On 24th June 1991, three days after swearing-in as the Prime Minister, Prannoy Roy from NDTV while interviewing P.V. Narasimha Rao (PVN) asked him, “Hon. Prime Minister, the country is going through a major financial crisis, you are heading a minority government. You are not in the pink of health. How are you going to manage?” After a long pause, PVN, using Bismarck’s famous quote, replied, “Politics, is the art of the possible.”
PVN took oath as the Prime Minister three days earlier. For 37 of the 44 years since independence, the country was ruled by the first family of Indian politics: Jawaharlal Nehru, Indira, and Rajiv Gandhi. Barring Lal Bahadur Shastri (and Gulzarilal Nanda as an Interim PM) the Congress party handed over the baton of Prime Ministership to someone outside the Gandhi-Nehru family.
Was he the party’s first choice to be fielded as the prime ministerial candidate? The Congress coterie wanted to have Sonia Gandhi to fill the slot. Already undergoing a tremendous shock of the untimely death of her husband and with the security of her children being her major concern,
Sonia declined the offer. Shankar Dayal Sharma, the then Vice President was the next choice who declined on health grounds. The ambitious Arjun Singh and Sharad Pawar could not muster enough support. The mantle felt on PVN only because the party leadership felt he may not last long, give or take one year! It was more of a stop-gap arrangement.
Let alone a strong lobby behind him, PVN did not even have good friends in the Congress party. The man who had no friends did not have strong enemies either, which incidentally turned out to be a plus point in his being considered for the PM’s post. Some external events also were favourable for PVN. The elections in the northern states were over before 21st May, the day of Rajiv Gandhi’s assassination; while the southern states were scheduled to vote later. The post-assassination sympathy wave helped Congress clinch142 seats out of 227 MPs from South India. Arjun Singh, one of the main contenders from Madhya Pradesh lost his claim due to the poor numbers of Congress MPs in the North. Sharad Pawar could get support from only 38 MPs from Maharashtra. For the first time, the country was to have a PM from the south. Thus, it was by accident, and a quirk of events; and not by design that PVN became the PM. His failing health was also in his favour, as his party did not expect him to complete the full five-year term.
Foreign Exchange Crisis: In June 1991, the Indian Govt had foreign exchange reserves which were sufficient for barely 3 weeks. With the fiscal deficit running at 8.2%, and the internal debt being 5.6 % of GDP, the country was on the verge of bankruptcy.
During the previous 10 years, PVN did not have any inclination towards economic issues. One thing he realized was that the economic problem, being complex and serious, a competent person must be installed as the Finance Minister. I. G. Patel, the former RBI Governor was the first choice, but when he declined, the mantle fell on Dr. Manmohan Singh. Singh was an eminent economist, and he had worked with the United Nations, been an RBI Governor, a Chief Economic Advisor, and the Head of the Planning Commission over separate tenures. A team of competent ministers and bureaucrats were put in place, which included, among others, Naresh Chandra as Cabinet Secretary, Amarnath Verma as Principal Secretary, Montek Singh Ahluwalia, and others.
To overcome the serious economic challenges, the minority govt. had to take some quick short-term decisions. One such decision was to pledge the country’s entire gold reserves, while another was the devaluation of the rupee. The long-term decisions included the New Industrial Policy.
- Pledging of Gold:
To save the country from bankruptcy, the government had no choice but to pledge gold from its reserves. In the first phase, it was pledged through the State Bank of India on 4th July. In subsequent phases, it was done directly by RBI on 7th, 11th, and 18th July. Overall, 46.91 metric tonnes of gold was pledged to the Bank of England. On 10th July the media received the news. As usual, there was a hue and cry in parliament. Dr. Manmohan Singh explained that it was a fait accompli, and the decision was taken with due diligence and positive intent. However, in the international markets, India’s credibility rose, as financial institutions felt the country was making serious course corrections. That month, India received a loan of USD 221 Million.
- Rupee Devaluation:
Apart from the fiscal mismanagement by previous governments, the foreign exchange reserves were getting depleted due to the Gulf war. Saddam Hussein had attacked Kuwait, and the rising oil prices coupled with reduced remittances from overseas Indians started showing a strain on the foreign exchange front.
Inadequate exports were the other major reason. The exchange rate of $1= Rs. 17.90 was not only high, but it also did not reflect the market reality. Indian products and services were expensive in the international market, thus affecting export earnings. This anomaly needed an immediate correction.
Within 10 days of assuming office, on 1st July, the Indian Rupee was devalued against the US Dollar, Japanese Yen, Deutsche Mark, and the British Pound by 7-9%. The second devaluation was scheduled for 3rd July. The opposition, including the communists, were staunch critics of devaluation. There was stiff resistance in the ruling dispensation too. Devaluation was perceived as affecting the self-esteem of the country, as well as the government being in collusion with ‘capitalist’ institutions like IMF, World Bank, etc. PVN was under tremendous pressure and informed Dr. Manmohan Singh to stop the second one. When the finance minister contacted C. Rangarajan, the Governor of RBI, the latter said the decision has already been taken by 9 am. The horse was unbolted. To make the bitter truth palatable, the devaluation was renamed as exchange rate correction. The stock markets bounced back with full vigour and the economy started showing signs of recovery. By 1992, the INR exchange rate to the USD moved from 17.9 to 24.5. Subsidy for exports was cut, and to improve exports EXIM scrips were introduced, wherein exporters would get concessions for importing specific goods. This policy framework was done by Montek Singh Ahluwalia and P. Chidambaram, and the decision for this was taken within a day by PVN.
- The New Industrial Policy:
Another major decision was the New industrial Policy which was crucial to economic recovery. PVN had kept the industries portfolio with him. Dr. Manmohan Singh wanted to present the New Industrial Policy as a part of the budget. However, the bureaucrats in the Industries ministry wanted the policy to be presented separately. Sensing that it will be faced with stiff opposition in the parliament, PVN played a smart game. His deputy, P.J. Kurien, (the State Minister of Industries) after the zero hour, requested the speaker of the Lok Sabha to permit him to place the New Industrial Policy before the house. A crucial document that paved the way for liberalization, scrapping the MRTPC act and the license Raj, was presented without much fanfare or debate. The chief architect, PVN did not utter a single word during the presentation. (He who knows does not speak. He who speaks does not know… Lao Tzu)
Expert committees were formed to introduce fundamental changes in enabling sustained and accelerated growth in the economy. Raja Chelliah led a committee for Tax reforms, and M. Narasimham a committee for Banking Reforms. Their recommendations were accepted; tax rates were rationalized and private banks were allowed to function.
Allowing private players to enter the banking sector was another major decision. Under normal circumstances, there would have been long debates challenging such a major decision. After all, any major change attracts a great deal of resistance. A great leader can spot an opportunity in a problem. The country was going through tumultuous times after the Babri Masjid demolition in December 1992. As BJP was cornered, no party was in the mood to rock the boat. The banking sector was opened to ICICI, HDFC, AXIS, and other banks without much fanfare or debate. In 1993 the aviation sector was opened, and in 1994 the new Telecom policy was launched, paving the way for a mobile revolution.
When he took over as the PM in June 1991, the country had foreign exchange reserves equivalent to Rs. 3000 Crores. While addressing the nation from the Red Fort on Independence Day in 1994, PVN proudly announced that this figure had reached Rs. 51,000 Crores and the country had averted a major financial crisis.
Aristotle’s characteristics of Greek tragic heroes mention them as being virtuous, long-suffering, and having a tragic flaw. PVN was a polyglot with fluency in 10 languages. With his sharp intellect, he could fathom problems from multiple perspectives. He appointed competent ministers and bureaucrats to handle complex issues. If needed, he took quick decisions, be it the Rupee devaluation, or the New Industrial Policy. What looked impossible, a Herculean task, he achieved through the dictum, ‘politics is the art of the possible.’
He had to face monumental challenges: here was a man who had formed a government without a majority, there was no real support from within his party which had elected him as a leader, he had no cordial relationship with the first family, and opposition parties were baying for his blood with a series of no-confidence motions. He was aging, and at 70, he was suffering from diabetes, blood pressure, and had undergone a bypass surgery a year before he took over as the PM. He had to suffer it all alone.
One of the tragic flaws that he could not resolve was the dilemma of accepting the diktats of the first family (unlike his protégé who succeeded him much later) or being a total rebel to walk his path.
Pamulparti Venkata Narasimha Rao passed away on 23rd December 2004. No other person within a short span of five years has brought in such sweeping reforms in the country. Forget the opposition parties, the Congress party disowned him. It was ensured that his corpse was neither brought to the Congress Party Head Office nor cremated in Delhi, and sadly, neither was any monument constructed in the capital for this great leader. The humiliation did not part him even in his death.
- Raoparv – Prashant Dixit
- To the Brink and Back, India’s 1991 Story – Jairam Ramesh
- 1991, How PV Narasimha Rao made History- Sanjay Baru
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What a wonderful column. Loved reading it thoroughly. Thank you Mr. Parulekar.
Thanks Rupam for your feedback.
A well researched article! Thanks for sharing.
There are many such personalities who have contributed to the nation and have met similar fate like PVN.
May be in due course you may think of some more such personalities to be brought to foreground.
Great leader Mr.P.V.Narasimm Rao
Rajan, Very well analyzed & written. Kudos.
Very interesting article. Thanks a million for sharing.
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The scholar, able statesman and great leader and visionary Mr. P V Narasimha Rao Will be ever remembered for leading this great country to great heights in very crucial period of bankruptcy. Who ever it is wrote correctly and the truth is bestowed. I salute for that.
Thanks Sudarshan for your apt comments.
Thanks Sudarshan, your comments are quite apt.
a very good timely article
Extremely well drafted views. The economic liberalisation was the word we use to here in those days during PVN resigm?
Thanks Ravi for your kind words.
Enjoyed reading into history and some interesting facts about our then leaders, such a drastic difference from what we see today. Thanks for sharing and putting this together! Inspired me to pen down my thoughts and findings too. 🙂
Akriti, I am happy you liked the article and inspiring you to pen your thoughts. It would be a pleasure to read your articles too.
Rajan, Very good article on beginnings of economic reforms in India, Very well articulated and gives a historical timeline perspective of events and actors connecting the dots from our journey from “Socialist” economy to “Capitalist” economy. Kudos to you.
Thanks Prakash for encouraging feedback.
An incredibly well written article about a Forgotten Hero of our nation. Thank you sir for writing this. I hope this article will help bring PV Narasimha Rao’s contributions to the notice of people who are unaware.
Thanks Raj Sekhar for your feedback. Hope you had a great time with Aalhad at Glacier Park
Very well thought out and well written blog. It was even more interesting when we discussed this in our interactive ‘Know Thyself’ session. Looking forward to the next session 🙏