, providing a seamless payments architecture and boosted digital commerce