Vajpayee yrs set ground for UPA era economic growth: Shankar Acharya's book

Vajpayee's political achievement in greatly advancing economic reforms was perhaps even more admirable than Rao's, writes Shankar Acharya in his new book

In March 1998, the National Democratic Alliance (NDA) came to power, with the Bharatiya Janata Party (BJP) as the dominant party in the coalition and Atal Bihari Vajpayee as the prime minister. He appointed Yashwant Sinha as finance minister. I was away at a conference in Colombo when news of the ministerial appointments came through and confessed to some misgivings to a colleague. All I knew about Sinha was that he was a member of Parliament from Bihar, and had served as finance minister in the short-lived, and somewhat forgettable, Chandra Shekhar government of 1990–91. I called on him on my return to Delhi. He was extremely courteous and straightforward and asked, ‘Shankar, will you be able to work with us, the BJP?’ I replied, ‘Sir, I am a civil servant; it’s my duty to offer the best economic advice I can to whoever is my minister.’ That seemed to satisfy him and, fairly soon, we developed a good professional and personal equation.

The new FM knew his way around the government as he had spent many years in the IAS before resigning to join politics. He was knowledgeable, intelligent, extremely hard-working and unfailingly courteous to civil servants. In Parliament, he performed very well in both English and Hindi. More importantly, it soon became apparent that he was a strong and effective supporter of economic reforms, who was able to stand up to the inward-looking predilections of some groups like the Swadeshi Jagran Manch.

Within days of the new government gaining office, the ‘Buddha smiled’, when India carried out several underground nuclear tests in the Rajasthan desert near Pokhran. The action was immensely popular in India, even though it was followed, a few days later, by similar tests by Pakistan. Western countries and Japan deplored the move as an example of nuclear proliferation and against the spirit of the Nuclear Non-Proliferation Treaty, of which India was not a signatory. Economic sanctions in the form of aid suspensions were initiated. In the MoF, actions were taken to persuade major donors of our legitimate strategic needs and our legal rights under international law. I recall flying to London to persuade the head of the Overseas Development Department in the UK of the justness of our actions. Our diplomatic missions abroad mounted a comprehensive campaign. More practically, the State Bank of India was mobilized to market Resurgent India Bonds to nonresident Indians (NRIs) and raised about $5 billion to shore up our forex reserves. Over time, the initial sanctions, not harsh to begin with, were eased and India’s nuclear weapons status was accepted as normal.

On the home front, our household had acquired a new member. One summer morning, as I read the newspapers in the living room, I heard a pathetic mewling sound from the garden just outside the window. Investigations revealed a little ‘desi kutta’ puppy in the flower bed, perhaps six or seven weeks old. Soon she had adopted us quite effectively. We called her Poochy (pooch for dog and ‘y’ for gender), and had a sizeable kennel built for her in our backyard, which Shekhar described as ‘D-II accommodation’. That soon became surplus housing as she inveigled her way to the status of ‘indoor pet’. Of all the family, she made the most use of the Lodi Gardens at our doorstep.

(Book Cover) An Economist At Home And Abroad: A Personal Journey

Vajpayee’s NDA government pushed through a broad and deep range of economic reforms, with FM Yashwant Sinha and the MoF often playing a leading role. These included: A sustained reduction in import duties; removal of import restrictions on consumer goods; the New Telecom Policy of 1999, based on revenue-sharing, which triggered the astonishing and sustained boom in mobile telephony; the phasing out of ‘reservation’ of several hundred specified products for small-scale manufacturers; reduction of administered interest rates on some government savings instruments, which had tended to bias the prevailing interest-rate structure upwards; a shift to a single-modal rate for the central government’s complex structure of domestic excise duty rates; the ushering in of value-added principles in state sales tax systems; successful completion of several real privatizations (as distinct from disinvestment of minority stakes); opening up to private providers of life insurance and general insurance with foreign equity up to 26 per cent; establishment of the National Highways Authority alongside a major new road-building programme, the ‘golden quadrilateral’; and the passage of a pioneering fiscal responsibility law.

Unfortunately for the NDA, most of the fruits of this impressive array of reforms were not reaped until the ‘golden age’ of 2003–04 to 2010–11, when India’s growth accelerated significantly to an unprecedented 8 per cent-plus. Growth during the actual NDA years, 1998–04, was relatively lacklustre, compounded by the bad luck of several poor monsoons. Thus, despite ‘India shining’ in the final year of this period, it proved insufficient for the NDA to win the 2004 election, when the Congress-centred United Progressive Alliance (UPA) won power. From my perspective, looking back over the last fifty-five years, I would rate the six years of economic policy and reforms under Vajpayee’s NDA as second only to Narasimha Rao’s five-year stint of 1991–96.

Seen in a broader perspective and with the benefit of hindsight, Vajpayee’s political achievement in greatly advancing economic reforms was perhaps even more admirable than Rao’s, since the former had to work with a much more unwieldy political coalition, and without the benefit of the urgency and necessity imparted by a grave economic crisis like that of 1991. What cannot be gainsaid is that when their achievements are taken together, these two prime ministers from two very different political parties bequeathed a legacy of almost thirteen continuous years of economic reforms, which laid the foundations of India’s exceptional growth spurt between 2003 and 2011.

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Excerpted with permission from HarperCollins