TO THE BRINK

AND BACK
 Other Books by Jairam Ramesh

Mobilizing Technology for World Development (co-editor)

Kautilya Today: Jairam Ramesh on a Globalizing India
Making Sense of Chindia (also in Chinese)
Green Signals: Ecology, Growth and Democracy in India
Legislating for Justice: The Making of the 2013 Land Acquisition Law (co-author)
... I Love you Rachu ...
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Men make their own history, but they do not make it as they please;
they do not make it under self-selected circumstances,
but under circumstances existing already,
given and transmitted from the past

KARL MARX
 Contents

Key Dates and Events between June and August 1991 Covered in This Book

1. Narasimha Rao’s Entry

2. The Economic Crisis of Early 1991
3. The Inevitability of Dr Manmohan Singh as Finance Minister
4. The Flap on the Roll-back of Prices
5. The One-pager to Our Man in the IMF
6. The Devaluation Trauma
7. The Continuing Gold Sales Controversy
8. The Default Option Remembered
9. Statements: Right and Left
10. Jyoti Basu Writes to the Prime Minister
11. Chidambaram in Quick Action
12. The Curious Case of the Prime Minister’s 9 July Speech
13. The Sanskritist Prime Minister
14. The K.N. Raj Interview
15. The Industrial Policy Reforms Drama
16. Dr Singh’s Day Out: The Budget of 24 July
17. The First Review by the Finance Minister
18. The Prime Minister’s Gorbachev Goof-up
19. The Last Week of August 1991
20. And That’s It!
21. A Final Word

A Note of Thanks
Annexures
Index
Key Dates and Events between June and August 1991 Covered in
This Book

1. 20 June Narasimha Rao elected leader of the Congress Parliamentary

Party (CPP).
• Narasimha Rao takes over as prime minister.
• Ministers sworn in; Dr Manmohan Singh told he is finance
2. 21 June
minister.
• The prime minister’s broadcast to the nation.
Portfolios announced; Dr Manmohan Singh officially takes
3. 22 June
over as finance minister.
• A.N. Verma appointed principal secretary to the prime
minister.
4. 23 June
• Pranab Mukherjee appointed deputy chairman, Planning
Commission.
5. 25 June The finance minister’s prices roll-back controversy.
6. 26 June The prime minister meets opposition leaders.
• Author’s fax to Gopi Arora at the International Monetary Fund
(IMF).
7. 27 June
• The prime minister and finance minister meet opposition
leaders.
• First devaluation of the rupee.
8. 1 July • Congress Working Committee (CWC) meeting.
• Statement of four economic administrators.
9. 3 July Second devaluation of the rupee.
• First trade policy package.
• Second gold transfer.
10. 4 July
• The West Bengal government’s alternatives to the IMF
announced.
• Third gold transfer.
11. 7 July • The prime minister’s press meet in Hyderabad where he was
critical of the finance minister.
12. 8 July Statement of thirty-five economists.
• CPP meeting (address by the prime minister).
13. 9 July • The prime minister’s address to the nation.
• The finance minister writes to the chief minister of West
Bengal.
14. 11 July Fourth gold transfer.
 The prime minister seeks a vote of confidence in the Lok
15. 12 July
Sabha.
The prime minister wins the vote of confidence in the Lok
16. 15 July
Sabha.
17. 18 July Fifth gold transfer.
18. 19 July Cabinet meeting to discuss the new industrial policy.
19. 20 July Group of ministers (GoM) discuss the new industrial policy.
• Cabinet meeting to approve the new industrial policy.
• Meeting of the union council of ministers to approve the new
20. 23 July
industrial policy.
• CWC meeting to approve the new industrial policy.
• Tabling of the new industrial policy in the Lok Sabha by P.J.
21. 24 July Kurien.
• Presentation of the budget for 1991-92.
22. 1 August CPP meeting on the budget (with the prime minister presiding).
23. 3 August CPP meeting on the budget (with the prime minister presiding).
Small industry package tabled in the Lok Sabha by P.K.
24. 6 August
Thungon.
25. 10 August The prime minister’s reply to Jyoti Basu.
26. 13 August Second trade policy package tabled in the Lok Sabha by P.
Chidambaram.
27. 14 August Narasimham Committee on the Financial System announced.
28. 16 August First stock-taking by the finance minister.
• Full Planning Commission reconstituted.
29. 17 August • The prime minister and finance minister meet trade union
leaders.
30. 19 August The prime minister remarks on Gorbachev. 31. 26 August The
prime minister’s reply in the Lok Sabha on industrial policy.
• CPP meeting on the budget (agriculture).
32. 27 August
• The finance minister writes to the IMF.
33. 28 August CPP meeting on the budget (agriculture).
• CPP meeting on the budget (agriculture).
34. 29 August
• Chelliah Committee on tax reforms announced.
35. 31 August • The prime minister meets three national industry associations.
• The prime minister meets the Kisan Congress.
 1

Narasimha Rao’s Entry

or around ninety days, beginning 3 June 1991, I was catapulted into a ringside seat, as
Indian economic policy was being transformed. As an aide to P.V. Narasimha Rao—
first as he took over as Congress president and thereafter, in the days immediately after
he became the prime minister of India—I witnessed profound changes in the trinity of
industrial, trade and fiscal policies. I had a Sherpa’s role in the design of some of these
changes, particularly as they related to industrial policy. This book is based on my own
recollections, conversations with some key players in that drama, written records like
parliament debates1 that are not available easily, contemporary newspaper accounts
based on official briefings, hitherto unpublished material from Narasimha Rao’s
archives, minutes of key Congress meetings, along with my own personal notes and
papers from that period. The book, therefore, is a personal story, one ‘participant-
observer’s’ narrative of the action-packed days of June, July and August 1991, during
which time dramatic steps to liberalize and globalize the Indian economy were taken.2
To be sure, there had been earlier attempts at reforms. The first two years of Rajiv
Gandhi’s tenure (1985-87) as prime minister saw a flurry of initiatives to give greater
incentives to the private sector to expand. Some economists have written that the growth
turnaround of the 1990s and thereafter is anchored in these initiatives. Earlier, Indira
Gandhi herself had cautiously begun the process of giving a new direction to regulations
when she set up the Economic Administration Reforms Commission under the
chairmanship of L.K. Jha; a committee to examine the principles of a possible shift away
from physical to financial control under the chairmanship of M. Narasimham; and a
committee for restructuring the public sector with Dr Arjun Sengupta as its head. India’s
first major reform that partially decontrolled the cement industry took place in 1982.
Earlier, in May 1979, the Committee on Controls and Subsidies set up by the Morarji
Desai government under the chairmanship of Vadilal Dagli submitted its report. Going
back even further in time, following the hugely controversial devaluation of June 1966,
new measures to attract foreign capital had been announced.
What Rajiv Gandhi began in January 1985 was very important; the process of
systematic unshackling undoubtedly started with him. Indeed, in September 1986 he had
asked the Planning Commission to prepare a detailed agenda for industrial policy
reforms. I was entrusted with this task. A comprehensive action plan titled ‘New
Industrial Policy Initiatives’ had been prepared (Annexure 1). It had advocated, among
other things, a more liberal policy towards foreign investment, a loosening of
restrictions on the growth of private companies, and the creation of a regulator for
capital markets that was to later result in the Securities and Exchanges Board of India
(SEBI). But for some strange reason—perhaps having to do with the fact that the politics
of the country changed dramatically in April 1987—that note did not go further, even
though it was scheduled to be discussed in a meeting of the full Planning Commission.
Then, when V.P. Singh was prime minister for slightly less than a year (1989-90), he
asked Montek Ahluwalia3 to put together a new policy package. In March 1990, V.P.
Singh had gone to Kuala Lumpur—after a gap of almost a decade-and-a-half—and
impressed with what he saw, directed his key economic aide to do some fresh thinking.
This resulted in a truly radical agenda for reforms,4 but this also never saw the light of
day.
June-July 1991 represented a fundamental paradigm shift in economic policy. All that
had been done prior to 1991 had aimed to make the system more flexible and
responsive. But 1991 marked a whole new beginning. And there could not have been a
more unlikely duo playing harbingers of this fundamental change. Both P.V. Narasimha
Rao and his finance minister, Dr Manmohan Singh were pillars of the ancien régime,
stalwarts of the very system they set out to replace. They were, to the Indian economy,
somewhat like Richard Nixon was to the American embrace of China in early 1972. The
ultimate insiders became the instruments of a profound change—a change that was
initially resisted but that came to be embraced subsequently by all political parties.
There may have been some mild tweaking here and there, but the fundamentals did not
undergo a shift even after Narasimha Rao and Manmohan Singh left office in May 1996.
How did I get to being where I was in this epochal period of June-July 1991? I had
quit the Planning Commission in January 1991 and was working with Sam Pitroda5 and
R.D. Pradhan6 as part of the ‘back office’ election campaign team of Rajiv Gandhi. My
primary role was to prepare position papers on economic issues and give ideas for the
election manifesto. As Rajiv Gandhi started his campaign in early May 1991, I started
preparing talking points for his rallies and passing them on to his close friend Suman
Dubey7 who travelled with him. I had no formal position in the Congress but was
generally seen as part of Rajiv Gandhi’s circle of assistants.

A colossal tragedy struck on 21 May 1991 when Rajiv Gandhi was assassinated. Like
everybody else, I was completely shattered. On 22 May, the Congress Working
Committee (CWC) had an emergency meeting at 5 p.m. This meeting, presided over by
P.V. Narasimha Rao, decided to elect Sonia Gandhi as Congress president. But the very
next day, she declined, and a few days later, on 29 May, the CWC met again with H.K.L.
Bhagat presiding; Narasimha Rao was elected as Congress president.8

I had never met Narasimha Rao, although I had been in the government for a decade in
various capacities. I knew of him by reputation, of course, as someone who had been
chief minister of Andhra Pradesh between 1971 and 1973, where he took land reforms
promised by Indira Gandhi seriously, but ended up paying a heavy political price by
being ousted. I knew that Indira Gandhi and Rajiv Gandhi trusted his sage advice and
drafting skills. I knew that Rao had been chairman of the committee to prepare the
Congress’ manifesto for the 1991 Lok Sabha elections. But I did carry one negative
impression of the man. In February 1987, Rajiv Gandhi—then holding the post of finance
minister after the sudden transfer of V.P. Singh from the Finance to the Defence Ministry
—had promised a ‘white paper’ on the public sector in his budget speech as a first step
to reforming state-owned enterprises. A group of six CMDs (chairmen and managing
directors)— headed by V. Krishnamurthy, then the chairman-cum-managing director of
the Steel Authority of India Limited (SAIL)—was set up, and I had prepared the first
working draft for the group to consider. Thereafter, the group submitted a final version to
the prime minister, after which it went to a Committee of Secretaries. This committee
then proceeded to mangle it—entirely unsurprising, since no bureaucracy would really
like to give true autonomy to public sector companies. The revised draft went to the
cabinet. Thereafter a Cabinet Committee was set up under the chairmanship of
Narasimha Rao to finalize the white paper. The white paper was never published, and in
my mind, Narasimha Rao came to be a symbol of procrastination, delay and the status-
quo. I felt that a golden opportunity to redefine the relationship between public sector
companies and the government—to delink management from ownership, to transform the
managerial and technological capabilities of these companies that occupied ‘the
commanding heights’ of the economy—was lost.
R.D. Pradhan took me to meet Narasimha Rao, if memory serves me, on 30 May
1991, so that he could be informed about how the ‘non politicos’ around Rajiv Gandhi
were contributing to the election campaign. Rao said he knew of me and asked me to
continue with whatever I was doing. He told me that he was not an expert on economic
issues and that I should coordinate meetings with Pranab Mukherjee9 and keep briefing
him on these subjects. He said that on 2 June he would be having his first interaction
with the media and that I should quickly prepare a statement that he could use. I promptly
did so, but was disappointed that what I had drafted was not used. This would not be the
last time such an event would occur.
On 3 June 1991, Narasimha Rao asked me to accompany him on his first election tour
to Farrukhabad, Hardoi and Lucknow in Uttar Pradesh. He was most agitated about the
fast-unto-death that the Telugu Desam Party (TDP) supremo N.T. Rama Rao had been
observing in Hyderabad, demanding justice for the victims of the violence that had
erupted after Rajiv Gandhi’s assassination. I kept giving periodic updates on the
situation there—and this was an era when there were no mobile phones! Apart from this,
there was hardly any conversation between us. Besides, we were mostly in a helicopter.
However, Rao did say that Dr Zakir Husain had been one of the most urbane and
cultured Indians and that he was happy to launch his election campaign as Congress
president from the constituency of his grandson, Salman Khurshid.
Subsequently, Pranab Mukherjee and I met Narasimha Rao at 12, Willingdon
Crescent (now Mother Teresa Crescent)—then the office of the Sanjay Gandhi Memorial
Trust—on three separate occasions, between 5 and 18 June 1991, to discuss the state of
the economy, the tasks ahead for a new government and the immediate priorities if the
Congress came back to power. While Mukherjee would do most of the talking in these
sessions—his phenomenal memory for detail and his vast knowledge of economic
management on full display—I would be asked for my views every now and then. One
session was taken up to look at the interim budget that the Chandra Shekhar government
had presented on 4 March 1991. In another session, N.D. Tiwari10 and Margaret Alva11
were also present and we discussed a check-list I had prepared on the immediate tasks
for the incoming prime minister. It read like this:

IMMEDIATE ECONOMIC TASKS

1. Review of monsoon prospects and contingency plans

2. Review of the price situation with a specific focus on foodgrains and edible oils
3. Review of availability and distribution of essential commodities
4. Review of balance of payments position with main focus on export performance
5. Review of the RBI [Reserve Bank of India] credit policy
6. Announcement of kharif procurement prices
7. Formulation of budget in the context of promises made in the manifesto
8. IMF [International Monetary Fund]/World Bank/ADB [Asian Development
Bank] loan. Talks with USA, Japan, UK, Germany on bilateral assistance
9. Finalization of Eighth Plan with focus on employment
10. White paper on economy during NF [National Front] and JD(S) [Janata Dal:
Samajwadi] rule
11. Key appointments
• Finance Ministry
• Financial institutions
• Planning Commission
• Commerce, Industry Ministries

Narasimha Rao was elected as the leader of the Congress Parliamentary Party (CPP) on
20 June 1991.12 He asked me to prepare a speech and, once more, in my enthusiasm, I
offered a draft assuming that it would be used. Again, it was totally ignored. Rather, at
the meeting, after being felicitated by many of his colleagues, Narasimha Rao spoke in
both English and Hindi without relying on notes. As he communicated with his audience,
Rao seemed especially nostalgic about Rajiv Gandhi and sought the support of MPs
(members of Parliament) in the name of his departed leader. Then, focussing heavily on
the manifesto, he said that perhaps, Rajiv Gandhi had a premonition that this would be
his lasting legacy because he had ensured that the 1991 manifesto would be the most
competent and meticulous programme of action. Finally, Rao likened the Congress’
performance in the recently-concluded elections to that of a great cricketer missing his
century by a solitary run.13 More than this, what I vividly recall is the beginning of Rao’s
address; he claimed that he preferred dialogue to speech and promised more such
sessions in the future. Little did he realize that he would be forced to fulfil this assurance
much sooner than he had planned, on account of the budget of 24 July 1991—a budget
that would change the country.
After the CPP speech, Narasimha Rao asked me to meet Mani Shankar Aiyar14 and
M.J. Akbar15 and work out a ‘broadcast to the nation’ for him to deliver the next day. The
three of us met at Akbar’s residence and exchanged ideas. As in the past, I put together a
draft and promptly gave it to Narasimha Rao. A few hours after becoming prime
minister, Rao did give his broadcast to the nation. But once again, Rao relayed what he
himself had prepared with the assistance of the cabinet secretary, Naresh Chandra, and
the principal information officer, I. Ramamohan Rao.

On the evening of 20 June, Naresh Chandra met Narasimha Rao and handed over a top-
secret eight-page note highlighting the urgent tasks awaiting the new prime minister.
While the note had been prepared by different ministries, especially the Finance
Ministry, it was the cabinet secretary who finally put it all together. When he saw the
note, Narasimha Rao’s first response was: ‘Is the economic situation that bad?’ To this,
Naresh Chandra’s reply was, ‘No, sir, it is actually much worse.’ He quickly briefed the
incoming prime minister about what needed to be done and added that a default had to be
avoided at all costs. He also informed Narasimha Rao about the efforts of the Chandra
Shekhar government in seeking assistance from the IMF, adding that it would be better to
do whatever had to be done immediately—rather than wait for IMF assistance, then
respond, and give the impression of acting under international pressure.
On the evening of 21 June 1991, the new prime minister—before informing me that
he would be getting Ramu Damodaran, who had worked with him earlier, as his private
secretary—said that I should join his office soon and basically focus on what had to be
done immediately.16 He asked me not to wait for formal orders and instead, start working
closely with his newly-appointed finance minister, Manmohan Singh—someone I knew
well since he had recruited me into the Planning Commission in August 1986. Indeed,
when Manmohan Singh saw me at the prime minister’s residence on the evening of 21
June, where he had come to give a detailed briefing, he smiled at me and said, ‘Jairam,
now is the time to do all the things you wanted us to do while in the Planning
Commission.’ My appointment as officer-on-special-duty in the Prime Minister’s Office
(PMO) was notified a day or two after the prime minister had, at the suggestion of Dr
P.C. Alexander,17 appointed as his principal secretary, A.N. Verma18—another man I
knew and enjoyed a warm personal relationship with. I could even share a joke in his
company—on one occasion, suggesting that with him, Naresh Chandra and Suresh
Mathur (then industry secretary), the ‘Kayasth mafia’ would rule. Verma only laughed
and said, ‘Badmaash ho tum! (You are a trouble-maker!)’
This, then, is how I came to be where I was in that momentous period. The years of
revival lay ahead and have been written about extensively. But June-July-August 1991
were early days of survival. The later impressive growth record of the Indian economy
lent a certain amount of retrospective coherence to what got done in the initial weeks.
My stint with the prime minister was exceedingly short. But it was not uneventful and
not without opportunities to play a small role in a truly landmark undertaking. I must,
though, emphasize that this book is not my story at all. It is a story of how I saw
Narasimha Rao and Manmohan Singh shake up India, and how, incidentally, some
Sherpas helped them along the way.

1These
verbatim proceedings are presently available online, but only from the year 1999.
2The
only other person who worked with Narasimha Rao and who has written about his prime
ministership is P.V.R.K. Prasad. However, his book The Wheels behind the Veil (Hyderabad: EMESCO
Books, 2013) deals with the period following April 1992 after Prasad had joined the Prime Minister’s
Office as media adviser.
3Montek Singh Ahluwalia had been additional secretary to Rajiv Gandhi. V.P. Singh had retained and

promoted him as special secretary.

4This document titled ‘Towards a Restructuring of Industrial, Trade and Fiscal Policies’ was

comprehensive in scope and was an agenda for radical reform, most of which was to be accomplished
after June 1991. It was prepared in May 1990 and got leaked thereafter, which led to a furore within the
V.P. Singh cabinet since neither the Commerce nor Finance Ministries were particularly enthusiastic
about the agenda. The Planning Commission was also hostile to it. It has become part of economic
folklore as the ‘M’ document, a name given to it by the economist Ashok Desai who was chief
consultant in the Ministry of Finance between December 1991 and September 1993. If there is one
single document that contains the economic reforms programme of the Rao government and of
subsequent ones as well it is this ‘M’ paper.
5
Sam Pitroda was a close adviser of Rajiv Gandhi on technology but was entrusted with numerous other
assignments as well.
6R.D. Pradhan was union home secretary and governor of Arunachal Pradesh during Rajiv Gandhi’s

prime ministership and had started working with the ex-prime minister in 1990 without a formal
position as such, when he was also a member of the Maharashtra Legislative Council.
7
Suman Dubey, a well-known journalist, was a school and university friend of Rajiv Gandhi and had
worked as an adviser in the Ministry of Information and Broadcasting between 1986 and 1989.
8How Narasimha Rao came to be (s)elected as Congress president has been described by K. Natwar
Singh in One Life is Not Enough: An Autobiography (New Delhi: Rupa Publications, 2014).
9
Pranab Mukherjee was a former finance minister and a leading ideologue of the Congress.
10N.D. Tiwari was minister of finance and commerce between 1987 and 1988, after which he became

the chief minister of Uttar Pradesh for the third time.

11Margaret Alva was union minister of state, personnel, public grievances and pensions in the
Narasimha Rao government.
12
The various maneuverings leading up to Narasimha Rao’s election as leader of the CPP have been
described in P.C. Alexander, Through the Corridors of Power (New Delhi: HarperCollins, 2004); R.D.
Pradhan, My Years with Rajiv and Sonia (New Delhi: Hay House, 2014); and B.G. Deshmukh, A
Cabinet Secretary Looks Back (New Delhi: HarperCollins, 2004).
13Of the 521 seats for which elections had been held in the general elections, the Congress had won

232 seats and along with its allies had a strength of 246 in the 10th Lok Sabha, short by 15 of a
majority needed. (Source: Election Commission.)
14Mani Shankar Aiyar was Rajiv Gandhi’s close aide and then a newly-elected Congress MP.
15M.J. Akbar, now a Bharatiya Janata Party (BJP) MP, was a Congress MP between 1989 and 1991.

16R.D. Pradhan in My Years with Rajiv and Sonia (New Delhi: Hay House, 2014) recounts how he

persuaded Narasimha Rao, after he became prime minister, to induct me into his office, invoking a
conversation with Sam Pitroda—a conversation that Pitroda denies ever having taken place!
17
P.C. Alexander had been principal secretary to two prime ministers, Indira Gandhi and Rajiv Gandhi.
He had served as the governor of Tamil Nadu from 1988 to 1990.
18A.N.
Verma had been secretary in the Ministries of Commerce and Industry and was then appointed
secretary of the Planning Commission during the Chandra Shekhar regime, when Naresh Chandra, his
‘junior’ from the 1956 batch of the Indian Administrative Service (IAS), was appointed cabinet
secretary.
 2

The Economic Crisis of Early 1991

hat was the crisis that the country faced when Narasimha Rao took over as prime
minister and Manmohan Singh became finance minister?
It was simply this: India’s foreign exchange reserves had dropped precipitously, so
as to be sufficient for just two weeks of imports. Normally, a safe level at that time was
reckoned to be three months of import cover. Foreign exchange reserves were US$3.11
billion at the end of August 1990. By mid-January 1991 they had fallen sharply to just
US$896 million.
The first pressure on the reserves had come from the trebling of oil prices following
the Gulf War of August 1990. To make matters worse, India had to repatriate thousands
of workers from Kuwait back home. Obviously, their remittances, which helped the
economy manage its balance of payments, stopped. Exports to Iraq and Kuwait also
came to a halt and we lost US$500 million or thereabouts on this account alone.
The second pressure came from political instability within the country. The nation—
particularly the capital—was rocked by violent agitations against the implementation of
the Mandal Commission recommendations on reservations for other backward classes
(OBCs). By October 1990, the V.P. Singh government was tottering. At this time, non-
resident Indians (NRIs)—whose deposits were a valuable source of dollar support to
the economy—started withdrawing their money from Indian banks. The flight started in
October 1990 and about US$200 million went out in just three months. The flight was to
accelerate in the April-June 1991 period to almost US$950 million. It started declining
slowly thereafter and the flight became an inflow only after the February 1992 budget.
The third source of pressure came from India’s short-term borrowings in the late
1980s (between 1986 and 1989), that took place because interest rates were low—it
made sense then. But with a growing loss of international confidence in the Indian
economy— particularly because of the political situation beginning August 1990—
interest rates began to go up and the cost of international credit increased considerably.
Simply put, we could no longer borrow to ‘roll over’ the short-term debt.
Inflation was as much of a serious problem. The average annual rate of inflation
during the five-year period 1985/86-89/90 was 6.7 per cent. But in 1990-91 (that is, for
the financial year ending 31 March 1991), it had shot up to 10.3 per cent. It kept rising,
reaching a peak of 16.7 per cent by the end of August 1991. High inflation in India in
relation to the inflation rates in countries that were our major trading partners meant that
the real effective exchange rate (that is, the nominal exchange rate adjusted for relative
prices) had appreciated after October 1990. This made our exports expensive and non-
competitive.
GDP (gross domestic product) growth had averaged 5.6 per cent per year during the
tenure of Rajiv Gandhi and it remained at around that level in 1990-91 as well. It is this
that led critics of the IMF route, taken by Narasimha Rao and Manmohan Singh, to argue
that India was facing not a problem of solvency but really one of liquidity. In reality,
however, the two are not distinguishable in a sharp way, and it was certain that the short-
term liquidity crisis carried the seeds of medium- and long-term insolvency. The crisis
would definitely have impacted growth performance, sooner rather than later.
India’s short-term external debt had ballooned to alarming levels. By end-March
1991, short-term debt, whose original maturity was twelve months or less, had reached
over US$8.5 billion, which was about 10 per cent of the country’s total external debt.
Worse, short- term debt whose residual maturity was twelve months or less—that is, all
principal replacements due under all loans and credits in twelve months or less—was
much higher at around US$13.6 billion. These were staggering amounts, especially given
that our foreign exchange reserves (including gold) at the end of March 1991 amounted
to no more than US$5.8 billion.

Chandra Shekhar replaced V.P. Singh as prime minister on 10 November 1990, and
Yashwant Sinha became finance minister. It was a curious arrangement. The Congress,
with 195 MPs and as the single largest party in Parliament, was giving outside support
to a new party, then with 54 MPs, which formed the government. Nobody expected this
peculiar situation to last very long and differences cropped up soon, first over the issue
of permitting refuelling by US military aircraft and then over economic policy. In
December 1990, the finance minister had announced a slew of measures to cut imports—
which soon began to impact, indeed substantially reduce, both industrial production and
exports.
By February 1991, when preparations for the budget were in full swing, Pranab
Mukherjee sensed that new taxes would be imposed to raise resources. Along with the
Congress president, Rajiv Gandhi, Mukherjee called on President R. Venkataraman.
Venkataraman writes thus in his memoirs:
On February 13, Rajiv Gandhi again called on me with Pranab Mukherjee, my
successor as Finance Minister in 1982. Pranab Mukherjee told me that he had a
discussion with Yashwant Sinha and that he felt a harsh budget would be
inappropriate at that time. He was also worried that inflation would be sparked
off and bring unpopularity to the Congress if it supported these measures. Since
Yashwant Sinha had earlier discussed the economic situation with me, I told
Pranab Mukherjee of some of the compulsions of the Finance Minister. As an old
colleague of mine, I explained to him that the current inflation was not due to cost-
push or demand-pull but largely due to excessive liquidity and that budgetary
action was unavoidable to control inflation. The whole discussion was in the
nature of an academic exercise rather than consultation on programmes to be
adopted.
On February 19, the Prime Minister met me again at 8pm. He said [...] that he
was presenting a vote on account to Parliament and not a regular budget. He
 added that matters had been discussed and settled between his party and the
Congress (I). He hoped to conclude the Parliament session by the end of March.19
Earlier, the all-powerful CWC had met at 10 a.m. on 19 February and the record of that
meeting reads thus:

Political Situation
While discussing the political situation, some members pointed out to newspaper
reports that Congress (I) wanted to withdraw its support to the Chandra Shekhar
government. Some others said that our party was supporting a minority
government which was unable to tackle the economic crisis and other vital issues.
In their opinion this government should be changed today itself instead of a few
months. However it was general opinion in the meeting that the party stands by its
commitment and it was its responsibility to see that the government did not fall
during voting in Parliament but it was up to Janata Dal (S) to be very careful
about floor management.

Economic Situation
A study paper as prepared by Shri Pranab Mukherjee on the economic situation
was circulated to the members before discussion started.
The Congress president describing the present economic situation as very
grave, informed the meeting that India did not have money to repay the loans,
neither could it buy fertilizers, etc. The members also expressed concern on the
grim economic situation of the country and called upon the Govt. to take the nation
into confidence before asking the people to sacrifice particularly because in this
financial year Rs 5890 crore were sought to be raised by taxation and increase in
administered prices. The members were of firm view that a “Vote on Account”
will be supported if it is presented in accordance with the Congress Economic
Policy.
A note prepared by Pranab Mukherjee, which was discussed by the CWC, influenced the
thinking of the party and its top leadership in the first two-three months of 1991
(Annexure 2). As part of the note, Mukherjee had said:
The immediate task before the government is to remove the sense of panic and
frustration and to restore confidence in the system. […] In order to generate
resources for development, Government must join radical economic reform in line
with international trends of de-regulation, competition and decentralization. To
achieve national objectives and to tone up the functioning of the Public Sector, the
following steps have now become necessary:
1. The objectives of the public sector should be redefined to include
a. Self-reliance
b. Return on capital employed
 c. Essential and infrastructural services.
2. Financially unviable units with low social responsibility should be privatized
through formulated ‘exit policy’.
3. Greatest importance should be attached to performance, improvement and
recruitment of top executives, reward and punishment systems, and performance
evaluation systems should be redesigned to achieve these objectives.
It was clear that by mid-February 1991 the Congress had decided that, instead of a
regular budget, an interim budget would be presented which would keep the system
going till end-July, by which time a regular budget would be placed before Parliament.
The expectation, clearly, was that by then there would be some improvement in the
economic scenario.
Accordingly, Yashwant Sinha presented an interim budget or technically a vote-on-
account on 4 March 1991. Two days later, in response to the furore caused by two
Haryana police constables spying on Rajiv Gandhi’s residence, Chandra Shekhar
submitted his resignation and subsequently elections were announced for May 1991.

The crisis of early 1991 has been written about extensively by economists. It was by no
means the first macroeconomic crisis that India faced but it was the most serious. There
had been crises during 1965-67, 1973-75 and 1979-81 as well. The most comprehensive
analysis of these crises is by Vijay Joshi and I.M.D. Little. Little, incidentally, was
Manmohan Singh’s doctoral thesis adviser at Oxford University. Joshi and Little write:
The crisis of 1990 had its roots in the policy stance taken in the aftermath of the
second oil shock (1979-80). At that stage, exports stagnated due to real exchange
rate appreciation. There was little current account adjustment. The fiscal position
deteriorated. Both domestic and foreign debt increased rapidly. As a result, the
underlying macroeconomic situation in 1985/86 was unsatisfactory.
There were some good policy decisions in the second half of the decade. The
exchange rate was managed more flexibly and exports grew rapidly in response.
There were moves toward industrial deregulation and trade liberalisation which
contributed to rapid industrial growth. The policy environment was also benign.
The terms of trade improved and world trade was buoyant.
The major mistake in macroeconomic policy lay in neglecting the danger signs
evident in 1985/86 on the fiscal front. Fiscal deterioration was allowed to
proceed apace. As a consequence, the current account deficit continued to worsen
and domestic and foreign debt continued to increase at a dangerous rate. By the
end of the decade, the macroeconomic fundamentals were out of joint. Even
strictly a temporary shock like the Gulf War was enough to trigger a full-scale
crisis.20
And what about the man who was to be finance minister very soon? What was his
thinking at this time? Manmohan Singh had been economic adviser to Chandra Shekhar
for a very brief while and had become chairman of the University Grants Commission
(UGC) in mid-March 1991. This must have given him time to reflect—and reflect he did,
publicly, at least on three occasions before being inducted into the cabinet.
In an interview he gave to Sanjaya Baru of The Economic Times on 5 March 1991,
when he was still economic adviser to Chandra Shekhar, Manmohan Singh spoke of the
dark clouds that had already gathered:
Q: But the foreign exchange bottleneck is still there. We went to the IMF in 1981
and once again now.
Dr. Singh: This was a way of dealing with structural change and responding to the
two oil shocks in 1979 and now. In 1981 we needed the support because we had
begun to liberalise the trade regime. There was no problem in handling that
situation. I think the problems came later. Since the mid-eighties we have
borrowed excessively and the fiscal deficit has gone out of control. We could
have avoided this situation if we had attended to the balance-of payments problem
much earlier. Then there is the fact that the terms of assistance have hardened […]
International interest rates have gone up, our debt profile has worsened and the
terms of commercial borrowing have hardened.
Q: Would you then advocate approaching the IMF for even more than what we
have already secured?
Dr. Singh: In the short run there is no alternative. We are very vulnerable at the
moment. But an IMF loan is no solution either. Ultimately India has to raise its
own resources. We have to step up our exports.
On 6 April 1991, by which time he had become chairman of UGC, Manmohan Singh
delivered the convocation address at the Institute of Rural Management, Anand and said:
India is now faced with a severe budgetary crisis and an unsustainable deficit in
our balance of payments. A steady decline in public savings rate from about 3.2
per cent of GDP in 1985-86 to 1.4 percent in 1989-90 has been a major
contributory factor. We have made an excessive use of borrowing both at home
and from abroad to finance public spending. The productivity of public spending
has also been far from optimal.
Finally, on 15 April 1991, he delivered the convocation address at the Indian Institute of
Management (IIM), Bangalore (now Bengaluru) and had this to say about the economic
situation:
India’s twin deficits—fiscal deficit and balance of payments deficit—have
reached unsustainable limits. We have over-borrowed both at home and abroad to
finance the growth of public spending. Thus, hard decisions are needed to
overcome this crisis.
Manmohan Singh had offered a pointed diagnosis. Little did he realize that he would
soon be called upon to administer the bitter medicine as well.
Interestingly, back in the early 1970s, Manmohan Singh had articulated equally
intrepid views. The first intellectually solid and empirical assault on the economic
policies of the 1950s and 1960s (more of the latter actually) came from Jagdish
Bhagwati and Padma Desai in their classic India: Planning for Industrialization
(London: Oxford University Press, 1970). Manmohan Singh reviewed this book in 1972
in The Indian Economic and Social History Review when he was chief economic
adviser in the Ministry of Finance, and concluded by writing:
In view of the growing complexity of the Indian economic structure, the planning
instruments have to be continually kept under review. It would be tragic if we
were to become prisoners of instruments which, howsoever suitable at one stage
of development, turn out later to be fetters on further development. Professor
Bhagwati and Mrs Desai’s book is a welcome contribution to the debate on the
efficiency of Indian planning techniques and should help stimulate some fresh
thinking on instruments of controls. There is certainly a need to recognise that the
knowledge available to civil servants is not necessarily superior to that of
entrepreneurs and that the fact that some direct controls are good does not mean
that more controls are better than less controls. At the same time, it would be
much too presumptuous to claim that modern neo-classical economics has
answers to all the economic problems in all parts of the world and that an
efficient framework is always one based on the principles of economic
liberalism.
Clearly, the man who would become finance minister in June 1991 was no prisoner of
dogma and certainly no idealogue!

19R. Venkataraman, My Presidential Years (New Delhi: HarperCollins, 1994).

20Vijay Joshi
and I.M.D. Little, India: Macroeconomics and Political Economy:1964-91 (New Delhi:
Oxford University Press, 1994).
 3

The Inevitability of Dr Manmohan Singh as Finance Minister

21 June 1991 dawned, and I was up earlier than usual. Knowing that the prime minister-
designate, Narasimha Rao, was an early riser, I called him up at around 6.30 a.m. and
asked him whether he had any instructions for me, since in a couple of hours he would
be sworn in as prime minister. He asked me to reach 12, Willingdon Crescent by 8.30
a.m. Upon reaching, in the adjoining waiting room, I found S.K. Mishra, the then
principal secretary to the prime minister; Naresh Chandra; and M.K. Narayanan, the
director of the Intelligence Bureau. We were told that Rao was closeted with P.C.
Alexander and that it would take some time. I guessed that the two were discussing the
names of those to be invited for the swearing-in in about four hours.
The four of us were engaged in some general chit-chat when the buzzer of
Khandekar’s telephone was pressed from inside. R.K. Khandekar was Narasimha Rao’s
Man Friday, and when he put the receiver down, I asked whether I should go inside. His
reply was: ‘Nahin thoda aur wait kijiye. Abhi Manmohan Singh se milane ko kaha hai.
(No, wait for a bit. For now, he has asked to be connected to Manmohan Singh.)’ I
immediately understood that Manmohan Singh was to be invited as minister in the new
cabinet, and that in all probability he would be given the finance portfolio.
P.C. Alexander has written with authoritative and, at times, hilarious detail in his
memoirs on how Manmohan Singh came to be appointed:
I met Rao on 20 June immediately after his election as CPP leader and showed
him my draft proposals. He spent quite some time with me dissecting them and
specified to me the additions and deletions he wished to make. The next step was
to match the man to the ministry.
Narasimha Rao had earlier hinted [to me] that he was thinking of choosing a
professional economist as the finance minister. During his discussions with me on
20 June he had mentioned the name of Dr. Manmohan Singh and that of Dr. I.G.
Patel, another well-known and experienced economic administrator who had been
recommended to him by a few influential individuals. I told him, without any
hesitation, that my personal choice would be Dr. Manmohan Singh and I briefly
explained why. I could see that Rao was very happy at my wholehearted
endorsement of Manmohan Singh. He then said that since the Finance Minister’s
post was a political one, he hoped that Manmohan Singh would not hesitate to join
politics. I asserted that I was confident that Manmohan Singh would accept the
offer. Being a good friend, I would be able to persuade him even if he expressed
reservations about acceptance and I would tie up the loose ends, if any, quickly.
On 20 June when I telephoned Manmohan Singh’s house his butler informed
me that he was on a trip to Europe and was expected to reach Delhi only much
 later that night. I left word that I would call again early in the morning the next
day. When I telephoned his house at 5 a.m. on 21 June his butler told me that he
was fast asleep and could not be disturbed. However, I insisted that I had to meet
him without any delay and told him my name again hoping that my identity would
make a difference. But it made no impression upon the man. Upon insisting that I
had to talk to Dr. Manmohan Singh very urgently, he came on the line. I just told
him that I had to meet him immediately, without giving any reason and that I would
be reaching his house within a few minutes. When I arrived there, he had gone
back to sleep as he was obviously jet-lagged. He could not have possibly guessed
that I was on a very important mission—not only to him but also to the nation as a
whole. He was hurriedly woken up again and I straight away conveyed to him my
message. His immediate question was: What is your reaction? My response was
that, if I had any other view, except to support his appointment as finance minister,
I would not have met him at that unusual hour. He was happy upon hearing this
view but asked me whether I thought Rao would stand by him even if some of his
own cabinet or party colleagues were to oppose his proposals and plans as
finance minister at a later stage. I assured him on behalf of Rao that he would
have the latter’s full trust and support. Manmohan was delighted at this assurance
and gladly accepted the offer and requested me to convey his thanks to Rao. He
reminded me with great warmth how he felt especially happy that I was again
becoming an instrument in a major change in his official career. I told him that he
was Narasimha Rao’s choice and my role in his appointment was mainly because
I happened to be his friend as well as Rao’s.
I went to Rao’s house directly after taking Manmohan Singh’s leave and
informed him about the latter’s positive response and that I had conveyed the
assurance that Rao would fully back Manmohan Singh in the discharge of his
duties as finance minister. Rao felt very happy that he had succeeded in selecting
the right man for this vital post when the country’s financial position was at its
nadir.21
Some years later, as I got to know P.C. Alexander better, I asked him what had prompted
him to choose Singh so forcefully. He told me that he knew how much confidence Indira
Gandhi had in Singh and that, at heart, Singh was a Congressman in the Nehruvian
mould. I never summoned the courage to ask Rao himself about his choice, although one
of his closest aides recalls that Rao had suggested Singh’s name to replace him as deputy
chairman of the Planning Commission. (Rao had been minister of planning and deputy
chairman of the Planning Commission between November 1984 and mid-January 1985,
and had been entrusted with the defence portfolio as well in January 1985.) It is clear
that the prime minister had seen his finance minister-designate at the closest of quarters
for almost a decade-and-a-half.
R. Venkataraman—or RV, as he was popularly known—who was president of India
through the crucial months of 1991, further confirms this:
Narasimha Rao called on me at 7.30 p.m. [on 20 June] and I offered him my
warmest congratulations […] Narasimha Rao wanted my suggestion for the post
 of Finance Minister in view of the acute foreign exchange crisis facing the
country. He said that he would prefer one with some knowledge of the
international financial institutions and experience in dealing with them. I told him
that in that case he would have to go outside the ranks of his party and suggested
two eminent names. The Prime Minister later chose Dr. Manmohan Singh with
whose excellent work in the South Commission he was familiar. 22

Would Rajiv Gandhi have appointed Manmohan Singh as his finance minister had he
come back as prime minister? Of course, this question cannot be answered definitively
but can only be speculated upon. However, R.D. Pradhan has stated this possibility in
his remembrances:
By mid-May 1991 […] RG [Rajiv Gandhi] had sensed that he would be back in
power. He had asked me to start making the necessary preparations in case he had
to assume responsibility. I came up with a seven-page document which Sam
Pitroda had transferred onto his laptop.
Given the grave financial situation faced by India then, we knew that the first
priority would be the appointment as finance minister of a highly qualified
economist with a sound knowledge of financial management and one who
commanded the trust of the [IMF] and the World Bank. RG had tentatively cleared
three names: Dr. I.G. Patel, Dr. Manmohan Singh (both former governors of the
Reserve Bank of India) and S. Venkitaramanan (then the RBI governor). Sam
Pitroda and I knew Dr. Patel very well as a result of previous interactions with
him. IG, who was earlier director of the London School of Economics, turned
down the offer. Dr. Manmohan Singh was at that time out of India in connection
with the work of the South-South Commission presided over by the former
chancellor of the Federal Republic of Germany, Willy Brandt [sic].
RG had asked me to visit Bombay and to contact Dr. Manmohan Singh through
S. Venkitaramanan […]
On 20 June 1991, as soon as it became clear that PV [Narasimha Rao] would
become the next Prime Minister I briefed him on a range of important matters that
we were dealing with prior to RG’s death. I particularly pointed out that RG had
cleared the name of Dr. Manmohan Singh as the next Union Finance Minister in
case Dr. I.G. Patel was not available. 23
Rajiv Gandhi’s esteem for Singh also comes through in Mani Shankar Aiyar’s comments.
Aiyar was amongst the closest of Rajiv Gandhi’s aides even in the years after the latter
had ceased to be prime minister. He had quit the Indian Foreign Service (IFS) in 1989
and became officer-on-special-duty to the Congress president in early 1990. When I
asked him to recall the 1991 period, this is what he wrote to me very colourfully on 3
June 2015:
In February 1991, I called on the Chief Economic Adviser, Dr. Deepak Nayyar to
 collect some reference material for my Sunday columns. He gave me the material
readily enough but pressed me to stay so that he could inform me of the condition
of the economy. For the next thirty minutes, Dr. Nayyar sent the shivers down my
spine [as he explained] how India was on the verge of bankruptcy. I rushed from
North Block to 10 Janpath and, on learning that Rajiv Gandhi was about to
commence a CWC meeting, got George’s [Rajiv Gandhi’s private secretary]
permission to barge through the door. I requested Rajivji to come to one side as I
had important information to impart to him. He seemed amused rather than
bemused and, after hearing me out for a few minutes, asked why I did not address
the whole of the CWC rather than just himself. Accordingly I did so. Rajivji asked
me not to go away but wait with George till the CWC meeting is over. When I
returned to the room, he beamed as usual and informed me that none of the CWC
members had understood a word of what I had said! He then instructed me to call
on Dr. Manmohan Singh and ask him to meet Rajivji as soon as possible.
I went to Dr. Manmohan Singh’s Pandara Road residence where Mrs.
Gursharan Kaur met me at the verandah to say that her husband was not at all well
and could I come back later? I said I did not really need to converse with him but
only convey a message of a couple of sentences which was a matter of urgent
importance. She kindly let me into Dr. Singh’s bedroom where I succinctly gave
my message and leant my ear towards Dr. Singh’s mouth to hear him whisper that I
should tell Rajivji that he would meet him as soon as possible.

Clearly, Manmohan Singh as finance minister was ‘an idea whose time had come’, to
adopt a famous phrase by Victor Hugo—a phrase to be used by Singh himself in his
maiden budget speech on 24 July 1991.
Singh’s sobriety and quiet dignity were his hallmarks, just as his experience as an
economic administrator was unmatched. There had been noted ‘professionals’ as finance
ministers before, like Shanmukham Chetty, John Mathai and C.D. Deshmukh. But none
matched the combination of academic brilliance and wide administrative experience of
Manmohan Singh.
However inevitable and inspired his appointment may appear in retrospect, the fact
remains that it was a surprise to almost everybody. Pranab Mukherjee, who had been
finance minister between 1982 and 1984 in the Indira Gandhi government, was widely
considered to be the favourite for this coveted post. After he had re-joined the Congress
(after founding another party in 1986, the Rashtriya Samajwadi Congress in West
Bengal), for all of 1990 and early 1991, he had been advising Rajiv Gandhi and had
been his interlocutor with Yashwant Sinha (who was finance minister in Chandra
Shekhar’s government). On 20 June 1991, just a day before Rao’s swearing-in as prime
minister, Pranabda—as he was popularly called—gave a detailed interview to the
journalist R.K. Roy (to be carried the next day in The Times of India) in which he had
pretty much laid out the broad economic agenda of the Rao government (Annexure 3).
 Q: The Congress wants to roll back prices. What is the targeted rate of price rise
the party has in mind?
A: Inflation cannot be zeroed but it can certainly be brought down from the current
double-digit rate to 8 per cent or even lower, that was the average in the eighties.
I would start with this kind of a modest target. As regards rolling back prices, the
government has some fiscal manoeuvrability in this regard, as also administrative
measures available to it. I would not like to amplify upon this now. […]
Q: You are talking about resuming the plan but the IMF wants economic
liberalisation.
A: We want planning and liberalisation. We must give room for play to the private
sector. The public sector must vacate the areas in which the private sector has the
capability to come in. The public sector must move into the difficult areas of
advanced technology.
Q: You are not averse to conditional assistance from the IMF?
A: No. Actually, the government [of V.P. Singh] ought to have taken advance
action in 1990. The conditionality would have been less harsh.
Q: But surely the Congress government could have gone to the IMF in early 1989?
A: You see, in 1989 the mix between short-term borrowing and the lines of long-
term credits available to this country was fair. The proportion of short-term credit
rose in 1990, before the Gulf War. If the Congress had been returned to power, we
would have gone to the IMF in 1990.
However, Pranabda’s appointment as finance minister was not to be. Instead, on the
evening of 22 June 1991, the prime minister told me that he was soon going to appoint
Pranab Mukherjee as deputy chairman of the Planning Commission and that I should
keep in close touch with him. This appointment was made the very next day and when I
called on him, the new deputy chairman told me that I should keep meeting him regularly
to discuss both economic and political matters. He also told me that I should continue to
work as an aide to the prime minister, and he had earlier conveyed this to ‘PV’—as he
used to refer to Narasimha Rao at all times.
This repeated reference to ‘PV’ always reminded me of high-school chemistry where
students are taught Boyle’s law, which is mathematically represented as PV=constant,
where P is the pressure of a given quantity of gas and V is its volume. The political
‘PV’, similarly, was unflappable.

21P.C. Alexander, Through the Corridors of Power (New Delhi: HarperCollins, 2004).
22R.Venkataraman, My Presidential Years (New Delhi: HarperCollins, 1994). Manmohan Singh had
been secretary general of the South Commission in Geneva between 1987 and late 1990.
23R.D. Pradhan, My Years with Rajiv and Sonia (New Delhi: Hay House, 2014). Actually the name of
the commission that Pradhan refers to was the South Commission which was chaired by Dr Julius
Nyerere, former president of Tanzania.
 4

The Flap on the Roll-back of Prices

anmohan Singh was officially given the finance portfolio on 22 June 1991. Three
days later he held his first formal press conference. It was a virtuoso performance
where he laid out the government’s priorities in economic policy in the clearest manner
possible. On one issue though, what he said created a storm.

The Congress’ manifesto for the 1991 Lok Sabha elections had made a departure from
the usual staid practice and ended up with a programme of action for the first hundred
days (as also for the first 365, 730 and 1,000 days). P. V. Narasimha Rao was chairman
of the manifesto drafting committee which included Pranab Mukherjee and Mani Shankar
Aiyar. But it was P. Chidambaram—who would become the commerce minister in Rao’s
government—who was the principal author of the idea of a separate programme of
action as well as its contents. I could see that Pranab Mukherjee was not entirely
convinced that we had done a wise thing, but Chidambaram was very persuasive and
had his way.
In the ‘First 100 Days’ section of the 1991 manifesto, the Congress pledged to, among
other things:
* Arrest price rise in essential commodities and, in particular, roll back prices to
levels obtaining in July 1990 in the case of
1. Diesel;
2. Kerosene;
3. Salt;
4. Edible Oils;
5. Cycles and two-wheelers;
6. Electric bulbs;
7. Cotton sarees and dhotis of 40s count or below;
8. Stoves including smokeless chulhas;
9. Newsprint;
10. Postcards, inland letters and envelopes.
Actually, somebody should have questioned the practicality of this pledge but there was
no time for a discussion. The manifesto had to come out quickly since it had already
been delayed and, in any case, the general opinion was that manifesto promises are
meant to be just that—promises to make the party appear good.
At the 25 June press conference, the finance minister was asked about inflation. What he
said first was unexceptionable:
It would be wrong to say that I have a magic wand to bring down prices. What I
can promise is that in three years time prices could be made stable if a strategy of
macroeconomic management is pursued now.
But he went on to say that he had no readymade mechanism by which he could fulfil the
Congress (I) poll promise of rolling back prices of a select group of commodities to
their July 1990 levels.
This admission was naturally played up the next day in all newspapers and it
appeared that the new government had started with a self-goal. The prime minister was
perturbed and so was his political secretary, Jitendra Prasada. Prasada first sent for me
and said that the finance minister’s statement was a huge embarrassment and was
politically most unwise. Next, the prime minister asked me to see him. I could sense that
he was clearly irritated. He had received letters of protest from MPs like Rajni Ranjan
Sahu and Gurudas Kamat. He expressed some frustration with economists not being
sensitive to politics. He was worried that this could create a backlash against the
government within the party.
He was right. At a meeting of the CWC on 1 July 1991, the finance minister’s
admission on prices came under sharp attack— mostly by a senior leader from Uttar
Pradesh, Ram Chandra Vikal. On 7 July, at a press conference in Hyderabad, in a bid to
douse the flames, the prime minister said that the finance minister’s statement was not a
reflection of the government’s decisions and that the government was bound by the 1991
manifesto—earning for Manmohan Singh the only public rebuke of sorts from his boss in
their five-year partnership.
A number of my friends in the Congress called me and asked me to tell the finance
minister to issue a statement saying that ‘he was misquoted’. Knowing Manmohan Singh,
I did nothing of that sort, but for months had to bear the wrath of senior Congressmen for
canvassing the idea of a hundred-day agenda. I took this in my stride knowing full well
that I was not its real author. Pranab Mukherjee, too, told me that ‘people should realize
that we seek a mandate for five years and not for a hundred days’. Since both he and
Singh were key figures in the drafting of all subsequent manifestos, this fracas over the
roll-back ensured that the Congress never included a specific and separate hundred-day
agenda as part of its election promises in 1996, 1999, 2004, 2009 and 2014.
 5

The One-pager to Our Man in the IMF

n 26 June 1991, I met Gopi Arora, then India’s executive director at the IMF, and for
many years a close adviser of both Indira and Rajiv Gandhi. He was visiting New
Delhi. It was he who had first got me into the Ministry of Industry in August 1985. We
had become close even though I was not part of the ‘left brigade’ of which he had been a
leading light.
Arora told me that our credibility was rock bottom but that Manmohan Singh’s
appointment as finance minister had aroused considerable hopes and expectations. He
went on to add that his experience with the prime minister over the past decade told him
that he was very cautious and indecisive. Arora also said that he had conveyed to the
prime minister that I would be very useful to him and that I should be given wide space
to function.
Arora’s concern was that devaluation was essential, but given the Congress’ views
on it, clouded by the June 1966 experience,24 he was not very hopeful. Devaluation
apart, his main concern was with the broader reforms agenda. He needed something
urgently to convince the IMF board that the Narasimha Rao government meant business,
could be taken seriously, and was also committed to new thinking. He told me that he
had spoken to the prime minister and finance minister at length and he wanted me to put
together some ideas quickly that he could use in his discussions at the IMF.
That very night, I jotted down a few thoughts and showed them to the prime minister
late at his residence. He liked what he saw but wanted to make no commitments. He
believed that the note I had prepared could be sent to Gopi Arora ‘informally’—not as a
statement of official policy but as a summary of the directional shifts we were
contemplating. Clearly, Rao wanted to maintain an element of deniability in case
anything went wrong or the note leaked.
Thus, it was that on 27 June 1991, I used the fax machine in Jawahar Bhavan—in the
custody of R.D. Pradhan who was managing the election campaign management office of
the Congress—to send the note to Gopi Arora.25
 Arora thanked me for my initiative and said that my comments would be very useful
in his meetings with the managing director of the IMF and other senior officials. As we
had agreed, no mention was made of devaluation in the faxed note.

26 June 1991 was also the day the prime minister met some key opposition leaders
separately. These included Chandra Shekhar, V.P. Singh, L.K. Advani,26Harkishan Singh
Surjeet27 and some others.
The next day, he called an all-party meeting. Those who attended included L.K.
Advani, George Fernandes,28Somnath Chatterjee,29Indrajit Gupta,30Madhu Dandavate,31P.
Upendra,32 Harkishan Singh Surjeet and Yashwant Sinha. Senior officials were also
present. There was some bonhomie given that the prime minister had been in office for
under a week, and also because he knew each of those attending very well. The finance
minister, too, was no stranger to the audience. The meeting served as a good political
gesture so very early in the game and the meeting lasted about an hour-and-a-half.
The finance minister gave an extensive briefing on the state of the economy, a
comprehensive picture of the financial crisis facing the country, and a clear signal that a
default on international payment obligations had to be averted at all costs. He also
indicated that talks had already started with institutions like the IMF and the World
Bank, who had been friends of India.33 There was no endorsement for the course of
action the finance minister was recommending and seeking support for. But the leaders
of the political parties appeared reconciled to the idea that some drastic steps would
have to be taken to preserve and protect India’s global prestige. However, there was
also an all-round view that under no circumstances could subsidies be sacrificed at the
altar of IMF support.
I had been in Jamaica in the late 1970s when that country had taken IMF assistance
and had seen ‘It’s Manley’s Fault (IMF)’ scribbled on walls—in reference to the role
that the country’s prime minister, Michael Manley had played in that episode.34 I was
beginning to wonder when there would be graffiti, especially in Calcutta (now Kolkata),
saying, ‘It’s Manmohan’s Fault!’35

24In June
1966, Indira Gandhi had devalued the rupee substantially. This is discussed later in the book.
25R.D.
Pradhan in My Years with Rajiv and Sonia describes this event but sadly, gets the dates wrong.
He says it happened on 22 June. It could not have since the note itself is dated 27 June in the original.
26L.K. Advani is a leader of the BJP, and during Rao’s tenure, was the leader of the opposition.

27Harkishan Singh Surjeet was a CPM (Communist Party of India [Marxist]) leader.

28George Fernandes had been railways minister in the V.P. Singh government and was a key member of
the Janata Dal.
29
Then a member of the CPM, Somnath Chatterjee was an MP from Bolpur, West Bengal.
30
From the CPI (Communist Party of India), Indrajit Gupta was an MP from Midnapore, West Bengal.
31
Madhu Dandavate was finance minister in the V.P. Singh government and a Janata Dal MP.
32
P. Upendra of the TDP had been the leader of the opposition in the Lok Sabha during the prime
ministership of Rajiv Gandhi.
33In a rare joint statement issued on 21 May 1991, reflective of the special relationship that India had

enjoyed with the IMF and the World Bank for almost four decades, Barber Conable, president of the
World Bank, and Michel Camdessus, managing director of the IMF said: ‘Mr. Rajiv Gandhi’s death is a
tragic loss for India and the international community at large. The Bank and the Fund have long been
associated with India’s economic development. This will continue. During the recent Interim and
Development Committee meetings in Washington in April, an informal meeting of the major donors of
the Aid-India Consortium was held to discuss India’s economic and financial situation. The Indian
authorities said then that they were preparing, in consultation with the Fund and the Bank, a programme
of corrective policies aimed at strengthening their economy. We will continue to work to that end and
thus to provide the basis for support by the Fund, the Bank, and all other members of the India
Consortium, which remains strongly committed to India’s economic development.’
34Jamaica’s prime minister, Michael Manley, saddled with an ailing economy, approached the IMF for
balance-of-payments support. The terms of the May 1978 agreement— which made the government
devalue its currency, impose new taxes on consumer goods, and reduce expenditure—aggravated
political and social tension within Jamaica, and led to unrest, violence, and opposition protests.
35
Many of Manmohan Singh’s critics would write and say that he had worked in the IMF and/or the
World Bank. The truth, however, is that he never had.
 6

The Devaluation Trauma

ight from the beginning, the prospect of devaluation horrified the prime minister. It
was not surprising. He belonged to a generation that believed that the 6 June 1966
devaluation forced upon Indira Gandhi was a political and economic disaster. Little did
he realize that almost exactly a quarter of a century later, he would be in the hot seat. Of
course, numerologically, 6.6.66 couldn’t be matched!
While the truth of the devaluation episode under Indira Gandhi36 is considerably
more complex than is popularly held, it is also a fact that the US and other Western
donors did not keep their side of the bargain and the international support promised to
India as a quid pro quo for devaluation did not materialize. This could well have been
for the political stances India took on issues of concern to the Americans, especially
Vietnam.
Even before he became prime minister, Narasimha Rao had quizzed Pranab
Mukherjee and me on the pros and cons of devaluation. Two or three days after he
assumed office, Rao informed me that Nikhil Chakravartty, the respected editor of
Mainstream, had met him and told him that devaluation should be avoided at all costs.
He further informed the prime minister that Dr Arjun Sengupta, the noted economist who
had worked with Indira Gandhi during 1981-84 and had subsequently been India’s
executive director at the IMF, was firmly of the view that devaluation was unnecessary
and that if given an opportunity he could help negotiate an IMF package without its
dreaded conditionalities. The prime minister respected Nikhil Chakravartty and wanted
me to speak directly to Arjun Sengupta, who was in Delhi then.
I met Sengupta, who I knew well, and he reiterated what he had told Chakravartty. He
was keen to come back to India from Brussels, where he was our ambassador, and in
keeping with his seniority, wanted to be designated principal finance secretary; this, he
felt, would grant him clout with the IMF. Sengupta asked me to convey to the prime
minister that he had also served as an adviser to Michel Camdessus, the managing
director of the IMF, which gave him a unique position vis-a-vis the organization. I
transmitted whatever Sengupta told me faithfully to Narasimha Rao. Nothing happened
further on that front.
But then, on 30 June 1991, the prime minister asked me to meet him late in the
evening at Hyderabad House, the official meeting place maintained by the Ministry of
External Affairs, where he was hosting an Iftar dinner. When I met him after the banquet,
he appeared very perturbed and said that he did not fully accept the business of ‘two-
step devaluation’ which was being forcefully advocated by the finance minister. Later, I
was to learn that Manmohan Singh had sent the prime minister a top-secret handwritten
note suggesting devaluation—but in two phases. One devaluation was bad enough, but
two in quick succession seemed to have shaken Rao. President R. Venkataraman, who
had been finance minister under Indira Gandhi, had cautioned the prime minister and
finance minister about a radical step like devaluation. While Venkataraman was against
the very idea, that it was proposed to be carried out by a ‘minority government’ made it
even more unacceptable!
I did not know what the finance minister had written to the prime minister. But I took
the prime minister through the arguments for a two-step devaluation—that the first step
was needed to test the waters and establish our credibility, and the second would be the
real change. I told him that the markets were expecting a two-step devaluation. I also
recall having told the prime minister that it was high time that we acknowledged that the
exchange rate was a matter of, not pride, but a price. I reminded him that there was
scholarly evidence to suggest that the 1966 devaluation was not such an economic
disaster as it was made out to be. But I could see that Narasimha Rao was completely
unconvinced. He let me go after about ninety minutes. That was the first time I got to
know that devaluation was on the cards.

As it turned out, the first devaluation of the rupee—against major currencies (the dollar,
pound, yen, mark and franc)—of between 7 per cent and 9 per cent took place on 1 July
1991. Within forty-eight hours, on the morning of 3 July, the second devaluation of about
11 per cent against the major global currencies was carried out. Thus the rupee had
depreciated by something like 18 per cent in just two days.
The prime minister was certainly not amused. In fact, a little after the first
devaluation, in the early hours of 3 July, he called up Manmohan Singh asking for the
second devaluation to be halted. The finance minister argued with him but to no avail.
Thereafter, Manmohan Singh called Dr C. Rangarajan, the deputy governor of the RBI, at
around 9.30 a.m., to ask him to hold back the second stage devaluation—only to be told
that it had already been carried out that very morning at 9 a.m. The finance minister was,
of course, delighted that this had been done, but conveyed the news to the prime minister
less enthusiastically.
The two-step devaluation decision was taken purely between the prime minister and
the finance minister, and was conveyed to the governor and deputy governor of the RBI.
The finance minister had wanted it that way because he felt that given the 1966
experience, the cabinet would never give its consent.37 Of course, financial markets had
expected the devaluation, although there were varying expectations regarding the exact
quantum of change.
Once the second devaluation was announced, markets reacted positively and industry
circles also welcomed the move. But predictably, the news caused a furore in
Parliament and great sullenness within the Congress itself. The finance minister and the
RBI governor, on their part, took great care never to use the word ‘devaluation’, always
referring to it as ‘an adjustment of the exchange rate of the rupee’.
The finance minister called an unscheduled press conference on 3 July after his
conversation with the prime minister, and defended the two-step devaluation,
enumerating in detail the benefits that would accrue to the economy. But more
importantly, he emphatically ruled out further downward revisions and gave a firm
assurance that no further devaluations would take place.
In an interview with the journalist Paranjoy Guha Thakurta (Annexure 4), when asked
why he had opted for devaluation, and a two-step one at that, he said:
We, in this country, live under certain illusions—economists have been
responsible for it—that devaluation is something immoral, anti-national. You look
around the world. Over the past year, both the Soviet Union and China have gone
in for massive devaluation of their currencies. Our people—the economists, the
journalists, the politicians—somehow believe that devaluation is sinful and
dishonourable. It is nothing of that sort.
The exchange rate is just a price. If you are in the business of selling, your
price has to be competitive. And who are our competitors? They include South
Korea, the countries of south and south-east Asia, and Pakistan. Look at what they
have done. I think their exchange rate policies have been aggressive and designed
to enhance their competitiveness. Now, if in this situation, we do nothing, our
balance of payments, which is already precarious, would worsen further.
[…Regarding why devaluation was in two stages] to be honest, I had to test
the reaction of the market, test the political reaction and prepare the country for a
bigger devaluation. That was why we launched a trial balloon. The initial
reaction was favourable, the market took it calmly. […]
Q: Did you go in for a sudden devaluation instead of a gradual one—say, spread
out over a month—because time was running out?
A: A gradual kind of devaluation could not have been done in the present
situation. Normally, you have creeping devaluation which is not noticed. If I
allowed a gradual slide, the rupee could have suddenly slumped. In this country
and abroad, people were saying that the rupee was so weak that no government
would be able to sustain its value. The ideal thing to do would have been to
devalue at one go, but I had to prepare domestic public opinion. I’m grateful that
the Prime Minister has understood the gravity of the problems.
The prime minister, on his part, was clearly a reluctant protagonist in the two-step
devaluation drama. But once it happened, he defended it aggressively, both in Parliament
and outside. On 7 July, he spoke to K.K. Katyal of The Hindu and answered questions
on devaluation thus:38
Q: The thrust now will be on economic reforms, structural adjustments as the
Finance Minister has been saying. Somehow the assurance that, in this process,
the independence of judgement would be preserved is missing. Would you like to
say something?
PM: It is not missing. We have been emphasising it time and again. In fact he has
been saying that the main request for all these reforms would be to see that we do
not lose our economic independence. If we go on drifting we would certainly
 have lost it, if not now, after six months. In the next one week or two, we would
have been defaulters. And once you become a defaulter, a country of India’s size,
what will happen is something that you can easily imagine. Then what happens?
Can you keep your economic independence after that? Therefore what the Finance
Minister said is absolutely correct and what I say is this is the only way of
keeping our economic independence in the long run. We had to take hard decisions
so that we don’t go into a situation where it becomes irretrievable. Then you lose
economic independence. So it is in order to prevent that horrendous situation that
these decisions were taken.
Q: What haunts both experts and non-experts is the experience of 1966. The rupee
was devalued but exports did not pick up. Could there be assurance that 1966
would not be repeated?
PM: We will have to carefully weigh the steps which need to be taken hereafter
and we are at it. We have not really left anything for test and I am sure that
whatever might have happened at that time, I am not quite sure what to say about
that because I was at least personally not fully aware of the details—so without
making any comment about what happened in 1966 this time I may say that we
will not leave anything to drift. We will take all the consequential actions that are
needed and we are already taking those steps.
On 8 July 1991, the prime minister’s interview with Prabhu Chawla of The Indian
Express appeared, and here, too, the prime minister was unapologetic and anything but
defensive.
Q: Given the minority character of your government, do you feel confident as
Prime Minister?
A: Yes, I do feel more confident now. Although the responsibility is very heavy,
the Congress party can discharge this very effectively. And the kind of response
which the Government has got from the people during the last three weeks has
provided us greater confidence.
Q: Is it due to this that you have resorted to strong economic measures like steep
depreciation of the rupee?
A: We mean business now. The country could not wait any longer. These
decisions should have been taken long ago.
Q: But is it not improper to push through such strong measures without proving
your majority on the floor of the House?
A: These steps were so urgent that I could not have waited. Both from the point of
view of time and substance I had to do what I did.
Q. Was it done under IMF pressure?
 A: No, it was done because it was more or less in the pipeline. It was done
because much time was lost in not taking these decisions earlier. I am glad we
have done it. If we had not done it, the alternatives would have been disastrous.
The Katyal and Chawla interviews were quintessential Narasimha Rao. He
philosophized like nobody else could, but got his point through—that there was no
alternative to devaluation. He remained emphatic, although I very well knew, as did the
finance minister, how deeply uncomfortable he was with the move, and had, in fact, tried
hard to stop the 3 July devaluation.
The devaluation decision proved very contentious and criticism did not stop. In
Parliament, the finance minister had to face much flak from across the political spectrum.
But he took the fight to his critics much to the delight of the prime minister and all of us.
On 16 July 1991, for instance, the Rajya Sabha witnessed this exchange during
question hour. It was in response to a question asked jointly by Gurudas Dasgupta of the
CPI and Ajit Jogi of the Congress. Dasgupta actually asked the question.
Shri Gurudas Dasgupta (West Bengal; CPI): My question to the hon. Minister is
that the balance of payments position cannot be corrected if there is no increase in
the export India does. Over the last ten years there have been a number of so-
called adjustments in the exchange rate and even then there has been no
appreciable improvement in the export of the country. In 1966, devaluation was
resorted to. Even then for the first few years export increased by only 4.5%. In
this background, I would like to know how the hon. Finance Minister is optimistic
that there can be increase in export so that the balance of payments position can be
corrected.
[…] Part (b) of my question is this. There is a danger that the increase in
export may be over-counter-balanced by the increase in the price of import […]
Part (c) of my question is whether the devaluation was resorted to because the
Government of India was under duress from the non-resident Indians and also that
it was under duress because of the World Bank conditionalities for getting the
loan.
Dr. Manmohan Singh: I would like to answer the last part of the question first.
We were not under any duress from anybody then and we are not [under] duress
now. This was a sensible decision to do in the circumstances in which our country
was placed and is now. Therefore, I don’t have to bow to the IMF or to anybody
else to do what is in the best interest of the country.
Shri Gurudas Dasgupta: The Prime Minister said yesterday that the banks
would have been underrun if devaluation was not done. What have you to
comment on that?
Dr. Manmohan Singh: The Prime Minister was mentioning the objective
conditions prevailing then and what we did was a response mechanism which
stopped those types of destabilising activities becoming a flood. This is not a
question of functioning under duress at all. The first part of the question is: will
devaluation lead to an increase in export? The hon. Member has referred to
 several previous instances. Let me say that in this country there seems to be a
strange conspiracy between the extreme left and extreme right that there is
something immoral or dishonourable about changing the exchange rate. But that is
not the tradition. If you look at the whole history of India’s independence struggle
before 1947 all our national leaders were fighting against the British against
keeping the exchange rate of the Rupee unduly high. Why did the British keep the
exchange rate of the Rupee unduly high? It was because they wanted this country
to remain backward and they did not want this country to industrialise. They
wanted the country to be an exporter of primary products against which all Indian
economists protested. If you look at Indian history right from 1900 onwards to
1947, this was a recurring plea of all Indian economists—not to have an exchange
rate which is so high that India cannot export, that India cannot industrialise. But I
am really surprised that something which is meant to encourage the country’s
exports, encourage its industrialisation is now considered as something anti-
national.
This was Professor Manmohan Singh at his scholarly best. He was also unusually
combative. After all, his doctoral dissertation was on India’s exports and he had
challenged the ‘export pessimism’ syndrome of the 1950s. I mentioned this to a couple of
colleagues and said that sitting in the Officials Gallery and listening to the finance
minister answer questions and make his interventions was a wonderful lesson in real-
world macroeconomics.

36
Two insider accounts of that episode are B.K. Nehru, Nice Guys Finish Second (New Delhi: Viking,
1997) and I.G. Patel, Glimpses of Indian Economic Policy (New Delhi: Oxford University Press,
2002). B.G. Verghese, then the prime minister’s information adviser, writes in his memoirs, First
Draft: Witness to the Making of Modern India (New Delhi: Tranquebar, 2010) that the night before
the devaluation, Indira Gandhi tried to relax by watching Doctor Zhivago and Those Magnificent Men
in Their Flying Machines, but she admitted, ‘I am scared stiff’.
37The 6 June 1966 decision was taken by the prime minister on the advice of four key officials—L.K.
Jha (the prime minister’s secretary), S. Bhoothalingam (the finance secretary), I.G. Patel (the chief
economic adviser) and P.C. Bhattacharya (the governor of the RBI)—and ratified by the cabinet the
previous day, on a Sunday. ‘The prime minister had agreed more by faith than understanding’; based on
the interviews of the author with S. Bhoothalingam, 14 April 1983, and L.K. Jha, 27 April 1983.
38
The interview appeared in The Hindu on 10 July 1991.
 7

The Continuing Gold Sales Controversy

othing exemplified the magnitude of India’s financial crisis in the early part of 1991
better than the need to use our gold reserves to raise money to pay for the country’s
imports. This showed that we had become totally bankrupt. Of course, under Section
33(5) of the Reserve Bank of India (RBI) Act, 1934, the RBI had the power to keep 15
per cent of its gold outside India39 and it could exercise that power on its own. But that
power had never been exercised till the early months of 1991.
It was Prime Minister Chandra Shekhar and Finance Minister Yashwant Sinha—on
the advice of the RBI Governor S. Venkitaramanan—who first decided to use our gold
reserves to raise foreign loans to keep the wheels of the economy moving. On 16 May
1991, 20 metric tonnes of confiscated gold held by the Government of India was leased
to the State Bank of India (SBI). Two days later, SBI entered into a sale transaction with
a repurchase option with the United Bank of Switzerland. This was before the Rao
government came to power. This helped raise about US$200 million.
Once the new government came to power, gold transfers continued. This time it was
the RBI that transported a total of 46.91 tonnes of gold to the Bank of England over four
days—4, 7, 11 and 18 July 1991 (the last of which took Parliament by surprise). This
enabled the country to borrow ‘for a period of one month at a time a total sum of about
$400 million to help us tide over the serious liquidity problems we were facing.’40
The SBI transaction involved the sale of confiscated gold at the prevailing market
price with the option to repurchase it within six months. The four RBI transactions, on
the other hand, did not mean outright sales but were meant only for ‘parking’ that gold in
the vaults of the Bank of England, permissible by law, against which the Bank of
England advanced the RBI some temporary financial assistance.
Right from the start, Parliament was agitated about the gold transfer issue. Members
cutting across party lines protested loudly. Congress MPs did not spare their own
government. On 12 July, the matter rocked question hour and there were heated
exchanges between the finance minister, and K.P. Unnikrishnan and Chandrajeet Yadav,
both of whom had been leading lights of the Congress in the past.
K.P. Unnikrishnan (Kerala; JD [Janata Dal]): Sir, the distinguished Finance
Minister for whom I have high respect, regard and affection […] I would also
request him not to quibble around and acquire the habit of politicians and to be
straightforward in this House and tell the truth […] There has been another
transaction. It is said that it had been taken for safe custody of Bank of England
walls, as though our walls are not protected. A former Reserve Bank Governor,
his former colleague has called it a national humiliation. I would like to know
why the second transaction was necessary.
 Dr. Manmohan Singh: […] He has made a reference to the statement of my
distinguished predecessor as the Governor of the Reserve Bank, Dr. I.G. Patel. I
had spoken to him this morning […and] he has been grossly misquoted. He had
not said that what we have done is dishonourable or a humiliation. What he has
said is that all of us should feel very sad that we brought our country to this pass
that these transactions have to be done. I share that perception and all of us in this
House and our people outside must reflect as to what has gone wrong with this
country that we have to do such painful things.
But there were some fine moments of statesmanship, too, when the finance minister
defended his predecessor, Yashwant Sinha, who was being attacked by Congress MPs
during question hour in the Rajya Sabha on 16 July:
Dr. Manmohan Singh: Mr. Chairman Sir, there is no relation between the stock of
gold held by the Reserve Bank or the Government and the price level of the
country. So this decision in regard to gold which was taken by the previous
Government—some gold went when they were in power, some gold went when
we were in power—if you are asking what impact it will have on prices, my
answer is a plain “no”—that there is no relation between what was done and the
domestic price level.
The second question that was asked was, was this transaction absolutely
necessary and at what level was the decision taken? I am convinced that in both
these cases these transactions were very necessary. The former Finance Minister
and the former Prime Minister took these decisions. It was not a happy decision. I
know that the then Prime Minister was greatly pained by that decision and I share
the sense of pain. It is not something of which I am very proud—that I have to sell
the country’s gold—but the House must appreciate the situation in which this
country stands […] We are not very proud of what we have done but you have my
assurance that we considered all options, the pros and the cons, the costs and the
benefits. In the circumstances, this was the best possible decision that could be
taken.
Shri Yashwant Sinha (Bihar; SJP [Samajwadi Janata Party]): Sir, I am very
grateful to the Finance Minister for the way he has spoken. I must say that it has
been a totally non-partisan approach that the Finance Minister has brought to bear
upon a question to which unnecessary sentiment is sought to be attached […] I
must point it out because the Finance Minister has justified what our Government
had done and I must express my gratitude. At the same time, I must also say that I
am very glad that he has put the record straight because a junior spokesman of that
party called it a national betrayal. He does not agree with that and I am glad about
that.
Sadly, that was the first and last time Yashwant Sinha was so magnanimous. After that,
he never lost any opportunity to taunt, bait or criticize Manmohan Singh, first as finance
minister, and later as prime minister, in the bitterest language possible. I have always
believed that this was because he was sore that the credit for ushering in economic
reforms was not given to him, but was instead rightly bestowed on Manmohan Singh.
We had thought that all gold transactions had been completed by 16 July 1991. But
reports of a fourth transaction hit the headlines on 18 July. Parliament was agog once
again. It was then that it was decided that the finance minister would make an
authoritative statement on the gold transfers from the RBI to the Bank of England.
Accordingly, he made this statement in the Lok Sabha late at 6 p.m. on 18 July itself. He
recounted the history of all transfers and why they had become essential. But the two
important new points he made were:
1. The movement of gold had to be done without prior public announcements for
security reasons.
2. No further gold transfers would take place.
The prime minister mused about gold once or twice. This was particularly so after Atal
Bihari Vajpayee, a leading member of the BJP, who would become India’s eleventh
prime minister, had spoken on the budget in the Lok Sabha on 5 August 1991. Vajpayee
had said:
[…] There is about 10,000 tonnes of gold in our country, out of which 5,000
tonnes is hoarded and 5,000 tonnes have been brought into the country through
smuggling. If we succeed to […] get 2,000 tonnes of gold from the public—I am
not talking of 5,000 tonnes of gold but only 2,000 tonnes of gold […] it would be
worth 36 billion American dollars […]
If we sell gold worth 25 billion dollars to clear our debts and invest the rest of
gold in such a way that it would fetch us 10 percent profit, then it would help us in
overcoming the financial crisis.
My view, which I shared with the prime minister, was that what the BJP leader was
suggesting was unrealistic given the role gold plays in our lives; in any case, it was a
suggestion for the medium-term. It was no solution for the days and months ahead. For
that, the IMF route was the only way out, something that the V.P. Singh and Chandra
Shekhar governments had recognized.41

What might Rajiv Gandhi have done vis-à-vis gold? The Congress was vocally critical,
no doubt, but what is to be made of this oral recollection by S. Venkitaramanan, while
taking part in a symposium organized by the Rajiv Gandhi Foundation in November
1994, two years after he had retired as the governor of the RBI? He recalled thus:
I was Governor of the Reserve Bank and we had this severe crisis. I had the
permission of Chandra Shekhar to interact with him [Rajiv Gandhi]. I had gone to
him and said: ‘Sir, it worries me that we should have this country going through
tremendous crisis of foreign exchange and we have three billion dollars’ worth of
 gold in our reserves. I want to use it. I know that your party colleagues are against
it and publicly you have expressed, your party has expressed this view.’ He
[Rajiv Gandhi] said: ‘It is nonsense. How can you allow this country to go
through with this situation without using the gold you have? If you want, I will
come out and say [it].’42
Alas, that never came to pass.

39The
law specifically states: ‘Of the gold coin and gold bullion held as assets, not less than seventeen-
twentieths shall be held in [India].’
40Statement
of Finance Minister Dr Manmohan Singh on gold transactions, Lok Sabha, 18:00 hours, 18
July 1991.
41Under various borrowing windows of the IMF, India took US$660 million during July-September

1990 and US$1.8 billion in January 1991. India was to later borrow US$221 million in July 1991,
US$639 million in September 1991, US$117 million in November 1991, US$265 million in January
1992 and US$650 million in February- March 1992. This demonstrates vividly how precarious the
economic situation was and how dependent we had become on the IMF for balance-of-payments
financing well after the reforms blitz of July 1991.
42
See Rajiv Gandhi’s India, Volume 2, volume editor V. Ramachandran (New Delhi: UBS Publishers,
1994).
 8

The Default Option Remembered

n June-July 1991, one issue kept nagging the prime minister—that of debt
rescheduling. It was obvious that some political leaders and their economist-friends
had got to him. Thus, one of his early queries to me was: ‘Why can’t we renegotiate our
loans like we had done in the 1960s?’ It is not that he was suggesting a default or
anything close—but certainly, the matter bothered him.
My response was that the two situations were not comparable. In the 1960s all our
debt was to multilateral institutions like the World Bank and to bilateral aid agencies. It
was certainly true that the Aid-India Consortium,43 as it was then called, had
renegotiated India’s debt obligations. But the situation in 1991 was totally different. This
was short-term debt and debt owed to commercial institutions. This was more like the
Latin American situation and I told the prime minister as much. I allowed myself a rare
moment of levity in one of these meetings when I repeated the well-known line to him:
‘Sir, it is true that when you owe somebody 500 dollars, you should be worried; but
when you owe somebody 5 billion dollars, he should be worried.’ The prime minister
was not amused. Therefore, on a more serious note, I reminded him that his finance
minister had been crying himself hoarse that India would not default and there should be
no ambiguity on this matter.
I had never known the finance minister to be aggressive. His style was measured and
calibrated. But on this subject, I found him unusually strident—and rightly so. There
were far too many voices raising the issue of debt rescheduling. On 23 June, just a day
after assuming office in the North Block, the finance minister, while speaking to the
United News of India, had categorically stated that there would be no default on
repayment. He had said that India had a reputation for ‘financially sound behaviour’ and
went on to add that ‘we will build on that and do whatever is necessary to maintain the
country’s credit-worthiness and honour all our commitments’.
The matter got raised in the Rajya Sabha again during question hour on 16 July 1991,
as the following exchange will reveal:
Shri Sukomal Sen (West Bengal; CPM): […] Sir, the question is, India is heavily
indebted, true. Not only India but many other third world countries are also
heavily indebted to the IMF or other commercial banks and they have the same
problem. Now, if the Government of India wants to review the situation in a
broader perspective, I would like to know from the hon. Minister whether instead
of sending out gold immediately and going to the IMF, the Government unitedly
with other third world countries would demand a moratorium on all foreign debts
for the next few years so that India and other third world countries can tide over
this crisis.
 Dr. Manmohan Singh: Mr Chairman, Sir, that is a different question. I have stated
categorically.
Mr. Chairman: He wants to know whether India will try for a moratorium in
cooperation with other countries in a similar situation.
Dr. Manmohan Singh: The Prime Minister has stated it categorically and I have
stated it categorically that we are honour-bound and duty-bound to honour all our
commitments. About what happens in collective forums of the third world, I think,
we will consult all other countries. We have been doing so before and we will
continue to do so hereafter. But let nobody get any impression that this country is
out to renege on its international obligations. That will be a sad day for India and
we will avoid it under all conditions.

I thought the idea of debt rescheduling had died in the prime minister’s mind because of
the tough stand taken by the finance minister. But I was to discover later that it may have
still lingered there. On 20 September 1992, I attended a lecture by Dr I.G. Patel in
memory of Govind Ballabh Pant in New Delhi titled ‘Freedom from Foreign Debt’. The
prime minister must have received a garbled version from some of those present, for the
next morning I received a call from him. He asked, ‘Jairam, has IG [as Patel was often
referred to] called for debt rescheduling?’ Fortunately, I had the circulated text of the
lecture handy and read out the paragraph that had set the prime minister thinking. Patel
had said:
On a more general plane, there is no reason why we should seek a reduction in
our official debt by negotiation. If debts to much richer countries like Poland and
Egypt could be written off, there is no reason why we should be singled out for
martyrdom simply because we have honoured all our obligations so far.
I encouraged the prime minister to read the full lecture, and sent it across to him. That
was the last I heard of it.

43The Aid-India Consortium, led by the World Bank, was organized in 1958 as an international network
to support the economic development of India.
 9

Statements: Right and Left

n 1 July 1991, four of the country’s most distinguished economists-cum-economic

administrators issued a joint statement supporting what Manmohan Singh had set out
to do. The finance minister himself gently nudged P.N. Dhar (or PND, as he was often
called) to take the lead, assemble the influential quartet, and, as a united force, support
bold liberalization. Manmohan Singh had worked with PND in the 1970s when the latter
was secretary to Indira Gandhi and Singh was chief economic adviser in the Ministry of
Finance.44
Apart from PND, the other three names suggested themselves. I.G. Patel had held
senior positions in the Government of India and had, as we know, been governor of the
RBI between 1977 and 1982 and later served as the director of the London School of
Economics. M. Narasimham, a grandson of S. Radhakrishnan, had a distinguished career
in the RBI, the World Bank, the IMF, the ADB and the Ministry of Finance. R.N.
Malhotra was an IAS officer who had specialized in economic management and had
been at the helm of affairs in the RBI between 1985 and 1990. The four were very close
professionally and personally, not only amongst themselves but also with the finance
minister. The prime minister knew of M. Narasimham and had great respect for IG,
having considered him briefly for the post of finance minister.
I had some idea that a joint statement from these four gentlemen was in the works.
The noted journalist and former MP, R.K. Mishra, then chairman of the Observer
Research Foundation (ORF), had told me about it and I had then alerted the prime
minister. ORF had, in fact, organized the release of the joint statement on 1 July at the
Parliament House Annexe with both the finance and commerce ministers present, along
with P.N. Dhar. Another such function took place on 5 July. When the statement finally
came out, it received wide media coverage because of the impeccable credentials and
reputation of the signatories. I called up the two I knew well—PND and Narasimham—
and conveyed to them the prime minister’s deep appreciation for their statement.
Besides, I knew that PND was close to senior Congress leaders and felt that the
statement would be read by these leaders with great interest and seriousness (Annexure
5).
After a couple of days the statement was forgotten, but suddenly it hit the headlines
again. In our enthusiasm to give the statement the widest possible circulation, I think I
suggested to the finance minister that perhaps we could send it to all MPs. The finance
minister liked the idea and so did the prime minister. But instead of sending the statement
to the MPs under a separate cover, we allowed ourselves to have it sent to the MPs
along with the usual papers that get distributed to them by the Lok Sabha and Rajya
Sabha Secretariat.
On 11 July 1991, as soon as its session commenced, all hell broke loose in the Rajya
Sabha as the following extract from the proceedings will reveal:
Shri Dipen Ghosh (West Bengal; CPM): Sir, I have addressed a letter to you. Two
days ago among the parliamentary papers package there was one statement
purported to have been signed by Mr. I.G. Patel, Mr. Narasimham, Mr. Malhotra
and [one] other economist. (Interruptions)
Mr. Chairman: I have received your letter. (Interruptions)
Shri Dipen Ghosh: Why [is] this statement being circulated among other papers?
They are neither ministers nor Members of Parliament. How can this paper be
circulated? (Interruptions)
Shri A.G. Kulkarni (Maharashtra; INC [Indian National Congress]): This is not
proper. Comrade Bhupesh Gupta used to say, “Why don’t you go to Russia and
China and see what is happening?” (Interruptions)
Mr. Chairman: He says something else. Please sit down.
Shri A.G. Kulkarni: No. How do you allow him?
Mr. Chairman: I allowed him. Now you please sit down. (Interruptions) I will
explain to you. (Interruptions)
Shri Dipen Ghosh: How could it find its way into the parliamentary papers? This
is unauthorised use of the Parliamentary Secretariat surreptitiously for sending the
papers to the Members of Parliament. (Interruptions) I [take] exception to this
unauthorised use of Parliamentary Secretariat Office for circulating a particular
point of view about the Indian economic situation for finding solutions. If it is for
enlightening the Members, there are 35 other economists who have also issued
statements, who have also issued a call and whose views should also have been
circulated. (Interruptions)
Mr. Chairman: It is all right. Now, please listen. (Interruptions)
Smt. Renuka Chowdhury (Andhra Pradesh; TDP): This is total erosion of the
Indian Parliamentary system. (Interruptions)
Mr. Chairman: Everybody has understood. I have already told you here and I am
repeating it: it was a mistake on the part of the Secretariat to do it. It was not
correct. That is all. (Interruptions)
Shri Dipen Ghosh: You should make an enquiry as to who is responsible.
(Interruptions)
Mr. Chairman: No paper like this should be circulated and I hope that the
Secretariat will keep it in view that no unauthorised paper is circulated to
Members in any way at any time. (Interruptions) […]
 Shri Yashwant Sinha (Bihar; SJP): May I make one point […] We are completely
reassured by what [was] said, that extraneous papers should not have found a
place in the parliamentary papers which were circulated. But I think the point
which has been raised is a very important one. (Interruptions)
Mr. Chairman: I agree. (Interruptions)
Shri Yashwant Sinha: We must decide and we must know under whose influence,
under what inspiration those papers were circulated and what circumstances. The
House must be taken into confidence. (Interruptions)
Shri Dipen Ghosh: We want to know. (Interruptions) The Finance Minister must
explain. (Interruptions)
Shri Yashwant Sinha: It was done in a casual manner. This is a very serious thing.
We want to know who was behind this. (Interruptions)
Mr. Chairman: The Secretariat has informed me just now there was a letter from
the Parliament Assistant of the Finance Minister in which it is stated: ‘250 copies
of English and 100 copies of Hindi version of Joint Statement: Agenda for
Economic Reform are sent herewith. Finance Minister desires that the same are
circulated among the Members of the Rajya Sabha today positively.’ […]
Shri Yashwant Sinha: Shall we leave it at that?
Mr. Chairman: Of course.
Shri Yashwant Sinha: The Finance Minister must appear in this House. He must
explain [why] he wanted that that particular paper be circulated.
Shri Dipen Ghosh: The Leader of the House [should] be asked to explain. He
owes an explanation to this House.
The Leader of the House (Shri S.B. Chavan): I will inquire into the matter. I will
find out from the Honourable Minister of Finance as to why it is that he thought it
necessary that this should have been circulated.
Shri Jagdish Prasad Mathur (Uttar Pradesh; BJP): This shows the ignorance of the
Finance Minister about the procedures. That is all.
Hectic back-channel negotiations then commenced with the minister of Parliamentary
affairs, Ghulam Nabi Azad, playing a key role in settling the controversy. Finally, on 15
July, at the stroke of the noon hour, the chairman of the Rajya Sabha made the following
announcement:

On 11th July, 1991, several Members raised in the House a matter regarding
circulation of a statement purporting to have been signed by Prof. P.N. Dhar, Shri
I.G. Patel, Shri Narasimham, Shri R. N. Malhotra along with parliamentary
 papers. They also observed that the circulation of such an unauthorised paper was
not correct. The Home Minister who is also Leader of the House, assured in the
House that he would enquire into the matter. I have now received a letter from the
Finance Minister, Shri Manmohan Singh, which reads as follows:
Respected Chairman, may I request you to recall the proceedings of the
Rajya Sabha on 11th July 1991 regarding the circulation of joint statement
issued by Prof P.N. Dhar, Dr. I.G. Patel, Shri M. Narasimham and Shri R.
N. Malhotra on Agenda for Economic Reform. I wish to express my
sincere apologies for the unintended lapse in strict adherence to the
procedure for circulation of such papers. I have taken note of the points
raised by the Hon. Members as well as the ruling given by you on the
subject, and I would like to assure you that the prescribed procedure will
be strictly followed in the future.
In view of the above, I treat the matter as closed.
I called on the finance minister that very evening, and his relief that the joint statement
controversy had been resolved was all-too-evident. But neither of us had bargained for
yet another eruption, this time in the Lok Sabha the very next day.
Sometime after noon on 16 July, the speaker of the Lok Sabha made this statement: ‘I
have received a letter from the Hon. Finance Minister regretting circulation of the views
of economists. I think the matter can be closed with that.’ But it was not to be so easily
disposed of as the following exchange will reveal:
Shri Somnath Chatterjee (West Bengal; CPM): What is the letter? (Interruptions)
Mr. Speaker: He has regretted. (Interruptions)
Mr. Speaker: He has now expressed his regret. (Interruptions)
Shri Somnath Chatterjee: Why should they utilise the Lok Sabha Secretariat for
this purpose? They should not pressurise the Lok Sabha Secretariat. The
Secretariat people are very experienced. The Lok Sabha Secretariat must have
been pressurised.
Mr. Speaker: There are two aspects. One aspect relates to the Finance Ministry.
The other aspect relates to the legislature Secretariat. As far as the Finance
Ministry is concerned, I have received a letter and the matter should rest over
there. As far as this Secretariat is concerned, I am personally looking into it for
appropriate action. (Interruptions)
Shri Somnath Chatterjee: I am not blaming them. I am not blaming the Secretariat.
The Secretariat people know their job. That is why I say they must have been
pressurised.
Shri Ram Naik (Maharashtra; BJP): This is being informed to [the] Lok Sabha
today. We have seen that [the] Rajya Sabha has been informed yesterday. Sir, both
 the Houses should be treated on par.
Mr. Speaker: About what?
Shri Ram Naik: About this incident of expressing the regret by the Finance
Minister, the Rajya Sabha was informed yesterday. But this is being announced
here today. At least in such matters, both the Houses—Lok Sabha and Rajya
Sabha—should be treated on par.
Mr. Speaker: Do not prolong it. I received the letter only in the evening. Maybe
that letter [had] been written yesterday only. It came to my notice only in the
evening. I am informing you now. It is not necessary that you should prolong it.
This finally set the controversy to rest. But there had been tension for six days. The
intentions were right. But yes, the procedure was certainly unconventional and hackles
were justifiably raised. It was a valuable early lesson in how to deal with Parliament.

In retrospect, the mistake we made was not in circulating the other statement mentioned
by CPM leader, Dipen Ghosh, when he fired his salvo on 11 July. This was a statement
issued by thirty-five of the leading ‘leftist’ economists of the country in the nation’s
capital on 8 July (Annexure 6). They included former members of the Planning
Commission like C.H. Hanumantha Rao, Arun Ghosh, Rajni Kothari and G.S. Bhalla;
former West Bengal finance minister, Ashok Mitra; and noted academics like I.S. Gulati
and Bhabatosh Datta. This statement was significantly at variance with the one issued by
PND and company in that it rejected the inevitability of approaching the IMF for short-
and medium-term assistance. While its analysis of what had gone wrong in 1990 and
1991 was not radically different from that of the quartet, the thrust of its
recommendations was not faster and deeper regulation or an expanded role for the
private sector. Rather, it was critical of the devaluation measures and wanted no cut in
subsidies.
The significance of this statement was that three top officials serving the government
in key positions—the finance secretary, foreign secretary and the chief economic adviser
in the Ministry of Finance—were in full sympathy with it and did not hide their support,
much to the irritation of the principal secretary to the prime minister and, I suspect, even
the finance minister.

44
This was incidentally the period when Manmohan Singh first came to the notice of Indira Gandhi and
earned a name for himself. The rate of inflation was 20.2 per cent in 1973-74 and 25.2 per cent in
1974-75 on account of the first oil shock and drought. The rate of inflation fell to -1.09 per cent in
1975-76; 2.1 per cent in 1976-77; 5.2 per cent in 1977-78; and actually 0 per cent in 1978-79. There
is wide consensus amongst scholars that the package of extraordinarily tough fiscal, monetary and
incomes-policy measures announced in July 1974 helped destroy the demon of inflation in the late
1970s. Manmohan Singh was the principal author of the package, which P.N. Dhar and B.D. Pande (then
the cabinet secretary) helped sell to a beleaguered prime minister. The three were entrusted with the
responsibility of getting the package implemented.
10
 Jyoti Basu Writes to the Prime Minister

n 4 July 1991, the West Bengal government released a document titled ‘Alternative
Policy Approach to Resolve BoP45 Crisis’ (Annexure 7). In it, it called for an
increase in income tax rates, cuts in non-development expenditure, the collection of tax
arrears and the unearthing of black money. Soon after, the West Bengal chief minister,
Jyoti Basu, wrote to the prime minister and finance minister, sending them this document.
After taking over, both the finance minister and the prime minister had called for a
national debate. Now they had one. The finance minister promptly responded on 9 July,46
and wrote:
My effort […] is that somehow we should avoid a situation where we are
declared a defaulter. If that eventuality comes about despite my efforts, it would
be the saddest day in the history of Independent India. Moreover, judging by the
experience of Latin American and African countries in the last decade, a default
situation will certainly mean that the decade of the 90s will also be a decade of
reckless inflation and rising unemployment. It will, TO THE BRINK AND BACK
π 61 in other words, become a lost decade as has been the case in Latin American
and most countries of Africa during the 1980s.
Referring directly to the recommendations in the note, Manmohan Singh went on to
write:
It is my honest assessment that the alternative policy approach does not provide a
way out of the balance of payments difficulties at the present juncture. The non-
resident Indians will not send any money to India so long as our reserves remain
at the dangerously low level that they are now. As regards import compression,
you very well may be right that in the previous years there was some fat in the
import bill. However, in the last five months a savage import cut has been
imposed and today there is no scope for any further import compression. Even the
import compression that is now in place will have serious consequences. It will
hurt industrial production, lead to large-scale unemployment and will give rise to
serious unrest and disruption.
That Jyoti Basu enjoyed a close friendship with and the esteem of the finance minister
was evident by the latter’s almost instantaneous response to the former’s letter. What
later became clear was that the prime minister also had enormous respect for the West
Bengal chief minister. He was not satisfied that his finance minister had responded; he
told his principal secretary and me that he, too, would like to reply. Hence, on 10
August, he wrote to Jyoti Basu. The prime minister’s letter was more political than that
of Manmohan Singh. He lauded West Bengal’s record in land reforms and democratic
decentralization as worthy of emulation by other states. To placate the Left parties, he
promised that the letter of intent to be signed with the IMF would be tabled in
Parliament.47 The prime minister saw no contradiction in what Jyoti Basu and the thirty-
five economists (in the previous chapter) were advocating and wrote that, in fact, the 24
July 1991 budget had implemented many of the suggestions being made. Dr Asim
Dasgupta, the West Bengal finance minister, released the prime minister’s reply in
Kolkata on 20 August. I was happy that he had done so—not the least because now, I
would not be accused of orchestrating the leak!

45Balance
of payments.
46My best efforts to locate this letter failed. Consequently, I have used excerpts of the letter that
appeared in The Hindu, 10 July 1991, p. 4. I can confidently assert that this was an authoritative leak!
47The finance minister’s letter to the managing director of the IMF dated 27 August 1991 was tabled in

the Rajya Sabha on 16 December 1991, by which time much of the sting of having gone to the IMF had
been lost. There were some hilarious moments while finalizing the letter of intent. An early draft
shared by IMF officials spelt ‘labour’ as ‘labor’ and ‘programme’ as ‘program’ and I had to point to the
principal secretary that such obvious slips-ups would demonstrate the real authorship of the letter of
intent!
11
 Chidambaram in Quick Action

ith the urgent need to arrest declining exports immediately and boost them in the
medium-term, it was obvious that trade policy changes were a matter of priority.
The PMO did not take any direct interest in designing these changes, despite the fact that
A.N. Verma, the prime minister’s principal secretary, had been commerce secretary.
This was because in Montek Ahluwalia, the secretary of commerce, we had a man who
knew exactly what needed to be done; and in P. Chidambaram we had a super-efficient,
‘hands on’ commerce minister.
My only side-role in this area was on the night of 3 July 199148 when I was
summoned by the prime minister at about 9 p.m. On entering his drawing room, I found
the finance and commerce ministers in his company. After a brief discussion, a decision
was taken to abolish the export subsidy in the form of cash compensatory system—or
CCS, as it was popularly known—that was given to exporters. Indeed, after the two-step
devaluation, it made little sense to continue with this subsidy.
The finance minister wanted an immediate announcement of this decision, but I told
the trio that it was rather late to give out the news for it to have any impact in the papers
the next day. Nonetheless, I did some quick thinking and decided on my own that I would
inform The Economic Times since the CCS issue was of interest to the exporters who
read that daily. Accordingly, The Economic Times the next day had a front page box
news-item that read thus:

CCS SYSTEM MAY BE REPLACED BY REP LICENSES

New Delhi Bureau
New Delhi, 3 July
The government is likely to abolish export subsidies in the form of cash compensatory
support.
They are likely to be replaced by a modified replenishment (rep) license system.
The decision to abolish CCS is believed to have been taken late on Wednesday
night in view of the currency realignment in the last 48 hours.
According to government sources an official announcement on the abolishing of
CCS is expected on Thursday.

As soon as I reached office on 4 July, A.N. Verma conveyed to me the prime minister’s
unhappiness that only one paper had carried the news. Obviously, some of his friends in
the media who felt left out had complained to him. I told the principal secretary that it
was around 11 p.m. or so that I was told to communicate this decision and that given the
late hour I had tried to get it out in the best way possible. But my explanation did not
wash and I was told to be more careful in future.
 As far as the substantive trade policy reforms themselves were concerned, P.
Chidambaram announced them officially on the morning of 4 July. After the devaluations
of 1 and 3 July, this was the third major move of the Rao government. The commerce
minister was in his element and handled the press meet with his characteristic aplomb
and dexterity. But as soon as the package was announced—and the fact that the office of
the Chief Controller of Imports and Exports (CCI&E) would be abolished—there were
howls of protest within Udyog Bhavan which housed the Ministry of Commerce. The
protests continued even as the minister, in his defence, took recourse to the Congress’
1991 manifesto and its commitment to abolish five regulatory agencies in the first 730
days in office. A compromise was struck a little later and the CCI&E took on a new
avatar, Indian-style, as the DGFT (Directorate General of Foreign Trade).
It took less than ten hours, as Ahluwalia writes, to get the 4 July trade policy reforms
approved by the prime minister and the finance minister. The reforms themselves—
anchored in removal of discretionary controls in the form of licensing, and in the linkage
of all non-essential imports to exports (other than in the case of petroleum, fertilisers,
steel and other essential purchases)—were widely welcomed by industry. They vastly
simplified the procedures for imports while giving a huge boost to exports. Besides, they
granted a large degree of automaticity in the issue of replenishment licenses which were
being renamed exim (for export-import) scrips.
The commerce minister, for the first time ever, unambiguously declared that the rupee
would be made fully convertible on the trade account in three to five years. This meant
that Indian currency could be freely exchanged for dollars to import goods. This was
actually accomplished in less than two years.
But the former prime minister, Chandra Shekhar, was most unhappy and very biting in
his criticism in Parliament. He accused the government of becoming a slave of the World
Bank and said that the 4 July package had been prepared by that organization. The
commerce minister issued a pointed rejoinder on 19 July giving the long lineage of the 4
July package. In his defence, the commerce minister pointed out that the basic blueprint
for trade policy reforms was prepared by the Abid Hussain Committee,49 which had
submitted its report way back in December 1984, and this blueprint was further
expanded in June 1990 when V.P. Singh (a former commerce minister himself) was
prime minister. But the most telling riposte was the revelation of the commerce minister
that Chandra Shekhar’s Cabinet Committee on Trade and Investment (CCTI) itself had on
11 March 1991 approved a new export strategy which contained the main elements of
the 4 July package; the commerce minister at that time was Dr Subramanian Swamy.
The 4 July package was only the first step. Much remained to be done. This was but
natural since a highly complex system built over a period of more than four decades was
being dismantled. The system was so convoluted and opaque that I used to joke that the
most eagerly awaited import-export document every year was not the one on trade
policy, but rather, Takht Ram’s commentary on it.50 Besides, the name of the organization
itself—the Office of the Chief Controller of Imports & Exports—betrayed a particular
mindset, where a case could be made for controlling imports, but controls on exports
were to be pioneered at one’s peril.
 Finally, on 13 August 1991, the commerce minister made a detailed statement on
trade policy in the Lok Sabha, going beyond the 4 July initiatives. A new package for
100 per cent export-oriented units and for units in the export-processing zone was
announced. Public sector monopoly on the import and export of items was considerably
curtailed. Details of how the new exim scrip instrument would operate were made
explicit, as were those for the system of advance licenses to provide exporters with
duty-free access to imports. The statement demonstrated that the Rao government was
determined to push through both policy and institutional reform in support of
accelerating exports. The commerce minister conveyed this in so many words.

48The
events of 3 July 1991 have been discussed in greater detail by Montek Ahluwalia in a festschrift,
published in honour of P. Chidambaram, titled An Agenda for India’s Growth, edited by Sameer
Kochhar (New Delhi: Academic Foundation, 2013).
49The Abid Hussain Committee on Trade Policies (1984) contained recommendations regarding
import policies and export-promotion strategies—including the exemption of CCS.
50
Takht Ram was a retired officer of the CCI&E who had spent years in that organization.
12
 The Curious Case of the Prime Minister’s 9 July Speech

he prime minister addressed the nation again on Doordarshan and over All India
Radio on 9 July.51 He may have felt that with Parliament about to begin the next day
he needed to send political signals regarding his overall approach. Like in the past, he
asked me for a draft. Having learnt my lessons well, I gave it to him in the full
expectation that it would not be used one bit at all.
I was pleasantly surprised. The speech the prime minister delivered was entirely in
keeping with the draft I had given him. He said:
When I spoke to you last, I promised quick and bold measures to restore our sick
economy to health. We have taken the first step to fulfil that promise. This is the
beginning. A further set of far-reaching changes and reforms is on the way.
For the last eighteen months, there has been paralysis on the economic front.
The last two governments postponed taking vital decisions. The fiscal position
was allowed to deteriorate. The balance-of-payments crisis became
unmanageable. Non-resident Indians and foreign leaders became more and more
reluctant to lend money to India.
Consequently, India’s external reserves declined steeply and we had no
foreign exchange to import even such essential commodities as diesel, kerosene,
edible oil and fertilizer. The net result was that when we came to power, we
found the financial position of the country in a terrible mess.
Desperate maladies call for drastic remedies. And that is what we have done.
And that is what we will continue to do.

Exchange Rate Adjustment

The Reserve Bank changed the exchange rate of the rupee. This was done so that
we can export more. More garments, more leather products, more gems and
jewellery, more agricultural products made in India will be sold abroad. This
will not only earn us foreign exchange but also create new employment at home.
And why do we need to earn foreign exchange so badly? Not to import luxury
items but to buy commodities like kerosene and diesel, fertilizers, edible oil and
steel. We produce these commodities, but what we produce is not enough. We are
stepping up our production, but for some time, we have to import.
The adjustment in the exchange rate will discourage the import of non-
essential goods. And will therefore save foreign exchange for the import of
essential goods of mass consumption. It will also end uncertainty about the future
of our currency and will encourage non-resident Indians to send more money to be
deposited in their accounts in India.
After changing the value of the rupee we undertook a major overhaul of the
trade policy. Our message was simple—you cannot import if you do not export.
We cut down on export licenses so that our exporters do not face hurdles. We
eliminated subsidies so that the money saved could be better deployed in welfare
and employment programmes.
My objective is to make India truly self-reliant. Self-reliance is not a mere
slogan for me. It means the ability to pay for our imports through exports. My
motto is—trade, not aid. Aid is a crutch. Trade builds pride. And India has been
trading for thousands of years.
Friends, Rajiv Gandhi came to power in 1984. He first understood the need
for India to change her traditional way of thinking and doing things. He realized
that if India is to survive and prosper, fundamental economic reforms must be
carried out. He did that. What we have done is a continuation of the policies
initiated by him.

Social and Economic Philosophy

In my first address to you I had outlined the agenda of my government. We stand
committed to that agenda. The Budget which will be presented on July 24 will
clearly articulate the social and economic philosophy of my government, the
broad outlines of which are evident in our actions.
What is this outline?
We believe that a bulk of government regulations and controls on our economic
activity have outlived their utility. They are stifling the creativity and
innovativeness of our people. Excessive controls have also bred corruption.
Indeed, they have come in the way of achieving our objectives of expanding
employment opportunities, reducing rural-urban disparities and ensuring greater
social justice.
We believe that the Nation, as well as the Government, must learn to live
within its means. Normally, a family borrows money to buy an asset and not to
meet daily expenditure. So it is with the Government. There is much fat in
Government expenditure. This can and will be cut.
We believe that Government concessions must be for the poor and the really
needy. Over the past few years, expenditure on this has increased substantially
and in many instances the concessions are being enjoyed by people who are not in
dire need of them. This must change

India Cannot Lag Behind

We believe that India has much to learn from what is happening elsewhere in the
world. Many countries are bringing in far-reaching changes. We find major
economic transformation sweeping large countries like the Soviet Union and
China, as well as small countries in Eastern Europe. There is a change in outlook,
a change in mindset everywhere. India too cannot lag behind if she has to survive,
as she must, in the new environment.
Our commitment to work for the uplift of the poor, the underprivileged and the
 disadvantaged is firm and irrevocable. We believe that this is best achieved if
Government concentrates on providing drinking water, on expanding education, on
fighting social discrimination, on creating jobs, on establishing infrastructure. Our
measures must reflect this ideology.
I wish to assure you that while we are restructuring the economy to make it
more productive and efficient, prices will be kept under the strictest control. We
will ensure adequate availability and supply of essential commodities.
Friends, it will be dishonest for me to pretend that the job of repairing our
economy will be easy, quick or smooth. Each one of us will be called upon to
make sacrifices. This is no time for partisan politics. I need the cooperation of
each and every one of you. I need your support, your understanding. Together, we
will succeed.
I could not believe that the prime minister had conveyed my speech to the nation in toto.
There was now a spring in my step, and I shared my excitement with the principal
secretary the very next day. He was phlegmatic as ever and said that perhaps the prime
minister had been too preoccupied to find the time to draft his own speech. Nonetheless,
I felt mighty pleased that the master draftsman had actually used my draft. Indeed, this
time, as a result, the style of his speech was more direct and pointed; it stood out in
contrast to the normal Narasimha Rao offering, given its pithiness. There wasn’t much
philosophy. I would not know it then, but this was my first and last success with him as
far as speeches went.
But the story of this speech does not stop here. In January 1993, the Ministry of
Information and Broadcasting brought out the first volume of selected speeches of the
prime minister, from his assumption of office in June 1991 up to June 1992. Strangely—
and it could have been done only with his approval—the 9 July 1991 broadcast to the
nation does not figure in the collection. The volume starts with his very first speech of
22 June 1991 and then jumps to his speech in the Lok Sabha on 15 July 1991. The
omission is bizarre, to say the least, and it would appear that the prime minister did not
wish to leave behind this speech for posterity in his published collected works, although
copies of the speech had been officially printed and circulated after it had been
delivered.
If it were any other speech, it would not have merited much attention. But this was an
address to the nation after all. And it was his very first address devoted exclusively to
economic issues, in which he explained the country’s predicament in simple, easy-to-
understand language and laid out his government’s agenda clearly. I have no idea why
this happened! I can only recall the unforgettable conversation in ‘Silver Blaze’ in The
Memoirs of Sherlock Holmes:52
[Inspector Gregory:] ‘Is there any point to which you would wish to draw my
attention?’
[Holmes:] ‘To the curious incident of the dog in the night-time.’
[Inspector Gregory:] ‘The dog did nothing in the night-time.’
 ‘That was the curious incident,’ remarked Sherlock Holmes.

51I tried to
get hold of the officially printed copy of this speech from the Ministry of Information and
Broadcasting but was unsuccessful. Finally, an official copy was made available to me in June 2015 by
P.V. Prabhakar Rao, Narasimha Rao’s youngest son (Annexure 8).
52Arthur
Conan Doyle, The Memoirs of Sherlock Holmes (London: Doubleday, 1894).
13
 The Sanskritist Prime Minister

n 15 July 1991, the motion of confidence—moved three days earlier—came up for

voting in the Lok Sabha. But before the actual vote, the House was treated to a
vintage Narasimha Rao performance. It was his first major speech in the Lok Sabha as
prime minister. Rao had been given briefs on different subjects. But he decided, as
always, to speak not from text but spontaneously.
That day, the prime minister was at his philosophical best. At times, what he said
appeared convoluted, but that was par for the course. He defended what the government
had done since it had taken over. He was not partisan but made the point effectively that
the situation he had inherited had left his finance minister and him with no other option
but to embark upon a series of tough measures—gold sales, devaluation, talks with the
IMF, and trade reforms, with industrial liberalization also imminent.
The highpoint of Rao’s forty-five minute intervention came when he lapsed into
Sanskrit:
What have I done? What had the government done? We know that there are no
alternatives to what we have done. We have only salvaged the prestige of this
country. Sarvanashe samutpanne ardham tyajati panditah. This is precisely
what we have done. I do not say that the economy has been booming or is going to
boom immediately. What I am saying is sarvanashe samputpanne.
I could see that most people did not understand what the prime minister was saying. I
recall A.N. Verma looking at me with a puzzled expression, then whispering, ‘Kaho,
Pandit, kuch samjhe? (Tell me, wise one, do you comprehend this?)’ Later, I told Verma
that the Sanskrit saying in the prime minister’s speech means that the wise man, in the
event of total ruin, wriggles out by giving up half his possessions; this is done in the
hope that he will save himself from total destruction by using what is left properly.
Even if Rao’s expressions made little sense to those present, he definitely appeared
Upanishadic. Moreover, he had unknowingly served notice to the BJP—Sanskrit was not
its monopoly!
The prime minister was not yet done with Sanskrit in the Lok Sabha. He went on:
Naturally, there is a long distance to go. This is not all. This is not the final
solution, this is only the beginning. If you do not have a beginning, you cannot
have an end. Therefore, the journey, the mahaprashthana, starts today after taking
these decisions.

I think mahaprashthana53 may have been more easily understood by those present,
but I am not entirely sure. Regardless, it was a nice Indian way of describing the
economic reforms programme and giving it a spiritual dimension, as it were. Besides, as
the prime minister spoke, I recalled that in his speech to the CPP on 20 June, he had—
drawing from the Congress’ own legacy—underlined that the relationship between the
leader and the people is spiritual and not related to posts!
That Narasimha Rao could draw from ancient wisdom to throw light on current
issues is further revealed by his unpublished manuscript, ‘Liberalisation and the Public
Sector’ (Annexure 9). In this, while reflecting on the perils of India falling into a debt
trap, Narasimha Rao recalled Cārvāka philosophy, which proclaimed, ‘Rinam krithva
ghritam pibet. (Make debts and enjoy yourself.)’ He went on to explain why this ancient
school of Indian materialism said so: ‘Bhasmeebhutasya dehasya punaraagamanam
kuthah. (Once your body is consigned to the funeral pyre, where is it going to come back
from?)’ Rao concluded by saying that when it comes to a state or the nation, this reckless
outlook is still more disastrous since the state and the nation will last forever, unlike the
individual. I only wish I could have discussed this further with Narasimha Rao since I
believe the materialist traditions in Indian philosophy have been unfairly downplayed
and distorted in favour of mysticism and spirituality.54 These materialist traditions,
incidentally, are all-too-evident now.
As far as the 15 July vote itself was concerned, it was a foregone conclusion once the
Left parties and those that made up the National Front (like the Janata Dal) decided to
walk out. The BJP voted ‘no’, but was hopelessly outnumbered. While the non-BJP
opposition was very critical of the Rao-Singh economic policies, clearly it did not want
the government to fall.
And so, we lived another day.

53Mahaprasthanika Parva or ‘Book of the Great Journey’ is also the seventeenth of eighteen books
that make up the Mahabharata and deals with the ascent of the Pandavas to Mount Sumeru.
54One of the most fascinating books I have ever read is Debiprasad Chattopadhyaya, Lokayata: A Study
in Ancient Indian Materialism (New Delhi: People’s Publishing House, 1959).
14
 The K.N. Raj Interview

he prime minister was quite sensitive to what eminent economists were saying about
his government’s policies even though he did not show it. I witnessed this first-hand
when, perhaps on 25 or 26 July 1991, I sent him an interview that Dr K.N. Raj had just
then given Frontline (Annexure 10). As part of the interview, when he was asked what
his views were on the finance minister’s assessment that there was no alternative to a
large IMF loan if India were to tide over the economic crisis, Raj said:
There are two propositions here. One, that there are certain conditions attached by
the IMF to the extension of the loan. Second, that we have no alternative. I do not
myself know what are all the conditions that have been imposed. But I have
sufficient confidence in Manmohan Singh because he has very wide experience.
He is not another economist; he is a person who has worked in a very wide range
of organisations so that he is familiar with the entire background. […] So I have
no reason to question his assessment.
Further, when asked if India would stand to lose her economic independence if she were
to accept an IMF loan, Raj said:
I am not terribly bothered about the leftist position because they have a high-
minded, doctrinaire approach when they are out of power. If the leftists were in
power today I know exactly what they would have done. They would have
accepted these [loan conditions]. So that does not affect my judgment.
Now, K.N. Raj had an awesome reputation both as an economist and an institution-
builder, and—on his return from the London School of Economics, when he was only in
his late twenties—he had singlehandedly written sections of the First Five-year Plan. In
the early 1960s, he had headed a committee that had recommended major changes in
policies regarding the planning and distribution of steel. K.N. Raj was generally
regarded as ‘left-of-centre’ and therefore, when I read the interview, that too in a
magazine that was decidedly pro-Left, I thought it was hugely significant to bring it to the
prime minister’s notice right away.
The prime minister asked for a couple of copies of the Raj interview, which I sent. I
asked him what he had thought of it. He replied that if ‘Raj has given us a certificate it
means a lot’.
Ten years later, I recounted this episode when Manmohan Singh and I dined with
K.N. Raj and his family in Thiruvananthapuram. K.N. Raj recalled that once, in the late
1970s or early 1980s, Narasimha Rao had showed up at the Centre for Development
Studies—that Raj had established in Kerala’s capital—just to have a conversation. He
also recalled that word had been sent to him after the interview had appeared that the
prime minister had appreciated it.
My own impression is that while Narasimha Rao was being buffeted by criticism
from all sides, he took solace in the Raj interview and the encomiums paid to the man he
had selected as finance minister.
I also know how much the finance minister appreciated the public display of support
by a legendary figure, at a time when he was under sustained attack in Parliament and
outside by his friends—including S.K. Goyal, Chandra Shekhar’s longstanding economic
alter ego, who had once enthusiastically backed Manmohan Singh’s appointment as
economic adviser to the prime minister in November 1990.
15
 The Industrial Policy Reforms Drama

s soon as I joined the PMO, A.N. Verma called Suresh Mathur,55Rakesh Mohan56 and
me for a discussion. He told us that this was a golden opportunity to get something
done in the space of industrial policy reforms since the prime minister had deliberately
kept the industry portfolio to himself. I knew that both Mohan and Verma had laboured
hard to bring about changes in industrial policy when V.P. Singh had been prime minister
and Ajit Singh had been in the Ministry of Industry. But those attempts had been thwarted
because of opposition from within the cabinet.
Thereafter, Mathur, Mohan and I met a couple of times. The first draft was prepared
by Mohan. By about 7 July 1991 we had finalized what we wanted to sell to the prime
minister. I had kept the finance minister in the loop at every stage. In fact, at one point of
time, when we were discussing reforms to the anti-monopoly legislation (popularly
known as the Monopolies and Restrictive Trade Practices [MRTP] Act), I told him that
the minister of state for law, justice and company affairs, Rangarajan Kumaramangalam,
or Ranga as we called him, was not terribly happy with what we were suggesting—
namely, the plain and simple abolition of clearances for industry under an Act that had
been made in 1969 when there was concern that licensing had, somewhat paradoxically,
led to the concentration of economic power. I had been trying to convince Ranga of the
need to be radical regarding MRTP and not just remain incremental. I knew that if he
would not get convinced, there was little chance of his senior minister, the old warhorse,
Vijaya Bhaskara Reddy, coming on board for this crucial reform measure.
The finance minister then did something that stumped me momentarily. He called
Ranga and me to his room and became very emotional. He told his young colleague how
he had worked with his father—the redoubtable Communist leader Mohan
Kumaramangalam, who later joined Indira Gandhi’s cabinet—and how pragmatic and
open to new ideas his ‘good friend Mohan was’. For about ten minutes, Singh
reminisced about Ranga’s father and told him to consider what he would have done at
this crucial juncture of India’s history. Ranga came out of the finance minister’s chamber
telling me, ‘Yaar, Sardar ne kamaal kar diya. (Singh has taken me by surprise!)’ Ranga
added, ‘Let me work on my old man [Vijaya Bhaskara Reddy] now.’
After Suresh Mathur, Rakesh Mohan and I had finalized the package, Verma asked me
to prepare a note, which could be shown to the prime minister to get his broad, informal
approval before it went to the cabinet. Accordingly, I prepared a five-page note
summarizing what we were contemplating by way of industrial policy reforms. I added a
couple of points on my own based on my earlier efforts of September 1986:
 This note went to the prime minister, probably around 8 July 1991. As it turned out,
the section that I had inserted, namely on exit policy, got eliminated in the version
approved by the prime minister because it was considered too politically volatile.
Verma told me that I should not be too exuberant and the inclusion of exit policy would
only jeopardize the other initiatives. On 9 July, the prime minister addressed the CPP on
the eve of the Parliament session and said that the economic revival of the country was
the first item on his agenda. He added that his government would, in the next four days,
announce a comprehensive and coordinated package of industrial reforms.
When I opened the Hindustan Times on 12 July, I was shocked, to put it mildly. My
entire note had been carried with the banner headline ‘Industrial Licensing to Go’.

INDUSTRIAL LICENSING TO GO
By Kalyani Shankar
New Delhi, July 11

SALIENT POINTS
• Foreign equity to go up from 40 per cent to 51 per cent and permission to be
automatic.
• A new package for tiny sector.
• MRTP asset limit to go up from Rs 100 crore to Rs 1,000 crore.
 • A special Empowered Board to negotiate with 40 to 50 giant international
firms to approve direct foreign investment.
• Phased manufacturing programme to go.
• Locational limit only 30 km around metropolitan cities of Bombay, Delhi,
Calcutta and Madras.
• Liberal policy towards small sector and a promotional package for tiny
sectors.

Abolition of all industrial licences except for a short negative list, automatic
permission for foreign direct investment upto 51 per cent and increase in foreign
equity limit upto 51 per cent, a new package for the tiny sector with increase in
investment limit to Rs 5 lakh are some of the bold and innovative measures
contemplated in the new industrial policy.
The draft policy is being finalised under the direct supervision of Prime Minister
P.V. Narasimha Rao, who is also holding the Industry portfolio, Union Finance
Minister Dr Manmohan Singh, Ministers of State for Industry P.K. Thungan [sic] and
Mr. P.J. Kurien and other concerned Ministers are also involved in the policy making.
The policy, which is being given final touches, will be placed before Parliament
next week.
Additional powers to the MRTP Commission, increase in asset limit to Rs 1,000
crore for the MRTP companies from the present Rs 100 crore, automatic permission
for foreign technology agreements for Appendix-1 industries upto a lump sum of Rs
one crore are some of the other bold measures contemplated.
According to the draft policy, permission will be automatic for foreign direct
investment upto 51 per cent equity in Appendix-1 industries. Capital goods imports
will be automatically approved if they are financed by foreign equity or buy back
arrangements. A special empowered board is also proposed to be constituted to
negotiate with 40 to 50 large international firms and approve direct foreign investment
in select areas. This is aimed at attracting substantial foreign investment which may
also provide access to high technology and foreign markets and these projects will be
considered in totality and cleared fast.
Also majority foreign equity holdings may be allowed for trading companies
which are primarily engaged in export activities.
In Non-Appendix industries, automatic permission upto 51 per cent will be
allowed subject to balancing of profits and dividends with net foreign exchange
earnings.
As far as the industrial licensing is concerned, the objective of the Government is
to confine licensing to essentials. Industrial licenses are proposed to be abolished
except for a short list of industries related to security and strategic concerns, social
reasons, hazardous chemicals and overriding environmental reasons.
The negative list includes the core sector, sugar, all types of automobiles,
specified luxury goods, drugs and pharmaceuticals, tobacco products and petroleum
products.
Industries reserved for the small sector, however, continue to be reserved.
Industrial licensing will be required only for projects of over Rs 200 crore in non-
backward areas and Rs 500 crore in backward areas or projects with capital goods
requirements of more than $25 million. In projects which require imported capital
goods, automatic clearance will be permitted if the foreign exchange availability is
ensured through foreign equity, foreign lines of credit or foreign borrowing.
In other cases, the capital goods imports will be cleared by the special industrial
approvals committee.
Yet another significant policy measure contemplated is that there will be no
location restrictions from Central Government except for the four metropolitan cities
of Bombay, Delhi, Calcutta and Madras. In these metropolitan cities restrictions may
apply to locations within 30 km of periphery.
Phased Manufacturing Programme (PMP) is also likely to be abolished in view of
the exchange rate adjustment and new trade policy.
All existing registration schemes for industries like Directorate General of
Technical Development, DLR and EIR may be abolished.
As far as the MRTP and FERA relaxations, the Government proposed to shift the
focus of MRTP from a PRIORI control on growth and expansion of industry to
effective check on monopolistic and unfair trade practices.
It also proposed to repeal provisions relating to mergers, takeovers and
amalgamations of MRTP companies in the Act. Additional powers to the MRTP
Commission like giving it the powers of a civil court, provision of enabling power to
compound offences, and additional powers for undertaking preliminary investigations
into complaints from individual consumers. The Director General of Investigation is
also proposed to be empowered to make applications to the MRTP Commission
relating to monopolistic trade practices.
The Government is also contemplating to raise the asset limit of the MRTP
companies to Rs 1,000 crore from the present Rs 100 crore. In fact, the apex trade
bodies like FICCI [The Federation of Indian Chambers of Commerce and Industry],
ASSOCHAM [The Associated Chambers of Commerce of India] and others have
been demanding the increase of asset limit for a long time. The last time the asset limit
enhanced was in 1985 when the Rajiv Gandhi Government increased it from Rs 25
crore to Rs 100 crore.
For the tiny sector, priority would be given in credit supply. The district industries
centre would be strengthened and restructured. For the small and tiny sector,
Government also proposes to dismantle inspector raj, simplify procedures, remove
bureaucratic controls and cut down paper work.
A new scheme of integrated infrastructural development for small-scale industries
to facilitate location of industries in rural and backward areas and to promote stronger
linkages between agriculture and industry is also proposed in the draft policy.
Another significant step is to provide access to the capital market. The
 Government may allow equity participation—both foreign and domestic—in the
small-scale sector upto 24 per cent of the total shareholding.
In the small sector, regulatory provisions relating to management of private limited
companies will also be liberalised. A new package for promotion of tiny units is the
main thrust of the government’s new policy.
Regarding public sector, the Government is yet to finalise its view. It is not yet
known if the public sector will form part of the new industry policy paper. However,
the thinking appears to be that there should be disinvestment in selective public sector
undertakings. Whether the profit making PSUs alone should be disinvested in a
selective manner or it should be a mix of profit and loss making public sector
undertakings is also yet to be decided.

I knew my goose was cooked and I would definitely be held responsible for the leak. I
immediately ran upstairs, carrying the newspaper with me, and barged into Verma’s
room as soon as he arrived (which was around 9.15 a.m.). I displayed the paper and told
him that I was not responsible and there had never been any contact between me and the
journalist whose byline had appeared. I went to the extent of telling the principal
secretary that he should immediately order an IB (Intelligence Bureau) probe which
would vindicate me completely. Verma heard me out for a couple of minutes, smiled as
he always did, and simply said: ‘Relax, yaar. Khamakhan pareshaan ho rahe ho. Ja ke
apna kaam karo. (Relax. You’re fretting for no reason! Get back to work.)’ I was
flummoxed by the nonchalance with which my remonstrance had been dismissed, but
decided to let the matter go. Perhaps, there is some truth in the adage that ‘often the ship
of state leaks from the very top’!

Initially, we had planned to release the industrial policy reforms separately. Indeed, all
public statements made by the prime minister first on 9 July and then again on 15 July in
the Lok Sabha suggested this. Then, there was a view that the reforms should form part
of the budget that was to be presented on 24 July. That was certainly the finance
minister’s view. I found myself encountering, perhaps, my only disagreement with him in
that period when we worked together. I argued that the industrial policy reforms were
truly revolutionary and to have maximum impact they had to be announced separately.
The prime minister seemed to agree with my contention and asked me to prepare a
speech for his use, if and when he presented the industrial reforms package in
Parliament. I prepared a speech and sent it to him. But, as it turned out, the speech was
never used since the prime minister decided not to speak. Alok Prasad, then the prime
minister’s private secretary, returned the draft to me pencilling along the margin ‘pity
this was never used’.
 The prime minister won the vote of confidence in the Lok Sabha on 15 July. After his
widely-appreciated reply on the same day, the prime minister instructed us to get the
cabinet note on industrial policy reforms ready. The Ministry of Industry prepared the
note and the cabinet was to meet on 19 July to consider and approve it.
By now, I was beginning to get nervous about whether we would ever be able to get
the industrial policy reforms through. I was not the only one to have doubts. On 6 July,
The Hindu carried a headline, ‘New radical industrial policy coming’. But on 19 July,
the headline read, ‘New industrial policy may not be radical’! This newspaper generally
had its hand on the pulse of the government at the highest levels—so one certainly had
cause for worry!
Expectedly, there were fireworks in the cabinet on 19 July. Many ministers objected
both to the substance and style of the note on industrial policy reforms. Some felt that we
were abandoning Congress’ ideology while some others felt that a strong case had not
been made for these far-reaching changes. The predominant view was that the cabinet
note appeared too damning of the past.
That very evening, A.N. Verma called me to his residence and told me what had
happened. He said that the prime minister had set up a Group of Ministers (GoM) to
look at the proposals once again and that he wanted me to reshape and recast the cabinet
note in a suitable manner. I asked A.N. Verma what ‘a suitable manner’ meant, to which
his reply was ‘tum jaano (you’d know)’. When leaving, Verma told me that the prime
minister wanted me to attend the GoM meeting the next day and answer any question that
may be raised. After listening to the deliberations of the GoM, I was to redo the cabinet
note and send it to Verma and the prime minister immediately—which meant on the
evening of 20 July.
The GoM met the next day. Madhavsinh Solanki57 was worried that the industrial
policy reforms would hit the development of backward areas and said that tight controls
had to be retained on industrial location policies. Arjun Singh45 and M.L. Fotedar59 were
apprehensive that we had gone too far in relaxing MRTP controls. B. Shankaranand60
was unhappy with the provisions for opening ourselves to foreign investment, that too in
such an obvious manner. Balram Jakhar61 and Rajesh Pilot62 too felt that we were
diluting the party’s public sector ideology significantly. But the commerce minister, P.
Chidambaram, defended the reforms proposals unequivocally, addressing every single
concern raised in his own inimitable style. I mostly listened, intervening only once or
twice to clarify some doubts raised by the ministers.
As the meeting ended, Manmohan Singh smiled at me on the way out and said, ‘Now
it is up to you, Jairam.’ I was confused and completely at a loss about what needed to be
done. Were we going to abandon industrial policy reforms or were we to go ahead? The
prime minister himself had not said anything, and A.N. Verma wasn’t sure what the
prime minister expected of me. Besides, I had barely been given any time.
I tried to make sense of the GoM meeting. It appeared that the political packaging of
our reforms proposal was not right. It also appeared that the cabinet note, considered by
the cabinet on 19 July, lacked historical context. I spoke to the finance and commerce
ministers, and they orally gave me some formulations to mull over. I took about two
hours to think them through and draft a longish preamble to the cabinet note. I showed it
to A.N. Verma and he liked what he read. He dispatched it to the prime minister and
asked me to go home.
A little while later, Verma called me and said that Narasimha Rao was appreciative
of what I had done and felt that, with the preamble, we might still be able to get the
industrial policy reforms through. Moreover, the prime minister had made some
additions after consulting the finance and commerce ministers. The actual content of the
cabinet note, however, remained unchanged.
The preamble read thus:

Policy Objectives:
Pandit Jawaharlal Nehru laid the foundations of modern India. His vision and
determination left a lasting impression on every facet of national endeavour since
Independence. It is due to his initiative that India now has a strong and diversified
industrial base and is a major industrial nation of the world. The goals and
objectives set out for the nation by Pandit Nehru on the eve of Independence,
namely the rapid agricultural and industrial development of our country, rapid
expansion of opportunities for gainful employment, progressive reduction of
social and economic disparities, removal of poverty and attainment of self-
reliance, remain as valid today as at the time Pandit Nehru set them out before the
nation. Any industrial policy must contribute to the realisation of these goals and
objectives at an accelerated pace. The present statement of industrial policy is
inspired by these very concerns and represents a renewed initiative towards
consolidating the gains of national reconstruction at this crucial stage.
In 1948, immediately after Independence, Government introduced the
Industrial Policy Resolution. This outlined the approach to industrial growth and
development. It emphasised the importance to the economy of securing a
continuous increase in production and ensuring its equitable distribution. After the
adoption of the Constitution and the socio-economic goals, the Industrial Policy
was comprehensively revised and adopted in 1956. To meet new challenges, from
time to time, it was modified through statements in 1973, 1977 and 1980.
The Industrial Policy Resolution of 1948 was followed by the Industrial
Policy Resolution of 1956 which had as its objective the acceleration of the rate
of economic growth and the speeding up of industrialisation as a means of
achieving a socialistic pattern of society. In 1956, capital was scarce and the base
of entrepreneurship was not strong enough. Hence, the 1956 Industrial Policy
Resolution gave primacy to the role of the State to assume a predominant and
direct responsibility for industrial development.
The Industrial Policy Statement of 1973, inter alia, identified high priority
industries where investment from large industrial houses and foreign companies
would be permitted.
The Industrial Policy Statement of 1977 laid emphasis on decentralisation and
on the role of small-scale, tiny and cottage industries.
The Industrial Policy Statement of 1980 focussed attention on the need for
promoting competition in the domestic market, technological upgradation and
modernisation. The policy laid the foundation for an increasingly competitive
export base and for encouraging foreign investment in high-technology areas. This
found expression in the Sixth Five Year Plan which bore the distinct stamp of Smt.
Indira Gandhi. It was Smt. Indira Gandhi who emphasised the need for
productivity to be the central concern in all economic and production activities.
These policies created a climate for rapid industrial growth in the country.
Thus on the eve of the Seventh Five Year Plan, a broad-based infrastructure had
been built up. Basic industries had been established. A high degree of self-
reliance in a large number of items—raw materials, intermediates, finished goods
—had been achieved. New growth centres of industrial activity had emerged, as
had a new generation of entrepreneurs. A large number of engineers, technicians,
and skilled workers had also been trained.
The Seventh Plan recognised the need to consolidate on these strengths and to
take initiatives to prepare Indian industry to respond effectively to the emerging
challenges. A number of policy and procedural changes were introduced in 1985
and 1986 under the leadership of Shri Rajiv Gandhi aimed at increasing
productivity, reducing costs and improving quality. The accent was on opening the
domestic market to increased competition and readying our industry to stand up on
its own in the face of international competition. The public sector was freed from
a number of constraints and given a large measure of autonomy. The technological
and managerial modernisation of industry was pursued as the key instrument for
increasing productivity and improving our competitiveness in the world. The net
result of all these changes was that Indian industry grew by an impressive average
annual growth rate of 8.5% in the Seventh Plan period.
Government is pledged to launching a reinvigorated struggle for social and
economic justice, to end poverty and unemployment and to build a modern,
democratic, socially prosperous and forward-looking India. Such a society can be
built if India grows as part of the world economy and not in isolation.
While Government will continue to follow the policy of self-reliance, there
would be greater emphasis placed on building up our ability to pay for imports
through our own foreign exchange earnings. Government is also committed to
development and utilisation of indigenous capabilities in technology and
manufacturing as well as its upgradation to world standards.
Government will continue to pursue a sound policy framework encompassing
encouragement of entrepreneurship, development of indigenous technology
through investment in research and development, bringing in new technology,
dismantling of the regulatory system, development of capital markets, [and]
increasing competitiveness for the benefit of the common man. The spread of
industrialisation to backward areas of the country will be actively promoted
through appropriate incentives, institutions and infrastructure investments.
Government will provide enhanced support to the small-scale sector so that it
flourishes in an environment of economic efficiency and continuous technological
upgradation.
Foreign investment and technology collaboration will be welcomed to obtain
higher technology, to increase exports and expand the production base.
Government will endeavour to abolish the monopoly of any sector or any
individual enterprise in any field of manufacture, except on strategic or military
considerations, and open all manufacturing activity to competition.
The Government will ensure that the public sector plays its rightful role in the
evolving socio-economic scenario of the country. Government will ensure that the
public sector is run on business lines as envisaged in the Industrial Policy
Resolution of 1956 and would continue to innovate and lead in strategic areas of
national importance. In the 1950s and 1960s, the principal instrument for
controlling the commanding heights of the economy was investment in the capital
of key industries. Today, the State has other instruments of intervention,
particularly fiscal and monetary instruments. The State also commands the bulk of
the nation’s savings. Banks and financial institutions are under State control.
Where State intervention is necessary, these instruments will prove more effective
and decisive.
Government will fully protect the interests of labour, enhance their welfare
and equip them in all respects to deal with the inevitability of technological
change. Government believes that no small section of society can corner the gains
of growth leaving workers to bear its pains. Labour will be made an equal partner
in progress and prosperity. Workers’ participation in management will be
promoted. Workers’ cooperatives will be encouraged to participate in packages
designed to turn around sick companies. Intensive training, skill development and
upgradation programmes will be launched.
Government will continue to visualise new horizons. The major objectives of
 the new industrial policy package will be to build on the gains already made,
correct the distortions or weaknesses that may have crept in, maintain a sustained
growth in productivity and gainful employment, and attain international
competitiveness. The pursuit of these objectives will be tempered by the need to
preserve the environment and ensure efficient use of available resources. All
sectors of industry, whether small, medium or large, belonging to the public,
private or cooperative sector, will be encouraged to grow and improve on their
past performance.
Government’s policy will be continuity with change.
In pursuit of the above objectives, Government have decided to take a series
of initiatives in respect of the policies relating to the following areas.
A. Industrial Licensing
B. Foreign Investment
C. Foreign Technology Agreements
D. Public Sector Policy
E. MRTP Act
A package for the Small and Tiny Sectors of Industry is being announced
separately.
What the preamble did was provide a political context to technocratic text, with the
clincher being the line ‘continuity with change’ at the very end! To use Narasimha Rao’s
own words (enunciated in another context), the preamble was a lesson in how to
facilitate a desirable U-turn without it seeming to be a U-turn! This was my first major
lesson in political packaging and marketing, and I would have numerous occasions to
use this lesson on crucial occasions over the next quarter of a century in public life.
The union cabinet met again on 23 July 1991 to consider the revised cabinet note
with the preamble. Most of the original sceptics who had protested on 19 July felt
reassured after reading the preamble. M.L. Fotedar, a political heavyweight, took the
lead and said that had the original cabinet note come with such a preamble, there would
not have been so much as a murmur. He concurred with the cabinet note, and after he had
spoken, others followed suit. Thereafter, in a most unusual move, the larger union
council of ministers met to give a seal of approval to what the cabinet had decided.
Narasimha Rao did not want to leave anything to chance. He convened a meeting of
the CWC at 3 p.m. at his residence. The official minutes of this meeting that lasted ninety
minutes read as follows:
[…] at the permission of the Chair, Shri Manmohan Singh, Union Finance
Minister, who was specially invited in the meeting apprised the Working
Committee about present financial position of the country and the Industrial Policy
of the Government. After hearing Shri Manmohan Singh, the Working Committee
endorsed the Government’s industrial policy in principle and made it clear that
every effort should be made to remain within the framework of the Party’s
manifesto.
At this meeting, after having been warned by the prime minister that he was very much
on his own, the finance minister quoted extensively from the Congress’ 1991 Lok Sabha
election manifesto.63 Manmohan Singh read out some crucial portions that went thus:
Restoring sound management will require priority attention to fiscal policy. The
massive deficit in the budgetary system has created a serious fiscal imbalance.
This will have to be rectified […] The Congress will restore fiscal balance in the
budgetary system by drastically reducing wasteful expenditure, rationalising non-
developmental expenditure and expanding the revenue base of the Government,
particularly through a leaner, more dynamic and profit-oriented public sector. […]
The Congress will tackle the problem of the present foreign exchange crisis by
pursuing vigorous export promotion, effective import substitution, establishing an
appropriate exchange rate mechanism and increasing productivity and efficiency
in our economy. […]
The Congress will pursue a sound policy framework: encouragement of
entrepreneurship, development of capital markets, simplification of the regulatory
system, bringing in new technology and increasing competitiveness for the benefit
of the common man. […]
Foreign investment and technology collaboration will be permitted to obtain
higher technology, to increase exports and to expand the production base. […]
The Congress will endeavour to abolish the monopoly of any sector or any
individual enterprise in any field of manufacture, except on strategic or military
considerations and open all manufacturing activity to competition.
As Manmohan Singh was coming out of the meeting, his senior cabinet colleague, Arjun
Singh told him: ‘Doctor Saab, you have read the manifesto more carefully than all
Congressmen.’

The next day was really an anti-climax. I was imagining a big bang announcement of the
industrial policy reforms, as were many others. Instead, at about 12.50 p.m. on
Wednesday, 24 July 1991, about four hours before Manmohan Singh was to present his
budget, P. J. Kurien, the minister of state for industry got up in the Lok Sabha and read
out a brief statement: ‘Sir, I beg to lay on the table a statement (Hindi and English
versions) on Industrial Policy.’
That was it. A bland sentence to usher in a radical transformation of Indian
enterprise. The occasion was made more ironic by the fact that the junior industry
minister’s heart was not in the revolutionary contents of the new industrial policy.
Indeed, at various points of time, he and his officials had acrimonious disagreements and
the finance minister ultimately had to tell him that he had to fall in line to avoid
international embarrassment.
Perhaps, this tepid introduction had been provoked by a fear of protests from sections
of Indian industry. In fact, I had reason to believe that lobbying by some prominent
figures of industry—nervous about foreign direct investment—had delayed the approval
of the new industrial policy.
On 26 July, at the prime minister’s bidding and, if I my say so, at my suggestion, an
unprecedented event took place. Manmohan Singh, Vijaya Bhaskara Reddy, Rangarajan
Kumaramangalam, P.J. Kurien and P.K. Thungon (the other minister of state for industry)
met the press jointly to explain the new industrial policy reforms package. The finance
minister held centre-stage, but the presence of five ministers was meant to convey the
impression that all were on board. Almost all the questions were on foreign investment,
the public sector and the abolition of MRTP controls, and all of them were fielded by
Manmohan Singh himself—and that too aggressively!
The most detailed news report that appeared about this unusual event was carried in
the 27 July 1991 edition of The Hindu and gives the full flavour of what transpired
there.

Industrial Policy Not Anti-worker: Manmohan Singh

From Our Special Correspondent
New Delhi, July 26
In an unusual move, the Government today fielded five senior Central Ministers to
emphasise the point to the press that the new industrial policy neither meant a go by to
socialism nor would be detrimental to the interest of workers.
Denying the charge that the policy would mean a shift towards capitalism on behalf
of other Ministers—Dr. Manmohan Singh, Finance, Mr. K. Vijay Bhaskar [sic] Reddy,
Law and Justice both with cabinet rank, Mr. P.R. Kumaramangalam, Law and Justice
and Mr. P.K. Thungon, Industry with Minister of State rank—the Minister of State for
Industry Prof. P.J. Kurien asked how could socialist goal be achieved without
increasing production.
The centrestage at the press conference was occupied by Dr. Manmohan Singh
who said the process of industrial and economic transformation did not mean reneging
on efforts in the direction of poverty alleviation, reducing income and wealth
disparities, unemployment or rural-urban disparities. He said, social objectives
enshrined in the Constitution would remain and quoted Pandit Nehru to say that
‘instrumentalities must be adjusted to changing circumstances’. While the effort would
be to modernise without tears he said ‘we are committed to protect the worker’s
interest and modernisation process would not be achieved by breaking their backs’.
Besides referring the cases of sick companies to BIFR [Board for Industrial and
Financial Reconstruction], the Government would also contribute Rs. 200 crores to
the proposed National Renewal Fund, he said.

Regional balance: On ensuring regional dispersal of industries, while Prof. Kurien

was trying to say that there should be no apprehension on that count as special
incentives would be given to ensure it, Dr. Manmohan Singh was really blunt. He said
the Government was not going back on its commitment to ensure regional balance. But
the earlier policies regulating industries to go to backward areas just did not work, he
remarked, citing Bihar. Bihar had lots of industries but it still remained backward.
There was no point in compelling capital to move in a particular area where its
contribution to the local population in terms of quality jobs was minimal. Stressing the
need for a positive and promotional approach, Dr. Singh recounted the example of
Eastern UP to suggest that industries set up there did not create job opportunities
matching the local skill. He felt the new policy was far superior to the old approach
of regulating through industrial licenses. Under the new policy it would now be
possible to effect substantial expansion by existing units even if it were at a new
location.
Again Dr. Manmohan Singh rescued Prof. Kurien when pointed questions on
foreign investment were raised. According to him the proposed Special Empowered
Board would negotiate with multinational corporations (MNCs) as they had the
technology. To a query on BHEL which was languishing for lack of orders and as to
whether the entry of MNCs would not hit it further, Dr. Singh said, ‘In these areas if
somebody wants to come, we will discuss. But it should be understood that they
(foreign investors) also wanted to make money,’ he said and asked, ‘why should they
put their money here otherwise. If BHEL had no orders where will it be for these
chaps.’ A correspondent told him they came in under bilateral arrangements. But Dr.
Singh said in an open environment, they would have to compete. ‘It will be good for
BHEL to compete and earn its living by being cost and quality efficient’.
On the entire gamut of foreign investment, Dr. Singh said three routes were open to
them namely 51 per cent equity in 34 high priority industries eligible for automatic
approval, 51 per cent foreign equity in trading houses and anything outside it to be
approved by the Government. It was in the fourth category, though not mentioned per
se in the policy, the Empowered Board would discuss with big companies abroad and
consider their proposals on a case by case basis. Dr. Singh said, ‘You can’t operate
the economy rigidly. It has to be transparent as there are areas about which neither of
us know and it would be better to negotiate.’ There was unease among businessmen in
Hong Kong about their fate once the island rejoined China. ‘Now if the MNCs want to
come here, we would be willing to look at them.’

Foreign banking: Asked about the reported violation by Pepsi, he said, ‘Let us not
create unnecessary scare. India is not a small country and this excessive fear of
foreigners might have been okay at the time of Independence. But in the last 40 years
the country has created a new class of entrepreneurs, new confidence, new
technical/managerial skill and therefore this foreign bashing is not good for the
morality of Indians.’ He said, ‘Look at Singapore, it has thousands of MNCs but when
the Singapore Government sometime back expelled Wall Street Journal and Time
magazine, the US swallowed it. It is the lack of self-confidence which is not justified
here.’
As for the rationale behind increasing FERA limit from 40 per cent to 51 per cent,
he said, ‘If we are really in the game of getting foreign investment and technology,
then we will have to address ourselves to the legitimate fear of foreign investors
 about possible leakage of technology and their consequential demand for management
control. I do not see anything wrong in it.’ This fear was perhaps the reason for India
not getting top technology in the past. Further, he felt the country today was in a
different ball game especially in a situation where capital was scarce and a new
entrant like Soviet Union [was] offering 100 per cent foreign equity.
In a significant observation, he said that though present rules did not allow 100 per
cent foreign equity outside EOUs and Foreign Trade Zone, the Special Empowered
Board may consider even such cases if latest technology could be brought to India in
the national interest. While the Government has allowed automatic clearance for CG
imports up to the value of Rs. 2 crores because of tight foreign exchange position, this
limit could be raised and eventually abolished if the BoP position showed substantial
improvement. Dr. Manmohan Singh said 70 per cent of the cases came under this
category.
However, the most interesting part of the press conference was provided by Mr.
Vijay Bhaskar [sic] Reddy who announced that provisions in the MRTP Act relating to
unfair/restrictive trade practices would now be extended to even the public and
cooperative sector. Since existing law did not have such a provision, he was informed
that he had made a policy announcement while Parliament was in session.
Immediately, his deputy, Mr. Rangarajan Kumaramangalam corrected his senior to say,
‘The MRTP Act does not cover public sector and we are examining where it can be
changed without destroying the harmonious relation between consumers and the Act.’
As for the assets criterion, he said though his Ministry would now be concerned with
only post-entry rather than pre-entry problems of the MRTP companies, a legislation
would be introduced to abolish chapters 3 and 3A which covered the asset limit,
dominance, acquisition and mergers.
What about privatisation and disinvestment of public sector shareholdings? Dr.
Manmohan Singh said, ‘Life is not a linear path and in public life the best can easily
become the enemy of the good, though there may be legitimate fears.’ As regards the
difference in expression used in budget speech and the industrial policy on
disinvestment of public sector equity among mutual funds, financial institutions,
workers and general public (stated in the industrial policy while the expression
‘general public’ was missing in budget) Dr. Singh said the Industrial Policy statement
was a more authoritative text.

Subsequently on 6 August 1991, P.K. Thungon laid a thirteen-page statement on the table
of the Lok Sabha titled ‘Policy Measures for Promoting and Strengthening Small, Tiny
and Village Enterprises’. This was politically very important and perhaps in retrospect
should have come first. In any case, this detailed statement helped provide a broader
vision to the Rao government’s approach to industry.
Rakesh Mohan and I succeeded in introducing the idea of a Limited Partnership Act
to enhance the supply of risk capital to the small-scale sector. But both of us were quite
disappointed that we were unable to push through our ideas on the de-reservation of
items reserved for manufacture exclusively by the small-scale sector—the scope of
which had expanded hugely when the Janata government was in power. Besides, what
this reservation had done, as both of us had been arguing, was kill India’s chances of
emerging as a global supplier of consumer goods, garments, sports goods, toys and many
electrical and electronic items—all of which became areas of China’s manufacturing
leadership in the 1980s and thereafter.
A few days after the announcement of the new industrial policy, S.K. Birla, the then
president of FICCI, publicly expressed his apprehensions about a red carpet being
offered to welcome foreign companies. The view of large sections of Indian industry
was articulated by a young Anand Mahindra (today chairman, Mahindra Group) at a
FICCI seminar in late 1991, where he argued for faster internal liberalization first and
external liberalization thereafter. I recall it was the noted academic Mrinal Datta
Chaudhuri (who passed away recently) who rebutted Mahindra by saying that this
distinction did not hold so clearly in practice and, in any case, when the economy
needed to revive, the start-up costs associated with external liberalization were much
lower. I also recall telling the dapper industrialist that he sounded very much like a
young JNU (Jawaharlal Nehru University) student!64

55
Suresh Mathur was then the secretary in the Ministry of Industry. He had a ‘let’s get it done’ approach,
and like Verma, had sharp political antennae.
56Rakesh Mohan was then economic adviser in the Ministry of Industry. He had studied the textile and
small-scale industries closely and had been advocating changes in industrial policy for three years.
57
Madhavsinh Solanki was external affairs minister in Narasimha Rao’s cabinet.
58Arjun Singh was human resource development minister in Narasimha Rao’s cabinet.

59
M.L. Fotedar was health and family welfare minister in Narasimha Rao’s cabinet.
60B. Shankaranand was petroleum and natural gas minister in Narasimha Rao’s cabinet.

61Balram Jakhar was agriculture minister in Narasimha Rao’s cabinet.

62Rajesh Pilot was communications minister in Narasimha Rao’s cabinet.

63Actually, even its manifesto for the 1989 Lok Sabha elections committed the Congress to bolder
economic reforms of the type that got carried out in July 1991. However, because of the prevailing
circumstances, the 1991 manifesto acquired emotional value as the last will and testament, as it were,
of Rajiv Gandhi.
64Sometime later in mid-1993, an informal group of industrialists that included Hari Shankar

Singhania, L.M. Thapar, Ashok Jain, Keshub Mahindra, S.K. Birla and Rahul Bajaj met at the Belvedere
Club at the Oberoi Hotel in Bombay (as it was called then). The group for which Rahul Bajaj emerged
as the sole spokesperson welcomed industrial liberalization but voiced concerns regarding welcoming
foreign investment and import duty cuts. The phrase made popular by this group—which has earned a
place for itself in history as the ‘Bombay Club’—was ‘level playing field’, which came to be seen as a
euphemism for protection from foreign competition. The club actually met only once formally and
submitted a five-page memorandum to the finance minister.
16
 Dr Singh’s Day Out: The Budget of 24 July

r Manmohan Singh had directly helped prepare seven budgets in the 1970s. But the
24 July 1991 budget would be the first that he would not only conceive and write
(most of it at least), but also actually present. While in India’s history, the May 1957
budget—bearing in some ways the imprint of one of Manmohan Singh’s teachers,
Nicholas Kaldor, and presented by T.T. Krishnamachari;65 and the March 1985 budget—
bearing the imprint of Rajiv Gandhi and presented by V.P. Singh66—have been heralded
as milestones, the 1991 budget must rank among the most historic of all.
Normally, budgets are written by the mandarins and then touched up by the finance
minister. Unfortunately, in July 1991, the two key officials in the Finance Ministry were
not exactly on the same wavelength as the finance minister. Both the finance secretary,
S.P. Shukla and the chief economic adviser, Deepak Nayyar, had been opposed to the
IMF route and were not the most ardent champions of liberalization. Shukla had been
appointed by Chandra Shekhar at the behest of his finance minister, Yashwant Sinha,
while Nayyar had been brought in by V.P. Singh when he was prime minister. Both were
extremely diligent and meticulous. Both had fine reputations. But it was a fact that they
did not see eye-to-eye with the prime minister’s principal secretary and with the finance
minister himself.
As it happened, Manmohan Singh turned to one of India’s most versatile economists,
Ashok Desai, to replace Nayyar. But Desai could join the Finance Ministry only in
December 1991, although he had been offered the assignment in June 1991 itself. For
bureaucratic reasons, he was designated chief economic consultant—and not chief
economic adviser, as Nayyar had been (and before him Manmohan Singh himself,
between 1971 and 1974). As Desai himself quipped to me, ‘I stepped into Deepak’s
room but not into his shoes.’
I could see that Manmohan Singh was distinctly uncomfortable with this pair, but he
was always proper, dignified and correct in his dealings with them—as they were with
him. It was an extraordinary situation—the entire reforms programme was conceived
and executed without the full and active participation of the finance secretary and the
chief economic adviser. As for myself, like the finance minister, I had excellent personal
relations with both these gentlemen but knew that they were not entirely supportive of
what we had embarked upon. They, along with the foreign secretary, Muchkund Dubey,
shared greater intellectual sympathy with the statement of the thirty-five economists than
with the note issued by the quartet.67
Thus, the 24 July 1991 budget must be said to bear the personal imprimatur of the
finance minister himself. Manmohan Singh delivered a deeply moving speech. Its
contents, of course, marked a huge paradigm shift in economic thinking and charted out a
course for the country that has remained steady for almost a quarter of a century. It also
revealed a hidden side of the always serious-looking finance minister’s personality—his
fondness for Muhammad Iqbal’s Urdu poetry.
 Singh ended his budget speech by saying:
I do not minimise the difficulties that lie ahead on the long and arduous journey on
which we have embarked. But as Victor Hugo once said, ‘No power on earth can
stop an idea whose time has come.’ I suggest to this august House that the
emergence of India as a major economic power in the world happens to be one
such idea. Let the whole world hear it loud and clear. India is now wide awake.
We shall prevail. We shall overcome. With these words, I commend the budget to
this august House.

I recall Bimal Jalan68 flashing the thumbs up signal to me in the Officials Gallery after
Manmohan Singh had finished his speech.

The 24 July 1991 budget was, without doubt, unusual. What happened the next day was
even more unusual. Normally, officials of the finance ministry have a detailed press meet
a day after the budget is presented. But on 25 July 1991, the finance minister himself
made an unscheduled appearance at the press conference to ensure that the message of
his budget did not get distorted by less-than-enthusiastic officials. The prime minister
was happy that the finance minister had done so.
The finance minister explained his budget—calling it ‘a budget with a human face’.
He painstakingly defended the proposals to increase fertilizer, petrol and LPG prices.
He also announced that with the full budget having been presented, the government
would seek another emergency IMF loan, in addition to the US$220 million it had
received on 22 July. In the context of today’s concerns, it is worthwhile to recall that on
25 July 1991, the finance minister spoke extensively on the anti-black money scheme
introduced in his budget.
The budget met with its predictable quota of bouquets and brickbats. The prime
minister’s friend, Nikhil Chakravartty—who had tried hard to dissuade him from taking
the IMF route in early-June—wrote in his column in Mainstream on 10 August 1991:
Dr. Singh had begun with fairly plausible credentials. As the Secretary-General of
the South Commission he was known to be trying to sensitise world opinion about
the fearsome dimension of Third World debt, about the expediency of the Uruguay
Round in tackling world trade imbalance and the negative character of the IMF
with its conditionalities. Ironically enough, the very week that saw Dr. Manmohan
Singh present his Budget—preceded by the announcement of the new industrial
policy—that very week found Julius Nyerere, the head of the South Commission
in New Delhi, on his way back from Beijing.69 One wondered if the Chairman of
the South Commission could convince himself with equal felicity about the line of
consistency between the Commission’s views and Dr. Singh’s prescriptions for
our country’s economic ailment.
Along with such censure from a few influential and respected personalities, what was
also immediately apparent was the extreme unease within the Congress, especially about
the subsidy cut proposals. The prime minister asked me to gauge the sentiment amongst
the MPs. I spent time in the Central Hall of Parliament talking to various Congressmen
and came to the conclusion that we had a mini-revolt on our hands. It was a double
whammy. Many MPs were apprehensive about the ‘bonfire we had made of industrial
controls’ (a phrase that had been used earlier by both I.G. Patel and Jagdish Bhagwati),
and on top of that, urea prices had increased by a whopping 40 per cent—the first time
this was happening in a decade. While the increase in petrol and LPG prices was also
under attack, it was the increase in fertilizer prices that was the particular target of the
ire of a wide cross-section of Congress MPs.
I am sure the prime minister had got similar feedback from his floor managers, the
most prominent of whom were Ghulam Nabi Azad, V. Narayanasamy70 and Rangarajan
Kumaramangalam. Rao looked grim when I reported my findings to him on the mood of
Congress MPs. His only comment to me was, ‘You people must learn to function in a
political system.’ He went on to add, ‘Manmohan should have been more careful’—
forgetting that as prime minister he had listened to and approved of the budget being read
out to him by his finance minister before it was presented.
Criticism of the budget from within the Congress mounted when the debate started in
both houses of Parliament. Clearly, we were on the defensive and even the normally
unflappable A.N. Verma looked distraught, blaming me at one stage for excessive zeal. I
wondered whether he was reflecting the prime minister’s views, but chose not to probe
him further on the subject. The finance minister was also a bit rattled with the intensity
of reaction within the Congress to some of his budget proposals.
It was then that the prime minister decided to allow Congress MPs to vent their
spleen freely. A meeting of the CPP was called on 1 August 1991, in which the finance
minister defended his budget. The prime minister stayed away and allowed Manmohan
Singh to face the flak on his own. This was followed by another set of meetings on 2 and
3 August, in which Narasimha Rao was himself present throughout. Thereafter, three
meetings of the CPP took place on 27, 28 and 29 August, in which the discussions
focussed on agriculture—the main concern of the Congress MPs. The CPP meeting on
industrial policy itself only took place on 16 December 1991—long after the industrial
policy reforms had been fully digested and understood.
It would not be an exaggeration to say that barring in Jawaharlal Nehru’s time, the
CPP had not been as active or interactive as it was in August 1991. This was
undoubtedly the prime minister’s way of allowing the MPs to have their say, while
reserving the right to have his way at the end. Of course, he did not put it across that
way, but it seemed to me that this was smart politics—something neither the finance
minister nor I fully appreciated then, but which we understood in our own ways in
subsequent years as the finance minister became prime minister, and I, an MP and
cabinet minister.
In the CPP meetings, the finance minister cut a lonely figure and the prime minister
did nothing to alleviate his distress. He had no support whatsoever for his proposals to
cut subsidies. Only two MPs were fulsome in their backing of the finance minister’s
budget—Mani Shankar Aiyar, the newly-elected MP from Tamil Nadu and one of Rajiv
Gandhi’s closest aides; and Nathuram Mirdha, the veteran farmer leader from Rajasthan.
In view of his later opposition to what Manmohan Singh stood for, the support from
Mani Shankar Aiyar would appear very surprising. He has justified his stance at the CPP
as the outcome of his inside knowledge of the esteem that Rajiv Gandhi had for
Manmohan Singh and his conviction that the late ex-prime minister would have
approved of the 24 July budget given the extraordinary circumstances in which it had
been prepared and the catastrophe that awaited India had such a budget not been
presented.
In the CPP meeting of 2 August, when Mani Shankar Aiyar spoke of how the 24 July
1991 budget conformed to Rajiv Gandhi’s beliefs on what needed to be done to stave off
financial doom, his views were immediately challenged by R.K. Dhawan—who had
also been an aide to Indira Gandhi and Rajiv Gandhi—on the grounds that it was
impossible for anyone to know the late prime minister’s opinion. Soon, the agriculture
minister, Balram Jakhar, and the communications minister, Rajesh Pilot, went public
against the proposal of their own cabinet colleague. Ironically, even the minister of state
for chemicals and fertilizers, Chinta Mohan, expressed his disquiet, and mobilized
several farmer organizations to protest against the cut in fertilizer subsidy.
Subsequently, fifty Congress MPs under the aegis of the Farmers’ Parliamentary
Forum signed a letter to the finance minister, critical of the budget proposal. The
signatories made a strange grouping. The chairman of the forum was Prataprao Bhosale,
a senior MP from Maharashtra believed to be close to the prime minister,71 and one of
the signatories was Murli Deora, the MP representing South Mumbai whose proximity to
industry circles was known. To add to the tension, several opposition parties threatened
to move a cut motion72 against the fertilizer price hike. With the prevailing mood across
the political spectrum, there was every prospect of the cut motion being passed, which
would have spelt disaster for the government.
Moreover, another cut motion had been threatened on an announcement contained in
the budget—a grant of 100 crore to the newly-created Rajiv Gandhi Foundation. The
prime minister and the finance minister may have felt that they would be pleasing
Congress MPs and the Congress as a whole, but, in point of fact, the move boomeranged
badly. It was criticized both by Congress MPs and the opposition. The foundation’s
trustees led by Sonia Gandhi had not even asked for it and, in fact, wanted its
withdrawal. Wisely, the finance minister scrapped the idea on 6 August in the Lok
Sabha.

The finance minister had proposed, as part of his budget speech, a 40 per cent increase
in the prices of fertilizers to contain the subsidy bill. However, given the barrage of
criticism he was subjected to from all political parties, including his own, he bowed to
the pressure, and on 6 August 1991 announced in the Lok Sabha that the increase would
be lowered to 30 per cent. However, even this did not pacify members, including
Congress MPs. While the protests were still on, Manmohan Singh went ahead and
announced that small and marginal farmers—who had about 76 per cent of the
operational holdings, 29 per cent of the area under cultivation and accounted for 30 per
cent of the fertilizer consumption in the country—would be totally exempted from the
price hike. He did not roll back the increase in LPG and petrol prices but his concession
on fertilizer prices silenced his critics, particularly within his party. I was a bit puzzled
about how a dual pricing system would work in actual practice but kept my reservations
to myself because it seemed to me that this was a huge political victory for the prime
minister and the finance minister. Within a few months, though, the idea’s unworkability
became apparent.
Behind the scenes, what had happened was this. The Cabinet Committee on Political
Affairs (CCPA) had met informally on 4 August, and then again the next day on 5 August,
in response to persistent pressure from Congress MPs from all states—including the
prime minister’s home state—and had decided the statement that Manmohan Singh
would make on 6 August in the Lok Sabha on this matter.
Normally, no press statements are issued after CPP meetings. But this time, a
statement was indeed released by the party spokesperson and MP, Professor C.P. Thakur,
after the CPP meeting of 3 August which formed the basis of the CCPA deliberations.
The statement dropped the idea of a roll-back which had been demanded over the past
few days, but now spoke of protecting the interests of small and marginal farmers and—
in what can only be described as classic Rao-Singh language—stated: ‘The
deliberations indicated clearly the bridging of the gap between political concerns of the
members and the unfortunate economic realities that the Government has inherited.’
Both sides had won. The party had forced a rethink, but the fundamentals of what the
government wanted—the decontrol of prices of fertilizers other than urea and an
increase in urea prices—had been preserved. This was political economy at its
constructive best—a textbook example of how the government and the party can
collaborate to create a win-win situation for both.
Thereafter, there was one issue on fertilizer subsidies that had Narasimha Rao
worried for a brief while. The former prime minister, V.P. Singh had written an article in
The Hindu on 5 August arguing that farmers were being penalized for wrong investment
decisions made by the government and that the technology we had selected was
substandard. The prime minister asked me for my comments on the article. I knew
something about the subject and assured him that the energy consumption of the gas-
based fertilizer plants along the Hazira-Bijaipur-Jagdishpur pipeline was on par with
global best practices. I added that while competitive bidding had not been resorted to
for eight of the ten urea plants and the fertilizer pricing system needed an overhaul, the
allegation of the former prime minister that the new generation of plants was energy-
inefficient was not borne out of facts. Narasimha Rao seemed relieved that the V.P. Singh
article could be countered were it to be raised in Parliament. As it turned out, the matter
did not come up.

65T.T.Krishnamachari—TTK for short—presented a watershed budget, which made the first attempt to
distinguish between active income (salaries or business) and passive income. However, his
introduction of expenditure tax, high rates of income tax, wealth tax and estate duty earned him the
sobriquet ‘Tax, Tax and Kill’.
66The
March 1985 budget shortlisted industries for delicensing, announced measures to deepen the
stock market, proposed setting up the BIFR to deal with sick industrial units, and promised to
formulate a long-term fiscal policy.
67See chapter 9, ‘Statements: Right and Left’.

68Bimal
Jalan, finance secretary in V.P. Singh’s government, had been appointed chairman of the
Economic Advisory Council to the Prime Minister by Chandra Shekhar and continued for a few months
under Narasimha Rao as well.
69Julius Nyerere had, in fact, met the prime minister on 15 July 1991.

70V. Narayanasamy was a Rajya Sabha MP and secretary of the CPP.

71In December
1991, Bhosale was to chair a eleven-member Joint Committee of Parliament on
Fertilizer Pricing, a step taken by the prime minister to assuage persistent political concerns on this
issue. The committee submitted its report in August 1992. Most of its recommendations—like
decontrol of pricing, distribution and movement of phosphatic and potassic fertilizers and a 10 per cent
reduction in consumer prices of urea—were accepted.
72
A cut motion is a powerful veto power given to MPs in the Lok Sabha to express their opposition to
proposals contained in the budget presented by the government. If the MPs oppose a cut in the
fertilizer subsidy, for instance, they can move a motion seeking to reduce the allocations for the
Ministry of Chemicals and Fertilizers or the Ministry of Agriculture by any specified amount,
including just one rupee. If admitted, such a cut motion will have to be put to vote and if the
government loses the vote it has to resign.
17
 The First Review by the Finance Minister

y 14 August 1991, much of what we had set out do on 21 June had been
accomplished. The devaluations had happened. Bold trade policy changes had been
put in place. Dramatic reforms had been introduced in industrial policy. A watershed
budget had been presented. After some initial foot-dragging at the official level, the
Narasimham Committee on the Financial System had been announced on 14 August
1991.
I think it was on 15 August at the Red Fort that I suggested to the finance minister that
he call key officials to review where we were and to identify the steps to be taken after
the first round of policy changes and announcements. This meeting took place just one
day later—after, I am sure, the finance minister had got the go-ahead from the prime
minister. I kept notes of that meeting which are reproduced below:

Today, Finance Minister took a meeting with Principal Secretary to PM, Finance
Secretary, Industry Secretary and Commerce Secretary.
The following are the main points that emerged from this meeting:
(i) Department of Industrial Development and Ministry of Commerce would put
together a document on the economic changes that have taken place in the last
few weeks. This would be written in simple language and would be meant for
distribution to foreign audiences including embassies abroad, leading
newspapers etc.
(ii) The Press Note on foreign investment would be got ready by today or
tomorrow.
(iii) It was agreed that the Board on Foreign Investment Approvals would be
compact and comprise of Principal Secretary to PM, Finance Secretary,
Secretary (ID) and Commerce Secretary. Other Secretaries would be coopted as
and when necessary. Principal Secretary would explore the possibility of having
the Secretariat of this Board located in PMO to begin with.
(iv) Finance Minister suggested the appointment of special envoys of PM to travel
to major countries like USA, Japan and Germany to explain our policies and
interact with senior officials. Names mentioned in this regard were Shri M.
Narasimham to East Asia, Dr. I.G. Patel to some western countries, Shri V.
Krishnamurthy to West Germany etc. Principal Secretary to PM would get PM’s
approval for this concept.
(v) Finance Minister also desired that influential people from abroad, whether
politicians, intellectuals, bankers, industrialists or academics be invited to come
to India. This would be part of a marketing strategy.
(vi) On the follow up to negotiations with IMF and World Bank, it was decided that
a Steering Group would be set up for monitoring the implementation. This group
 could consist of Principal Secretary to PM, Finance Secretary, Commerce
Secretary, Industry Secretary and Secretary (PE). The inclusion of Secretary
(Labour) and Secretary, Planning Commission could be considered as
necessary. Finance Minister would take necessary steps in this regard.
(vii) Principal Secretary to PM mentioned the need to explore economic
relationships with countries other than USA, Japan and Germany. In this regard,
he mentioned Singapore and Taiwan and other countries in the East which have
sizeable population of Indian origin and could be sources of investment.
(viii) Finance Minister drew attention to the need for follow up on many of the
initiatives proposed in the Budget. These initiatives involve many ministries,
other than the Finance Ministry. Finance Secretary proposed that the monitoring
of these initiatives be taken up in the Steering Group under Pr. Secretary to PM.
(ix) Finance Minister suggested that the services of Shri S.K. Jain, former DDG in
the International Labour Organisation be utilised in connection with the National
Renewal Fund.
(x) The Law Ministry has expressed reservations on the SBI Bonds that have been
proposed in the Budget. Principal Secretary to PM and Finance Secretary would
have the matter clarified with Law Secretary so that the bonds could be issued
soon.
(xi) Finance Minister suggested that he use his reply on the Budget as an opportunity
for announcing concrete initiatives regarding NRI investments. Some initiatives
have already been announced as part of the Budget. Some further initiatives
were discussed including dual nationality for NRIs and use of exim scrips for
remittances. Commerce Secretary mentioned the need to amend FERA also.
(xii) Finance Secretary would have the matter on import of edible oil from USA
under Title III Grants examined.
(xiii) Secretary (ID) would take follow up action on the proposals to set up a Tariff
Commission as contained in the Budget.
Finance Minister suggested that such a meeting could be held once a week to exchange
ideas and review implementation of various policies.
Jairam Ramesh
16.8.91

A day prior, the prime minister’s traditional Independence Day speech had been a
sombre affair. The high point of the speech was the sharp reference to the public
distribution system—or PDS, as it is known in government circles—which is the
nationwide network of over 4.5 lakh ration shops.
One of the key officials in the PMO was an Andhra Pradesh-cadre IAS officer, K.R.
Venugopal, who was an acknowledged authority on PDS. He had much to do with what
the prime minister said on the subject that morning. The prime minister announced his
intention to restructure the PDS through which essential commodities like rice and wheat
are distributed. Subsequently, such a restructured PDS was introduced, focussed on
1,700 of the poorest and most backward blocks of the country.
Besides PDS, Narasimha Rao spoke about rural development73 and included a
reference to the modernization of land records, an initiative launched in 1988 by Rajiv
Gandhi, and with which Sam Pitroda and I had been involved. Unfortunately, the
modernization and continuous update of land records is still far from complete and
remains a pressing need.

A day after stock-taking, the finance minister met all trade union leaders. It was a long
meeting, with labour representatives cutting across the political spectrum, highly critical
of the industrial policy reforms and of the budget as well. Their arguments were
predictable—a sell-out to the IMF, the opening of doors to multinationals, the death of
the small-scale sector, backdoor privatization and freedom to retrench.
The finance minister, in turn, made his points without yielding much, but promised
regular interactions with trade unions. He reiterated that there were no plans to privatize
public sector companies and drew attention to the National Renewal Fund announced in
his budget.
The labour leaders were clearly not satisfied but felt happy that the prime minister
invited them over to his residence when their meeting with Manmohan Singh ended. The
prime minister gave two assurances—no privatization and no exit policy talk, of which
there had been some discussion.
At times, listening carefully and attentively itself earns dividends. And this is what
happened that night.

73Itis generally not known that in addition to industry, Narasimha Rao kept the rural development
portfolio to himself. He held on to the latter for four years, the second-longest tenure ever. He secured
for rural development a huge increase in outlay in the Eighth Five-year Plan. To execute his priorities,
he appointed another Andhra Pradesh-cadre IAS officer, B.N. Yugandhar as secretary, rural
development. In the recent past, Yugandhar has been known as the father of Satya Nadella, the CEO
(chief executive officer) of Microsoft, as has K.R. Venugopal as the father of Mrs Nadella. It was at
Narasimha Rao and Manmohan Singh’s insistence that a new Employment Assurance Scheme (EAS)
was launched in October 1993 in 1,778 of the most backward and ecologically-stressed blocks of the
country. This was based on Maharashtra’s Employment Guarantee Scheme, which had—at Defence
Minister Sharad Pawar’s suggestion, and following a study group of Congress MPs headed by Mani
Shankar Aiyar—been recommended for nationwide adoption. I had assisted the group of Congress
MPs. The EAS was one significant milestone on the road to the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) passed by Parliament in September 2005.
18
 The Prime Minister’s Gorbachev Goof-up

had seen Mikhail Gorbachev once, fleetingly, at the prime minister’s residence on 19
November 1988. Rajiv Gandhi had asked Sam Pitroda to make a presentation to the
visiting Soviet leader on new technological and economic directions that the Indo-
USSR74 bilateral relationship could take. Pitroda had roped in Ashok Ganguly, then
chairman of Hindustan Lever, and V.S. Arunachalam, then scientific adviser to the
defence minister. The four of us put together a presentation. Pitroda, Ganguly and
Arunachalam made the presentation to the two heads of state (with 35mm slides since
this was a pre-PowerPoint era), while aides like me sat in the adjacent room.75
Fast-forward to 19 August 1991—the day Gorbachev was ousted (temporarily, as it
turned out) in a coup. When I reached the office on the morning of 20 August, I was
inundated with phone calls from all sorts of people. The most concerned was the finance
minister himself who asked me whether I knew why the prime minister had said what he
had the day before, which had been reported on the front page of the Hindustan Times.
No other newspaper had given the prime minister’s remarks on the coup in Moscow any
prominence except for this daily, in a news-item that went thus:

PM: It is a warning to reformers

New Delhi, Aug 19 (UNI, PTI)
Prime Minister P.V. Narasimha Rao today said the ouster of Soviet President Mikhail
Gorbachev was a warning that any leader who chalks out plans for the future should
take each step cautiously.
Mr. Narasimha Rao took note of the political developments in Soviet Union while
addressing a national convention of the Youth Congress workers here on the occasion
of the 48th birth anniversary of Mr. Rajiv Gandhi.
He recalled the close friendship between Mr. Gandhi and Mr. Gorbachev and in
this connection mentioned their respective contributions for the improvement of the lot
of their people.

The prime minister’s statement was a dynamite. A.N. Verma, on learning what had
transpired, was worried about the implications of Rao’s comments, much like the
finance minister. Would this put economic reforms in jeopardy, the two of them
wondered when I met them to discuss the statement. Finally, I thought it best to ask the
prime minister himself. The prime minister, on his part, really did not elucidate or
enlighten, except to say that every country must choose the pace of change suited to its
‘genius’. He also recalled the disastrous impact of the Shah of Iran’s modernization
programme76 and then said something to the effect that we must be careful and cautious.
Meanwhile, the minister of state of external affairs, Eduardo Faleiro, had also given
out a statement which was, once more, Mandarin-speak. He said: ‘India is watching the
situation. It is an internal development of the Soviet Union.’
On 20 August, Madhavsinh Solanki, the external affairs minister, spoke in the Lok
Sabha in further detail and said:
Sir, India attaches the highest importance to its relations with the USSR which are
based on the universally accepted principles of conducting inter-state relations
and are reflected in the Indo-Soviet Treaty of Peace, Friendship and Cooperation.
It was because of the importance that both countries attached to the Treaty that
very recently they jointly announced their intention to extend it by a further period
of twenty years. The above events in the Soviet Union are thus of vital interest to
us and indeed to the whole world. The Government of India is, therefore,
constantly and carefully monitoring the situation there since receiving reports of
the announcements and is maintaining close touch with the situation in this regard.
But the damage had been done. It was the prime minister’s remarks that held sway. In the
Lok Sabha, Jaswant Singh, later to become external affairs and finance minister under
Atal Bihari Vajpayee, pilloried the prime minister thus:
The Government responded to a situation of grave importance. Indo-Soviet
relations were involved and the Government did respond with ineptitude
blinkered with timidity. It responded in a situation where it appeared that the
Government’s response was grooved in yesterday’s clichés. We have there on
record not just that statement but an observation by the Prime Minister filled with
unnecessary homilies, that reformists must be careful […]
It was a baffling day which flummoxed all of us who were working with the prime
minister. He had—as I told his principal secretary and the finance minister—‘thrown a
googly’, the impact of which would be felt in the days and months to come.
As I tried to reconstruct the sequence of events that led to the prime minister’s
observations, it turned out that the Youth Congress had arranged a massive rally. Reports
reached the prime minister that the crowd was restive, with speakers arguing
vociferously both in favour of and against Manmohan Singh’s policies of liberalization.
The special protection group (SPG) advised the prime minister against going there,
given how charged the atmosphere was. The prime minister, however, disregarded this
advice and, in the words of someone who had worked closely with him for over a
decade, ‘phrased his own domestic concerns—and those of many in his audience—in an
international metaphor that was as elusive as it was effective.’
Whatever the context may have been, there is no question that Narasimha Rao’s
elliptical remarks cast a shadow on our bilateral relationship with the Soviet Union and
evoked a sharp response from the foreign policy establishment. One of Rao’s own
colleagues, K. Natwar Singh, who was minister of state for external affairs under him in
Rajiv Gandhi’s government, blasted him in a letter made public on 25 August, which
pretty much summed up what most people were thinking:
 You are not unfamiliar with international affairs and have rightly earned a
reputation for using words carefully. It is therefore a matter of surprise that you
should have expressed the views you did on the current events in the Soviet
Union. Those dealing with foreign affairs at high levels should think twice before
saying anything. On the removal of Mr. Gorbachev, you, the External Affairs
Minister Mr. Madhavsinh Solanki, the Minister of State Mr. Eduardo Faleiro have
made different pronouncements. This has caused a lot of confusion and become a
subject of adverse comment in Central Hall of Parliament and among senior
journalists. It is possible to make a good case for each of these statements. It is
equally true that each can be demolished with effortless ease. What worries me is
that taken collectively they add up to an incoherent management of our foreign
policy. Such a fragmented and piecemeal approach to momentous decisions is
fraught with danger.
India was caught flat-footed by the Soviet coup attempt. Indeed, in an interview to the
journalist Shekhar Gupta on ‘Walk the Talk’, broadcast on NDTV on 8 May 2004,
roughly seven months before he passed away, Narasimha Rao allowed himself a rare
admission of a mistake, saying, ‘I blurted out something which perhaps wasn’t proper at
that particular moment.’
It wasn’t just Rao who seemed to have egg on his face. The CPM fared no better.
Harkishan Singh Surjeet had issued a statement on 23 August that the coup was a natural
corollary to the policies followed by Gorbachev. There appeared to be considerable
jubilation in the CPM camp (with the CPI showing less happiness) at the prospect of the
permanent departure of Gorbachev from the political scene. The Hindu went on to
report:
Speaking with the authority of a man who had first-hand knowledge of the events
in Moscow, Mr Surjeet claimed that the coup had the support of the people, and
had not been imposed from above as the men behind it were party leaders who
had been involved with the reforms initiated by Mr. Gorbachev.77
It is difficult to estimate the impact of the reactions of Rao and Surjeet on USSR’s
policies towards India. The Soviet ambassador in New Delhi, Vladimir Isakov, did meet
with the prime minister on 23 August and Gorbachev himself wrote to the prime minister
a few days later. But the fact remains that some unease crept into the bilateral
relationship. Perhaps as an immediate fallout, on 6 December 1991, for the first time,
USSR voted for a proposal sponsored by Pakistan and Bangladesh at the United Nations
for creating a nuclear-free zone in South Asia.

74The
dissolution of USSR (Union of Soviet Socialist Republics) was formally enacted on 26
December 1991.
75Sam Pitroda has a more detailed account of this meeting in his forthcoming autobiography.
76Mohammad Reza Pahlavi, the Shah of Iran (1941-1979), undertook a radical modernization
programme in his country, the ‘White Revolution’, encouraging land reform, developing complex
infrastructure and extending suffrage to women. However, some analysts suggest that the pace of
change was so rapid that in 1978 a revolution broke out that forced the Shah of Iran to flee the country
the following year.
77‘More on Communist Reaction’, The Hindu, 23 August 1991.
19
 The Last Week of August 1991

he last week of August 1991 involved a lot of housekeeping. On 22 August, the

establishment of a Foreign Investment Promotion Board (FIPB) was announced.
Rakesh Mohan and I had prevailed upon a more-than-willing A.N. Verma that the FIPB
should be small and compact, and the ‘P’ in FIPB should stand for ‘promotion’ and not
‘processing’. This was a victory of sorts for the two of us because a view had gained
ground that the FIPB would be a large bureaucratic body meant largely to facilitate quick
clearances. Much against the wishes of the cabinet secretary and others, we had
managed to convince the principal secretary to have the FIPB in the PMO itself, since its
credibility needed to be projected speedily.
One of the very first proposals that came on the FIPB’s agenda was a joint venture
between IBM and the Tata Group. Ratan Tata and senior IBM executives, led by Kailash
Joshi, met with the principal secretary to the prime minister and—thinking that this
should get the widest publicity—I called up Reuters and gave them a briefing. Shortly
thereafter, there was a news-item in the International Herald Tribune saying that India
meant business and was welcoming foreign investment. But I think some complaints
reached the prime minister about my private enterprise, and the principal secretary told
me that the principal information officer ought to be doing such briefings.

On 26 August 1991, the prime minister made a hard-hitting speech in the Lok Sabha
while replying to the demands for grants for the Ministry of Industry. He was somewhat
like the boxer Muhammad Ali that day—a jab here, a jab there, floating like a butterfly,
stinging like a bee.
The BJP welcomed the 24 July industrial policy reforms on the grounds that they
were a total repudiation of Nehruvian policy that had run its course. Narasimha Rao,
however, emphasized the continuity aspects of the reforms and how they were not
deviations in any way from the vision of India’s first prime minister.
The Left and some other parties like the Janata Dal, on their part, attacked the 24 July
industrial policy package as not just an abandonment of Nehru’s vision but as something
that would erode national sovereignty and lead to greater unemployment. To these
critics, the prime minister stressed the change aspects of the package and spoke
eloquently of the need to give up shibboleths of the past when confronted with new
challenges.78
The exchanges were sharp and the prime minister kept getting interrupted. However,
he more than stood his ground:
Prime Minister: Coming to technology, Nirmal Babu has told us something about
appropriate technology. If you have a washing machine, how many people are you
throwing out of employment? The only thing is, if you have a lakh washing
 machines being made, to how many people you are giving employment on the
other side? (Interruptions)
Nirmal Kanti Chatterjee (West Bengal; CPM): How many?
Prime Minister: Let us calculate. And what kind of employment are you giving,
what kind of employment are you diversifying… (Interruptions)
Nirmal Kanti Chatterjee: Those resources which are utilised for producing
washing machine could be utilised for other purposes… (Interruptions)
Prime Minister: That is the point. If you take that as the criterion then you will
remain a country of maid-servants only. This is the point… (Interruptions)
Nirmal Kanti Chatterjee: That is your idea… (Interruptions)
Prime Minister: You are condemning our women folk to life of drudgery
permanently. This is where diversification is necessary. That is why, we have not
given them any education so far. Let her be educated. She will refuse to do the
washing, the moment you educate her. Today, we are talking of a society which
itself is fast changing. And if you do not admit that this change is coming, you will
be overtaken by events. This is what I would like to say. It is very simple to say
that ‘you are throwing people out of employment’. But what kind of employment?
(Interruptions)
This sparring went on, and towards the end, in an unusual turn of events, one of Rao’s
ministers from West Bengal, Ajit Panja, joined the fray.
Ajit Panja: Sir… (Interruptions)
Basudeb Acharia (West Bengal; CPM): Sir, how can a Minister seek a
clarification from the Prime Minister? (Interruptions)
Ajit Panja: I want to know from the Prime Minister whether he is going to send a
team of CPI-M members to Moscow, as they say they do not appreciate our
policy, for studying the New Industrial Policy… (Interruptions)
Somnath Chatterjee (West Bengal; CPM): Sir, I would like to know the Prime
Minister’s reaction to this flippancy on the floor of the House… (Interruptions)
Prime Minister: Sir, there is another forum to discuss this. Do not worry. […]
Ram Naik (Maharashtra; BJP): Sir, my point of order is this. It is a collective
responsibility of the Cabinet. If the Minister wants any explanation, he can ask the
Prime Minister in the Cabinet. This is not the forum where any Minister can ask
any explanation or any information from the Prime Minister… (Interruptions)
[…]
Speaker: I uphold your point of order…
 Prime Minister: Sir, I understand my Minister perfectly. It was not for an
explanation. It was a little provocation… (Interruptions)
It was parliamentary debate at its cut-and-thrust best.

On 29 August 1991, the Committee on Tax Reforms under the chairmanship of Dr Raja
Chelliah, India’s pre-eminent expert on public finance, was announced. I had enjoyed a
close relationship with Chelliah in the Planning Commission, of which he had been a
member during 1985-89. He would insist on speaking to me in Tamil and I had to keep
telling him that it was my wife who was a true-blue Tamilian and not me.
When Manmohan Singh had asked Abid Hussain (another member of the Planning
Commission) and me to prepare an agenda for industrial policy reforms in September
1986, he had asked for a similar agenda on tax policy reforms from Chelliah. But like
the industrial policy proposals, the tax reforms proposals went nowhere and died a
natural death, only to be resurrected in Chelliah’s speeches once in a while.
The Chelliah Committee set up by the finance minister made far-reaching
recommendations; these formed the backbone of the budget proposals on both direct and
indirect taxes presented in February 1992 and 1993.

On 31 August 1991, the prime minister addressed a well-attended session of the All-
India Kisan Congress, which was chaired by the senior Congress leader Ram Chandra
Vikal, who was also a member of the CWC. Vikal attacked the government’s policy
strongly and was joined by many others, including Ram Naresh Yadav, a former chief
minister of Uttar Pradesh.
The prime minister heard all of them patiently and then spoke his mind out for over
an hour. He defended the budget and the industrial policy reforms, giving a background
to why they were necessary. He admitted that two years of mismanagement of the
economy had forced India to go to the IMF, but reassured the audience that there was no
question of being defeated or capitulating to the Fund. He also ruled out going back on
what had been done. Further, he exhorted those present to actually spread the message of
his government’s enterprise at averting a grave economic crisis and at giving a new
direction to the economy consistent with Indira Gandhi’s vision.
It was a typical Narasimha Rao performance, but his audience was still sullen and
refused to be mollified. Their main grouse remained the hike in urea prices.

78More of this gets elaborated in the chapter, ‘A Final Word’, in Narasimha Rao’s unpublished self-
portrait titled Two Crucial Years: India under Shri P.V. Narasimha Rao’s Stewardship.
20
 And That’s It!

2 September 1991, a Monday, began, as always, with my being at my desk in South

Block at 8.30 a.m. After about an hour, A.N. Verma called me into his chamber. After
exchanging pleasantries, he asked me for an update on what I had been doing, since he
had been away for a few days. I told him that just two days back the prime minister had
separately met delegations from the three national industry associations—the
Confederation of Engineering Industry (CEI, later to become the Confederation of Indian
Industry [CII]), FICCI and ASSOCHAM—for which I was also present. The meetings
were very useful and a number of suggestions had been made by the various captains of
industry and business. I gave Verma a run-down of these suggestions. While several
industrialists had wholeheartedly supported the policies announced in July 1991, some
of them were still a bit hesitant about the big opening up to foreign investment. Verma
listened to me patiently and asked for a set of action points for him to follow-up.
After about ten minutes or thereabouts, the principal secretary coolly dropped a
bombshell—that the prime minister wanted me to be ‘transferred’ to the Planning
Commission. I was shocked beyond words and asked him whether anything was amiss.
Verma was at pains to point out that Narasimha Rao had specifically asked that I be
designated as officer-on-special-duty to the deputy chairman of the Planning
Commission and showed me official communication to that effect. He said that the prime
minister had praised my contribution and wanted me in the Planning Commission to give
shape to the Eighth Five-year Plan which was under preparation. The principal secretary
told me repeatedly that he had himself lauded my work on more than one occasion and
that the prime minister had agreed with his assessment.
I was convinced that I was being sacked. What baffled me completely was that just
forty-eight hours back, the prime minister had asked me to attend his meetings with the
three national industry associations—meetings that, in fact, he had asked me to organize.
After the discussions were over, he had not given any indication that he was about to
jettison me—asking me, instead, to follow-up on the meetings. His decision was (and
remains) inexplicable to me.
Hence, I sought time from the prime minister and he saw me in the afternoon of that
very day at around 4 p.m. He told me, in no uncertain terms, that he appreciated my work
and what I had done in the initial days of his tenure when things were so grim. He went
on to repeat what Verma had already told me—that the main objective of his getting me
into the PMO had been achieved, and that he now believed that I could assist Pranab
Mukherjee in the Planning Commission. I kept asking the prime minister whether I had
done anything to invite his ire and wrath, but he kept denying that he was shunting me out
—which I insisted he was. When I persisted, he said that I would continue working with
him since he was the chairman of the Planning Commission and that he would depend on
me for various issues. I took leave of the prime minister after about an hour, and his
parting words to me were that I should keep sending him notes regularly so that he’d
receive unvarnished feedback. I was extremely downbeat but managed to wish him all
the best before leaving. A few days earlier, I had hoped to join Narasimha Rao on his
maiden foreign visit to Germany as prime minister. That was not to be.
A little later, I called on the finance minister, who was visibly taken aback when I
informed him of my shift to the Planning Commission. He hoped that this did not portend
the prime minister’s slackening interest in economic reforms. He added that I could meet
him any time and that he would continue to count on me. Manmohan Singh can be
philosophical at times, and this moment was no exception. His closing words were,
‘Life is a learning experience,’ and that I was young enough to take a setback in my stride
and move on. He expressed confidence in my ability to bounce back and recalled fondly
how he had recruited me personally into the Planning Commission along with Rakesh
Mohan and Arvind Virmani, another eminent economist, in August-September 1986,
overcoming the objections of the bureaucracy that people in their early thirties were
being given senior positions.
After I left the PMO, I continued to have access to the prime minister and could speak
to him on the phone whenever I wanted. I used to call on him now and then, and we
would have general discussions on political and economic matters. During one of these
conversations, he recalled his admiration for Swami Ramanand Teerth, a firebrand
Congressman who fought the last Nizam of Hyderabad aggressively for over a decade
and was also a noted educationist. But never once, during these freewheeling
conversations, did I muster up the courage to ask him why he had shifted me out in
September 1991. Even when I spent considerable time with him on a couple of
occasions, long after he had ceased to be prime minister, the topic of his moving me out
never came up.
Interestingly, after he retired, A.N. Verma mentioned that he could not understand why
I had been told to leave so abruptly. I asked him whether he had theories or hunches, but
his response was that the matter was beyond his comprehension. He did reveal one
nugget of information, though—a couple of days after I had left the PMO, the prime
minister and Verma had discussed the possibility of my joining the Indian embassy in
Washington as minister (economic), but as it turned out, nothing came of that, and it was
just as well.
Various theories did the rounds to explain my sudden exit. One wag acerbically
commented that while I had failed to get an exit policy included in the industrial policy
reforms, I had succeeded in attracting an exit policy for myself. Some said that I was too
open and accessible and could not function self-effacingly; this was not entirely untrue.79
Still others speculated that Chandraswami80 had never been happy with my presence
since he had wanted his aide Pinaki Misra in the PMO and I had beaten him to it. A few
were convinced that I was too close to a number of Congress leaders and that the prime
minister resented this proximity. In fact, Farooq Abdullah, the erstwhile chief minister of
Jammu and Kashmir, in a lunch hosted by the industrialist R.P. Goenka, went to the extent
of loudly saying, ‘PV will not stomach anyone who he thinks were Rajiv’s boys.’ But
knowing the ebullient Kashmiri leader, I did not believe that charge one bit.
Upon leaving the PMO, I worked very closely with Pranab Mukherjee in the Planning
Commission and he involved me with the various activities of the Congress particularly.
On 19 September 1991, at the first meeting of the new Planning Commission, the prime
minister took the deputy chairman and me aside during the lunch break and told Pranab
Mukherjee, ‘I hope you are keeping Jairam more than busy!’
The prime minister also gave me some special assignments. In early 1993, Rajesh
Pilot, with Rao’s approval, requested me to assist him in his new post as minister of
state for internal security and focus on the economic development of Jammu and
Kashmir. I travelled extensively across the state with Wajahat Habibullah and
subsequently, in collaboration with Haseeb Drabu, now the finance minister of the state,
launched a number of new initiatives during my ministerial career between 2006 and
2013. But this is another story altogether.
In the meantime, Rao’s political secretary asked me to help draft the resolutions for
the March 1993 session of the All India Congress Committee (AICC) in Surajkund,
Haryana, and the June 1994 session in New Delhi. When the Dunkel Draft81 became a
serious political issue in late-1993—creating in the process a strange alliance of Murli
Manohar Joshi (BJP), Ashok Mitra (CPM) and George Fernandes (Janata Dal)—the
prime minister told me to prepare a detailed briefing document in easy-to-understand
language for party workers. I did so and he liked my effort. Even so, the first year was a
difficult period of adjustment, as it took some time to put the events of 2 September
behind me.

The last time I had a substantive conversation with Narasimha Rao was at the Congress’
plenary session in Bangalore (now Bengaluru) in March 2001. Earlier, Rao had called
me after a column of mine had appeared in India Today on 16 October 2000, titled ‘Rao
Doesn’t Deserve This’, in which I had expressed anguish at his travails in relation to
various court cases in which he was embroiled. He had expressed happiness that I had
written in his support at a time when he was battered from all sides.
At the Congress’ plenary session, Sonia Gandhi had given Rao a prominent place on
the dais alongside her. Rao saw me after a while and asked me to accompany him to a
quiet place. He then proceeded to vehemently criticize the Vajpayee government’s policy
on the privatization of public sector companies, and especially the news that Air India
would be sold off, as would other companies in the aluminium and telecommunications
sector. He told me that this was never part of the reforms agenda of his government82—a
matter, he added, that I would doubtless be aware of since I had been with him at the
very beginning. That Rao would remember my small role was gratifying and helped
assuage the wound that I was carrying even after a decade. Rao kept returning to the
‘middle path’ approach he had advocated as prime minister and said that it merely was
an extension of Nehru’s model of a ‘mixed economy’. I asked him why he hadn’t written
a book on the reforms period but he said he was tired and that it was up to youngsters
like me to do so. That I was forty-seven and could still be called a youngster amused me
no end.
Much was to happen after the reforms blitz of July 1991. Manmohan Singh presented
four more regular budgets, each hugely significant in their own way but none to match the
sheer courage and boldness of the 24 July 1991 one. The economy did poorly in 1991-
92 but that was expected. The finance minister had warned the country that the
turnaround would take at least two years and indeed, it did. Growth momentum and
investor confidence returned gradually, and from 1993-94 onwards, the economy was on
a roll. When they left office in May 1996, the Rao-Singh duo had left behind foreign
exchange reserves equal to five months of imports and three consecutive years of +7 per
cent rate of GDP growth—something that had never happened before.
Success made new believers of old sceptics. What had started out as a matter of
compulsion soon became a matter of conviction, and nothing epitomized this
metamorphosis better than the attitude of the prime minister himself. He became
increasingly assertive and started taking full credit for the emergence of a new India. I
did not begrudge him that one bit, but felt the pre-1991 roots of the post-1991 successes
were not being given adequate credit. I wrote about this in 1994 in Business Standard,
only to invite rebuke from the establishment and from some neo-converts.
One issue on which I publicly differed with Rao and his administration was the
Enron power project. Indeed, he was quite irked when L.K. Advani issued a press
statement in early 1995 quoting my opposition to that power project and voicing his
party’s criticism as well. When the Shiv Sena-BJP government came to power in
Maharashtra in early-1995, it cancelled the contract, but after a while took the project
forward. In May 1996, the thirteen-day Vajpayee government gave the project its stamp
of approval—offering a ‘sovereign’ counter-guarantee—just as the vote of confidence
was being debated in the Lok Sabha.

79
R.D. Pradhan writes of my exit in My Years with Rajiv and Sonia (New Delhi: Hay House India,
2014). He says: ‘With his journalistic attitude he [Jairam Ramesh] could not work in anonymity, so
essential for working in the PMO.’
80Chandraswami, a controversial Indian godman, was believed to have been Narasimha Rao’s spiritual
adviser.
81The Dunkel Draft was prepared by Arthur Dunkel, then director general of GATT (General Agreement

on Tariffs and Trade), for further trade liberalization; this was to later form the basis of the World Trade
Organisation (WTO).
82It was only in June 2015, thanks to Narasimha Rao’s son, P.V. Prabhakar Rao, that I was able to see a

paper written by Narasimha Rao himself titled ‘Liberalisation and the Public Sector’. Apparently, he
had prepared it for the AICC plenary session in March 2001. But he had not spoken at the plenary and
so the paper was not circulated, although the economic resolution adopted reaffirmed the Congress’
commitment to the public sector as a key differentiator from the BJP. The Narasimha Rao paper finds
echoes in the conversation I had with him on the sidelines. Because it gives great insights into his
thinking, and because of its contemporary relevance as well, I have included it in this book (Annexure
9).
21
 A Final Word

o, at the end of it all, what do I make of Narasimha Rao? There is no need to revile
him—as indeed he has been—or render him with a halo—as is being done to fight
today’s political battles. What is important is an objective assessment, a frank appraisal,
something that the Chinese do but we seem to be incapable of. After all, Mao was
officially declared 70 per cent right, 30 per cent wrong. And Mao himself had said that
‘we consider that out of Stalin’s ten fingers, only three were bad.’
There is no doubt that Rao was navigating India through a most troubled period, and
that he had inherited a number of encumbrances. He was not in the best of health. He
headed a minority government—a government that won a vote of confidence because
many parties had walked out. Rao came to power against the backdrop of the brutal
assassination of a young leader of immense charm and charisma, a man of great energy
and exuberance—all qualities that he himself lacked in abundance. Even while the party
he headed was in a state of shock, he had to stave off a leadership challenge from one of
his colleagues, who he went on to accommodate in his cabinet as defence minister.83
At the same time, Rao was buffeted by all sorts of problems. A senior oil industry
executive had been abducted in the Kashmir Valley—which was in ferment—and was
kept in captivity for fifty-five days.84 Punjab was in a state of tumult.85 The abrasive
chief election commissioner was giving the government a hard time.86 Rao’s party’s
government in Karnataka, a traditional bastion, was tottering. Another ally ruling in
Tamil Nadu had started giving him huge headaches by her theatrical actions on the
Cauvery river waters issue.87 The principal opposition party had resumed its shrill
campaign for building a Ram Mandir in Ayodhya.88
To make matters worse, Rao was under immense pressure to implement the hundred-
day agenda mentioned in the party’s manifesto, even while the economy was in the
doldrums—gold continued being hypothecated to the Bank of England; foreign exchange
remained at dangerously low levels; and inflation was running at over 16 per cent. As
though this weren’t bad enough, Rao had appointed somebody from outside the world of
mainstream politics as his finance minister.
Without doubt, Narasimha Rao confronted huge challenges. Yet, in the very brief
period I saw him at the closest of quarters, I have to say that he was simply magnificent.
A lifetime of circumspection gave way to courage. From the outset, Rao proved
everybody wrong. A man who famously remarked, ‘Even not taking a decision is a
decision,’ was remarkably decisive in the initial months. Indeed, one of Narasimha
Rao’s closest aides, who worked with him when he was union minister and prime
minister, but who prefers to be anonymous, says: ‘I don’t believe he [Rao] was
indecisive; he was deferential to authority or to positions where the ultimate
responsibility for decisions lay, but where he was assured that the position was his to
hold, he was quick to decide. He crafted the National Policy on Education in May 1986
within eight months of taking charge of that [human resource development] ministry, and
directed its modification, as prime minister, six years later.’ The aide went on to say, ‘I
think he [Rao] was confident that the public postures of pressure to which he appeared
subject would never, at that point in time, translate into actions that would threaten his
government or indeed—and this was crucial and borne out in his private conversations
with those who pressured—thwart the essential pace of reform.’
Would anybody else in his place have done differently in the initial months? It’s hard
to tell, but undoubtedly, Rao brought some unique characteristics. For one, by surprising
everyone and ensuring that quick decisions were taken, by being exceedingly crafty as
well as bold, he propelled change; critics could carp about the state of things, but they,
too, knew in their heart of hearts that what he was doing was inevitable. Rao did not
have the image of being pro-business and pro-industry, but to be fair, that could be
because he had never served in an economic ministry earlier. This further meant that if
he was championing liberalization, there may well have been something of value in it for
the nation. Moreover, Rao had been around in Parliament for over a decade and hence,
his voice did command respect. His reputation was that of a scholar who had been given
a lot of importance by Indira Gandhi and Rajiv Gandhi and hence, when he spoke, he
was heard intently, even if, more often than not, what he said appeared metaphysical and
complicated.
For the most part, Rao was the author of whatever he spoke and wrote; he may have
received inputs from here and there, but like Nehru before him, he was an original and
crafted his own speeches. Reading them now after a gap of so many years is truly an
education. His interventions in Parliament were also mostly extempore with, of course,
notes and points prepared by his aides, which mostly remained in the folder in front of
him.
Undoubtedly, Narasimha Rao, self-effacing at one level, was a man acutely conscious
of his own capabilities, without ever projecting a machismo of any kind. He could
certainly not be accused of Narendra Modi’s style of arrogance; rather, in him, one could
see a strong sense of self-awareness. His was not the in-your-face conceit of his current
successor but the self-pride of an intellectually superior person—of one who knows that
he knows. This is evident in what he himself said of his succession, in a fascinating
unpublished forty-six-page self-portrait he left behind titled Two Crucial Years: India
under Shri P.V. Narasimha Rao’s Stewardship:89
Two years ago, when the young and dynamic Shri Rajiv Gandhi was martyred in
the cause of the nation’s unity and integrity, veteran freedom fighter Shri P.V.
Narasimha Rao was called upon to make up his unfinished task. At that time the
country was half-way through a mid-term parliamentary election. Nearly half the
constituencies had already gone to polls, and Rajiv Gandhi was on the last leg of
his cross-country campaign, when he was felled by a “human bomb”. On May 29,
1991, the Congress Working Committee asked the scholarly Narasimha Rao to
lead the party at the hustings in the remaining constituencies. The Congress once
again emerged as the largest single party in the country; although it was still short
of a majority, it had allies and supporters. The Congress Parliamentary Party
elected Shri Narasimha Rao as its leader and accepted the President’s invitation
to form the government. With a long administrative experience he had served in
almost all key ministries at the centre, except finance, and had been a close
associate of both Shrimati Indira Gandhi and Shri Rajiv Gandhi, both in office
and opposition. Another reason why he was regarded as a natural successor to
Indiraji and Rajivji was that he was not only acquainted with their thinking but
had also been involved in the formation of their new ideas on how to carry the
country to a new stage in its development.
When Indiraji returned to power in 1980, she had to devote herself to the
difficult task of pulling the country out of the morass in which the 1977-79 Janata
interregnum had landed it, and return it to the path of national advance which it
had taken under the leadership of Mahatma Gandhi and Jawaharlal Nehru and
which had been endorsed by the nation in successive general elections. But she
had also come to realise from her long experience at the helm of the nation that
having reached the stage and level of development already, the country needed
fresh thinking and innovative practice. That is where Narasimha Raoji’s
sagacious advice proved useful and she did initiate some new ideas and
measures. The young Rajivji pursued these ideas and practices with youthful
boldness and greater vigour, and elaborated his thinking in terms of concrete time-
bound measures in the election manifesto for the 1991 mid-term poll. Narasimha
Raoji has helped him in drawing up the manifesto and has come to realise in the
period since the Congress went out of office, the economic situation in the country
has so deteriorated that immediate remedial measures were needed.
The national finances were in a particularly bad shape. Narasimha Raoji felt
that he needed an expert to handle it. That is why, even before the cabinet was
sworn in, he invited Manmohan Singh, one of the country’s foremost economists
with a long experience at home and in international organisations to take charge of
the economy and immediately begin formulating measures to reverse its decline.
Naturally, the new policy had to update the basic approach to national
development written into the second and third five year plan documents by
Jawaharlal Nehru and carry forward the new thinking initiated by Indiraji and
pursued by Rajivji. But the BJP, which has emerged as the main opposition party,
mistook the innovative measures suggested by Manmohan Singhji as abandonment
of the Nehruvian approach. Partly taken in by the BJP propaganda, but largely
because of their inability to free themselves from the hold of their dogmas, which
in any case had proved mistaken, the Left Front parties also were critical of the
new economic measures. They, however, had no alternatives to suggest. If the BJP
hailed the measures for toning up the economy for wrong reasons, the Left Front’s
criticism lacked rationality. Now, of course, the BJP too has become critical of
the economic policy, and is talking in terms of certain old concepts whose
definitions have to be changed with the changing times […]
It is the sagacious leadership of Shri Narasimha Rao which has enabled the
[Congress] party to survive all threats to the government at the centre in and
outside Parliament. At times, inner-party developments have created doubts about
the survivability of the government. But by combining inner-party democracy with
 discipline, Narasimha Raoji has belied such doubts whenever they have arisen.
Narasimha Rao’s own description of himself and how he came to be where he was in
June 1991 cannot be bettered. It reveals much of the man and how he thought of himself.
Indeed, it wouldn’t be an exaggeration to say that Narasimha Rao actually was a man
of many parts. Unfortunately, many of his personal accomplishments have remained
hidden. That he was a polyglot was quite well known—fluent in Telugu, Marathi, Hindi,
Sanskrit and Urdu; familiar with Arabic and Farsi; able to give interviews in Spanish;
and capable of writing in French. What is less well known is his computer-savviness,
which was next only to Rajiv Gandhi amongst politicians then. He was personally
operating desktops in the late-1980s and was amongst the very first to start using
laptops. I recall, he once saw a Taiwanese laptop with me, assembled in India by Zenith,
and asked me to get two sets for him—he kept one and gave the other to Jitendra
Prasada. What also isn’t well known is that he was a tennis buff, with the Spaniard
great, Manuel Santana, apparently being one of his favourites!
My abrupt exit from the PMO was not pleasant—at least not from my point of view.
For quite some time I seethed in rage, even while keenly aware of the helplessness of my
position. Yet, I could not but admire the man who was responsible for my expulsion, and
who, in some ways, was the Chinese revolutionary Deng Xiaoping’s counterpart in
India. Both were old men. Both had their ups and downs (more downs than ups). But
when the moment came, they seized the opportunity to leave their imprint—Rao did it in
June 1991, and Deng did it first in 1978 and then, more famously, in 1992. In the case of
Deng, it was a complete U-turn—moving away from Mao’s hard-line policies, and
combining the Communist Party’s socialist ideology with a practical adoption of
economic reform. In Rao’s case, although he changed the paradigm of economic policy,
the paradigm itself had been chopped away bit by bit for well over a decade, with the
blueprint for change having been debated and discussed for a number of years.
Notwithstanding his many talents, it must be admitted that Narasimha Rao was a most
puzzling man. Winston Churchill, the British premier, said of Clement Attlee, his
successor, that he was ‘a modest man, who has much to be modest about’. Similarly, it
could well be said of Rao: he was a much misunderstood man and he may well have
done much to be so misunderstood—especially by his own colleagues.
Rao was a complex personality, not at all easy to comprehend, and he made no effort
whatsoever to make people want to understand him—except when he was on the back-
foot. I was simply in no position to know what went wrong between him and his own
party—a party he had served with distinction for almost half a century. I was an
anguished witness to a most painful event on 24 January 1998 which showed how
remarkably friendless Narasimha Rao had become within the Congress. The occasion
was the release of the Congress’ manifesto for the 1998 Lok Sabha elections. I was
seated on the dias when, in response to a question, the Congress president, Sitaram
Kesri, emphatically declared that his predecessor would not be put up as a candidate in
the upcoming polls. It was a most jarring moment, and coming from someone who had
been personally selected by Rao as a successor made it even more unpleasant. The
manifesto sank without a trace as the only news to hit the headlines was the former prime
minister’s humiliation.
Narasimha Rao was indisputably a loner, a man who didn’t do much to cultivate and
build relationships. To borrow a phrase from Michael White’s biography of Isaac
Newton, Narasimha Rao was above all ‘a secretive man, a man coiled in upon
himself’.90 Moreover, his relationships with the sleaziest of characters—Chandraswami
being the most notable of them—which I saw at close quarters, were inexplicable and
did no justice to a man of such erudition and learning. At one stage in the early days of
his prime ministership, Chandraswami had convinced Narasimha Rao that India could
easily tide over its immediate financial crisis because the godman’s buddy, the Sultan of
Brunei, had agreed to extend a line of credit to India at the most concessional terms
without any questions asked. That the prime minister took this suggestion seriously is
borne out by the fact that a plane was ready to fly the finance minister to meet the Sultan!
Thankfully, Manmohan Singh managed to convince his boss at the last minute that this
would be a foolhardy adventure.91
Some months after I had left the PMO, Madhavan Kutty, the veteran Malayali
journalist drew my attention to a devastating article titled ‘The Great Suicide’ which had
appeared in Mainstream Weekly in January 1990. The author was identified as a
‘Congressman’ and was described as a senior leader of the Congress (I). Madhavan
Kutty was convinced—and told me it was everybody’s view—that the real author was
none other than Narasimha Rao himself. That Nikhil Chakravartty was the prime
minister’s close friend made me believe what I was being told. I have checked with a
few others, and everyone, after reading the article, has ascribed its authorship to
Narasimha Rao, although Mani Shankar Aiyar says that the possibility of the author
being Siddhartha Shankar Ray, the erstwhile chief minister of West Bengal, had also
been suggested when the article had first appeared. As far as the article itself was
concerned, the very title said it all. It was a highly critical analysis of the Rajiv Gandhi
era and Rajiv Gandhi himself—whose style of functioning was panned as brash, self-
destructive and immature—and examined the reasons for the severe drubbing the
Congress received in the 1989 Lok Sabha elections. The article amazed me no end
because it highlighted Narasimha Rao’s frustration with his late leader, a kind of
exasperation that did not quite fit the image I had (or for that matter, anyone else had) of
their relationship. I had heard nothing but encomiums from Narasimha Rao for Rajiv
Gandhi in June, July and August 1991 when I had been at his side. But evidently, the
very same man in 1990 deemed it fit to write bitingly about the then Congress president.
Maybe it was a knee-jerk reaction to an ignominious defeat. Maybe, as Mani Shankar
Aiyar has pointed out, it was the result of being sidelined. There is no clinching or
conclusive evidence that Narasimha Rao was indeed a ‘Congressman’, but if he was, as
he is widely suspected to be, there is reason to reassess the man and his relationship
with his mentors.
Rao’s problems truly started with the Harshad Mehta securities scam that first came
to light in April 1992, and thereafter, with the demolition of the Babri Masjid on 6
December 1992, an event that many of his own party colleagues believe he helped
orchestrate, or allowed to happen or, at the very least, knew of as it unfolded, without
intervening decisively. Almost the entire Congress believes that he wanted the masjid
out of the way so that a permanent solution to the imbroglio at Ayodhya could be found. I
had called Rao around 4 p.m. that fateful Sunday before leaving for Mumbai with Pranab
Mukherjee, only to be told that the prime minister ‘andar hain (is inside)’. Rao has
offered an elaborate defence of himself in his book92 that came out two years after his
death. That defence cannot be ignored. There were many circumstances that did preclude
him from imposing President’s Rule in Uttar Pradesh in October or November 1992. But
there is no doubt that the responsibility for ensuring that 6 December 1992 never
happened was his and his alone, even if there may be different views on his culpability
with regard to what transpired that day.
If Rao still remains compelling of our attention, even commendation, it is for the truly
transformational leadership he demonstrated at a most precarious time in India’s
economic history. Of course, it could be argued that he had no choice and the alternative
would have been to go down in history as the prime minister who presided over a
default—but that would be tantamount to cavilling. Rao did not put a foot wrong forward
in the initial months, and displayed both political maneuvering and statesmanship of the
highest order.
Moments sometimes produce men (and women). Narasimha Rao is an outstanding
example of this.

Narasimha Rao’s masterstroke was the appointment of Manmohan Singh. One of his
closest aides later recalled to me that even as a cabinet minister, Rao always felt that a
prime minister should always have one source of senior, substantive and non-political
advice, especially in those areas where the prime minister is weak.93 The aide also
recalled Rao citing the precedent of D.R. Gadgil, who was deputy chairman of the
Planning Commission between 1967 and 1971.
In Manmohan Singh, Narasimha Rao found a tailor-made bulwark. It is true that Rao
had told his finance minister right at the very beginning, ‘Manmohan, if things go wrong,
your head is on the chopping block; if we succeed, the credit will be ours.’
Notwithstanding this warning, and despite the enormous pressure and criticism he faced,
Rao backed his finance minister to the hilt, allowing him full freedom, even when his
instincts told him not to.
I have always believed that the personality of the finance minister has much to do
with the degree to which economic reforms seem palatable in the initial months and
years. Manmohan Singh made the years of liberalization appear acceptable, largely
because he defied ideological labels, and could, if anything, only be called moderately
left-of-centre. He was personally very close to politicians and economists of the left;
Jyoti Basu treated him with enormous respect and, as I was to discover many years later,
so did Harkishan Singh Surjeet. While the archpriest of the Left establishment during
Indira Gandhi’s era, P.N. Haksar94 was one of his staunchest allies, Haksar’s colleague,
P.N. Dhar, who was generally considered right-of-centre, was also his trusted friend.
Besides, the credibility Manmohan Singh had across the political spectrum was
obvious. While S.K. Goyal from the Chandra Shekhar era was his intimate associate, the
debates in Parliament of those times reveal that Atal Bihari Vajpayee, L.K. Advani and
Jaswant Singh, too, held him in the highest professional and personal esteem.
At critical moments, what is said and done might matter; but what truly counts is the
person who is talking and how he presents his case. The finance minister may have
lacked political standing, but he had unparalleled moral authority, apart from
unsurpassed intellectual gravitas. His phenomenal personal reputation for simplicity and
his non-threatening style helped sell the bitter pills of devaluation, gold sales, subsidy
cuts and whole-scale industrial deregulation.
Manmohan Singh’s integrity has always been unimpeachable and what better example
than what he did after he and Rao had taken a decision to devalue the Indian rupee?
Manmohan Singh was worried that his personal rupee balance, born out of modest dollar
savings from his South Commission stint in Geneva during 1987-90, would swell with
the proposed changes in the rupee-dollar exchange rate. Therefore, he informed the
prime minister that the ‘windfall’ gains would be deposited in the Prime Minister’s
Relief Fund.
Would I.G. Patel have been unlike Manmohan Singh had he been finance minister?
Substance-wise, decidedly not; but perhaps in style, here and there. Both I.G. Patel and
Manmohan Singh had studied with distinction at Cambridge University. Both had
doctorates in economics. Both had served in international institutions—IG at the IMF
and the UNDP (United Nations Development Programme), and Manmohan Singh at
UNCTAD (United Nations Conference on Trade and Development). Both had held key
positions in the finance ministry; had been governors of the RBI;95 and had served as part
of academic institutions—IG at the London School of Economics and Singh at the Delhi
School of Economics. Moreover, both were sensitive to political realities—with IG
being a product of the Nehruvian 1950s and very early 1960s, and Singh being a product
of the 1970s when he first came into contact with Indira Gandhi. The only difference
between the two was that IG was considered to be more market-friendly and Manmohan
Singh a little more state-friendly. It was only a nuance and nothing fundamental separated
the two.
Two other appointments Narasimha Rao made proved to be very shrewd.
Unfortunately, the same could not be said of his other appointments, especially in key
infrastructure ministries. His choice of P. Chidambaram as commerce minister—
although not at the full cabinet level but one notch lower—ensured that far-reaching
trade policy reforms got executed very quickly. Although Chidambaram had not served
in a mainstream economic ministry earlier, he took to the Commerce Ministry instantly
and provided a bold thrust. More importantly, the finance minister found in him a very
articulate ally to champion the cause of economic reform both at home and abroad.
The appointment of A.N. Verma as principal secretary was also fortuitous. Verma had
wide experience both in the Commerce and Industry Ministries, commanded respect in
the bureaucracy, had a low-key but effective style, and was able to execute the prime
minister’s instructions well.
There is a Tolstoyan perspective of history which holds that individuals are irrelevant
and circumstances create events. Another view is that individuals matter and do
decisively shape the course of history. My own feeling is that what got accomplished in
June-July 1991 was inevitable, if our goal was to avoid the opprobrium of default.
The Rao-Singh duo happened to be at the right place at the right time. They had
neither bargained nor lobbied for the responsibilities they found themselves with; but
there they were, saddled with onerous tasks.
‘Carpe diem,’ wrote Horace in his immortal Odes. This is exactly what the Rao-
Singh jugalbandi did—they seized the day. There was no guarantee of success, and
certainly no likelihood of quick positive outcomes; indeed, the results of the reforms
started becoming evident only after 1993. Consequently, theirs was a huge leap of faith.
It was, in fact, a gamble of sorts. The most risk-averse of gentlemen took this wager only
because the alternative—namely a default—was an anathema to both. Besides, they
were men intent on carving a distinctive niche for themselves in India’s political and
economic history.96 And let there be no mistake about it—they definitely did.
To borrow an analogy from Isaiah Berlin, if Manmohan Singh was the hedgehog who
knew only one big thing and that is economic reforms, Rao was the fox who knew many
things. It is this fox-hedgehog combine that rescued India in perhaps its darkest moment.
India in 1991 could well have mirrored Greece in 2015. That it didn’t is due to the
Narasimha Rao and Manmohan Singh combine.
June-July 1991 was a revolution, but it was an evolutionary one—some years in the
making. There was, no doubt, a huge element of chance in what Rao-Singh did, but as
Louis Pasteur said, ‘Chance favours only the prepared mind.’ Narasimha Rao’s political
astuteness and Manmohan Singh’s economic wisdom brought India back from the very
brink. Together, they demonstrated that a consensus can, on occasion, be created by tough
executive action. They proved that sometimes, if you listen intently but do what you have
set out to do unwaveringly, accord can emerge. They converted an unprecedented crisis
into a not-to-be-lost opportunity. Of course, circumstances were ripe for a mindset
change, but more than being lucky by being there at the right time, they were plucky—
they challenged set minds.
The hand of destiny took me close to Rao and Singh as they began saving the country.
And although I remained in their vicinity for an exceedingly short while, I was
privileged to play a small role—in the words of one of Rao’s closest aides—in setting
history in motion.

83Sharad Pawar was the defence minister in Narasimha Rao’s cabinet.

84Indian Oil Corporation’s executive director, K. Doraiswamy, was abducted by activists of the Ikhwan-
ul-Muslimeen in Srinagar on 28 June 1991, and was released on 20 August in exchange for the
liberation of four terrorists. The year 1991 saw the government plagued by several such incidents of
kidnapping in the Kashmir Valley.
85Troubled by an armed separatist movement, the tense state of Punjab witnessed the killing of at least

eighty train passengers near the city of Ludhiana in June 1991. The attacks came less than five hours
after polling closed in the national elections.
86T.N.
Seshan, the then election commissioner—known to have said, ‘While I am here, it is I who will
decide how elections are to be held; politicians have got away with nonsense for far too long’—had
several run-ins with Narasimha Rao.
87The Cauvery river water dispute hit the headlines once J. Jayalalithaa succeeded M. Karunanidhi in

1991 as chief minister of Tamil Nadu. She secured an interim award from the Cauvery Water Dispute
Tribunal—Karnataka was ordered to release 205 tmcft each year to Tamil Nadu, which Karnataka
decided to challenge in the apex court. Subsequently, Jayalalithaa went on a four-day fast in 1993,
demanding the release of the Cauvery waters.
88L.K.
Advani, then the president of the BJP, had, in 1990, undertaken a rath yatra from Somnath to
generate support for a Ram temple in Ayodhya, which was to be his final stop. In 1991, the BJP
intensified its campaign, which would eventually spiral into the demolition of the Babri Masjid.
89This was made available to me by P.V. Prabhakar Rao, Narasimha Rao’s youngest son, for which I’m

indebted to him.
90Michael White, Isaac Newton: The Last Sorcerer (New York: Fourth Estate, 1998).

91
Some hilarious stories revolving around Chandraswami have been recounted by K. Natwar Singh in
Walking with Lions: Tales from a Diplomatic Past (New Delhi: HarperCollins, 2012) and One Life is
Not Enough (New Delhi: Rupa Publications, 2014). When asked about his friendship with the self-
styled godman in an interview with Prabhu Chawla of The Indian Express on 8 July 1991, the prime
minister said, ‘I know the gentleman. He belongs to Hyderabad from where I also come. That’s about
all.’ He was being disingenuous, to say the very least.
92P.V. Narasimha Rao, Ayodhya: 6 December 1992 (New Delhi: Penguin, 2006). Not surprisingly,

Rao’s media adviser P.V.R.K. Prasad’s memoirs has much more information on Narasimha Rao’s
thoughts on Ayodhya and his actions than the prime minister provided in his account. See Wheels
Behind the Veil (Hyderabad: Emesco Books, 2012). Other ‘participant’ accounts of the events leading
up to 6 December 1992 are Arjun Singh, A Grain of Sand in the Hourglass of Time (New Delhi: Hay
House, 2012) and M.D. Godbole, Unfinished Innings (New Delhi: Orient Blackswan, 1996). Godbole
was union home secretary at that time.
93Interestingly, Narasimha Rao did not make Singh a member of the CWC— something that was done

by his successor, Sitaram Kesri.

94P.N.
Haksar was also Prime Minister Indira Gandhi’s principal secretary.
95
Morarji Desai and H.M. Patel appointed I.G. Patel as governor of the RBI in 1977, and Indira Gandhi
appointed Manmohan Singh to the same post five years later.
96Yashwant Sinha starts his memoirs, Confessions of a Swadeshi Reformer (New Delhi: Penguin,

2007) with a chapter entitled ‘The Original Reformer?’ The question mark is misleading because he
makes a self-serving case for himself to be considered so, on four counts: (i) he was the first to
introduce the concept of a fiscal deficit as opposed to a conventional budget deficit; (ii) he was the
first to talk about public sector disinvestment; (iii) he talked about rationalizing expenditure on
subsidies, reducing allocations on major subsidies and better targeting of subsidies for the poor; and
(iv) he stated his commitment to fiscal discipline in an unambiguous manner. He overstates his case. It
is true that he was the first to suggest public sector disinvestment which was to be implemented by
later administrations, but the Rao-Singh claim to fame is based on much firmer and larger grounds. The
Chandra Shekhar government wanted to introduce trade policy reforms but didn’t. The Rao-Singh-
Chidambaram troika did that and earned a permanent place in history for that accomplishment. Sinha
never even mentions industrial policy reforms; actually during a debate in the Rajya Sabha on 7 August
1991, he was very critical of the industrial policy reforms announced on 24 July.
 A Note of Thanks

I thank Pranab Mukherjee, Dr Manmohan Singh and M.L. Fotedar for extended
conversations.
P.V. Rajeshwar Rao and P.V. Prabhakar Rao allowed me to see their father’s private
papers and spoke to me about people and events of those months. I am grateful to them
for allowing me to use two of Narasimha Rao’s unpublished pieces.
Montek Singh Ahluwalia, Mani Shankar Aiyar, Naresh Chandra and a very close aide
of Narasimha Rao who prefers anonymity, have been liberal with their recollections.
Daman Singh gave me easy access to all her father’s academic papers, speeches and
interviews. Her own delightful Strictly Personal: Manmohan and Gursharan (New
Delhi: HarperCollins, 2014) has important recollections of Manmohan Singh on his
tenure as finance minister.
Pramath Sinha gave me whatever papers A.N. Verma had left behind. Sumit
Chakravartty was most helpful in locating his father’s articles that appeared in
Mainstream.
Vinay Sitapati—whose much-needed comprehensive biography of Narasimha Rao
will be published soon—and I have had useful chats. Sanjaya Baru, who is also writing
a book on Narasimha Rao, encouraged me to write this account saying, ‘This is the least
you can do for our Telugu PM, considering we Telugus sent you to the Rajya Sabha for
two terms!’ The persistent insistence of Ritu Vajpeyi-Mohan of Rupa made this
recollection possible.
The originals of all the primary and secondary sources used or quoted in this book
have been deposited with the Nehru Memorial Museum and Library.
I asked Naresh Chandra—amongst the most impressive of civil servants I have
known over the past three decades and more—why he had not penned his memoirs after
almost half-a-century of distinguished service to the nation. He said that he was against
self-glorification and that any honest account must also include mistakes made. I hope I
have avoided the first and have been candid about the second!
Finally, why this memoirs-of-sorts at this time? For two reasons, really. First, the
twenty-fifth anniversary of the July 1991 reforms is approaching and I thought this would
be an appropriate occasion to look back and place what I saw and knew in the public
domain. Second, after the Congress’ electoral debacle in 2014, I found myself in need of
worthwhile things to do to keep myself intellectually busy. Therefore, after two books on
my stint as environment and forest minister and on the 2013 land acquisition law, this
one appears. I thought there was an interesting story to tell and that is what I have tried
to do, without attempting ‘to etch my name like a schoolboy on a small tree in the forest
that is history’.97

97This phrase is borrowed from the introduction to H.Y. Sharada Prasad, The Book I Won’t be Writing
and Other Essays (New Delhi: Chronicle Books, 2003).

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 ANNEXURES

Annexure 1: A discussion paper on new industrial policy initiatives the author had been
asked to prepare in September 1986 in the Planning Commission
Annexure 2: Note prepared by Pranab Mukherjee on the economic situation for a
meeting of the Congress Working Committee on 19 February 1991
Annexure 3: Pranab Mukherjee’s interview in The Times of India, given on 20 June
1991, the day before Narasimha Rao and Manmohan Singh were sworn in
Annexure 4: Two interviews of Finance Minister Manmohan Singh to Paranjoy Guha
Thakurta in Sunday, 14-20 July and 4-10 August 1991, given as reforms were happening
Annexure 5: Statement issued by P.N. Dhar, I.G. Patel, M. Narasimham and R.N.
Malhotra on 1 July 1991
Annexure 6: Statement issued by thirty-five ‘left oriented’ economists on 8 July 1991 and
reprinted in Mainstream, 13 July 1991
Annexure 7: The West Bengal government’s proposal to resolve the balance-of-payments
crisis, made public on 4 July 1991 and sent to the prime minister and finance minister a
few days thereafter; reprinted in Mainstream, 20 July 1991
Annexure 8: Cover of the booklet issued on Narasimha Rao’s address to the nation on 9
July 1991, that is not included in his Selected Speeches, Volume 1
Annexure 9: An unpublished paper by Narasimha Rao titled ‘Liberalisation and the
Public Sector’, prepared in February-March 2001, made available from his archives by
his youngest son, P.V. Prabhakar Rao
Annexure 10: Interview of Dr K.N. Raj to Frontline in mid-July 1991 that greatly
bolstered the confidence of the prime minister and finance minister
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 Annexure 1:
A discussion paper on new industrial policy initiatives the author had been asked to
prepare in September 1986 in the Planning Commission
 Annexure 2:
Note prepared by Pranab Mukherjee on the economic situation for a meeting of the
Congress Working Committee on 19 February 1991
 Annexure 3:
Pranab Mukherjee’s interview in The Times of India, given on 20 June 1991, the day
before Narasimha Rao and Manmohan Singh were sworn in
 Annexure 4:
Two interviews of Finance Minister Manmohan Singh to Paranjoy Guha Thakurta in
Sunday, 14-20 July and 4-10 August 1991, given as reforms were happening
 Annexure 5:
Statement issued by P.N. Dhar, I.G. Patel, M. Narasimham and R.N. Malhotra on 1 July
1991
 Annexure 6:
Statement issued by thirty-five ‘left oriented’ economists on 8 July 1991 and reprinted in
Mainstream, 13 July 1991
 Annexure 7:
The West Bengal government’s proposal to resolve the balance-of-payments crisis, made
public on 4 July 1991 and sent to the prime minister and finance minister a few days
thereafter; reprinted in Mainstream, 20 July 1991
 Annexure 8:
Cover of the booklet issued on Narasimha Rao’s address to the nation on 9 July 1991,
that is not included in his Selected Speeches, Volume 1
 Annexure 9:
An unpublished paper by Narasimha Rao titled ‘Liberalisation and the Public Sector’,
prepared in February-March 2001, made available from his archives by his youngest
son, P.V. Prabhakar Rao
 Annexure 10:
Interview of Dr K.N. Raj to Frontline in mid-July 1991 that greatly bolstered the
confidence of the prime minister and finance minister
 Index

Abdullah, Farooq, 131

Abid Hussain Committee, 65
Advani, L.K., 33, 133, 145
Agenda for Economic Reform, controversy of, 52–59
Ahluwalia, Montek Singh, 2–3, 63, 65
Aiyar, Mani Shankar, 8, 24, 28, 108–109, 142–143
Akbar, M.J., 8
Alexander, P.C., 9, 21–22
Alva, Margaret, 6
Arora, Gopi, 31–33
Arunachalam, V.S., 118
Associated Chambers of Commerce and Industry (ASSOCHAM), 128
Azad, Ghulam Nabi, 56, 107

Babri Masjid demolition, 143

Baru, Sanjaya, 17
Basu, Jyoti, 60–62, 145
Bhagat, H.K.L., 4
Bhagwati, Jagdish, 18, 107
Bhalla, G.S., 58
Bharatiya Janata Party (BJP), 47–48, 73, 74, 124, 133, 139, 140
Bhosale, Prataprao, 109
Birla, S.K., 103
budget speech, 24 July 1991, 105–106
criticism of, 106–112

Cabinet Committee on Political Affairs (CCPA), 111

Cabinet Committee on Trade and Investment (CCTI), 66
Camdessus, Michel, 36
cash compensatory system, abolition of, 63–66
Centre for Development Studies, 76
Chakravartty, Nikhil, 36, 106, 142
Chandra, Naresh, 8–10, 20, 150
Chandraswami, 131, 142
Chatterjee, Nirmal Kanti, 124–125
Chatterjee, Somnath, 33, 57
Chaudhuri, Mrinal Datta, 103
Chawla, Prabhu, 40
Chelliah, Dr Raja, 126
Chelliah Committee, 126
Chetty, Shanmukham, 25
Chidambaram, P., 28, 63–66, 91, 146
Chief Controller of Imports and Exports (CCI&E), 64–65
Chowdhury, Renuka, 54
Committee on Tax Reforms, 126
Communist Party of India (CPI), 41
Communist Party of India (Marxist) (CPM), 122
Confederation of Engineering Industry (CEI), 128
Confederation of Indian Industry (CII), 128
Congress (I), 14, 29
Congress’ 1991 Lok Sabha election manifesto, 28–30, 65, 97–98, 136, 139
Congress Parliamentary Party (CPP) meetings, 7–8, 73, 83, 108–109, 111
Congress’ plenary session in Bangalore, 2001, 132
Congress Working Committee (CWC), 4, 14–15, 25, 30, 96–97, 126

Damodaran, Ramu, 9
Dandavate, Madhu, 33
Dasgupta, Dr Asim, 62
Dasgupta, Gurudas, 41–42
Datta, Bhabatosh, 58
debt obligations of India, 1991, 49–50
debt rescheduling, issue of, 49–51
Deora, Murli, 109
Desai, Ashok, 105
Desai, Padma, 18
Deshmukh, C.D., 25
devaluation episode under Indira Gandhi, 35–43
Dhar, P.N. (PND), 52–53, 56, 58
Dhawan, R.K., 109
Directorate General of Foreign Trade (DGFT), 65
Drabu, Haseeb, 131
Dubey, Muchkund, 105
Dubey, Suman, 4
Dunkel Draft, 131

Economic Administration Reforms Commission, 2

economic development of Jammu and Kashmir, 131
Eighth Five-year Plan, 129
Enron power project, 133
exchange rate adjustment, 68–69
exim (for export-import) scrips, 65

Faleiro, Eduardo, 119, 121

Farmers’ Parliamentary Forum, 109
Federation of Indian Chambers of Commerce and Industry (FICCI), 103, 128
Fernandes, George, 33, 132
fertilizer pricing system, 107, 110–112
subsidy issue, 110
fiscal deficit and balance of payments deficit, 18
foreign exchange reserves, decrease of, 11–12
Foreign Investment Promotion Board (FIPB), 123
Fotedar, M.L., 91, 96

Gandhi, Indira, 2, 4, 22, 26, 78, 107, 127, 137, 145–146

Gandhi, Rajiv, 2–13, 16, 23–26, 48, 94, 137, 140, 143
death of, 4
industrial policy reforms, 2
Gandhi, Sonia, 4, 110, 132
Ganguly, Ashok, 118
Ghosh, Arun, 58
Ghosh, Dipen, 53–56, 58
Goenka, R.P., 131
gold sales, 44–48
Gorbachev, Mikhail, 118–119, 122
Goyal, S.K., 145
Gulati, I.S., 58
Gupta, Indrajit, 33
Gupta, Shekhar, 121

Habibullah, Wajahat, 131

Haksar, P.N., 145
Harshad Mehta scam, 143
Hazira-Bijaipur-Jagdishpur pipeline, 111
Husain, Dr Zakir, 6

IBM, 123
India: Planning for Industrialization, 18–19
Indian Economic and Social History Review, 18
Indo–USSR bilateral relationship, 118
Indo-Soviet Treaty of Peace, Friendship and Cooperation, 120
reactions to the coup attempt against Gorbachev, 119–122
industrial policy reforms, 77–103, 124, 130
anti-monopoly legislation, 77–78
criticism, 124–127
exit policy, 82
foreign investments, 80
Group of Ministers (GoM) meetings, 90–92
industrial licensing, 80
‘Industrial Licensing to Go’ (Hindustan Times), 83–87
 Monopolies and Restrictive Trade Practices (MRTP) Act, 78–79
news report (Hindu), 99–102
parliament debate, 90
policy objectives, 92–96
prime minister’s speech in parliament, 88–90
public sector industries, 81–82
small scale industry, 83
Industrial Policy Resolution (1948, 1956, 1977, 1980), 93, 95
inflation, 12, 29–30
International Monetary Fund (IMF) 7, 12, 31–34, 36, 53, 146
Dr K.N. Raj’s interview, 75–76
loan, 9, 12, 17, 26–27, 41–42, 48, 50, 58, 61, 105–107, 114, 127

4 July trade policy reforms package, 64–66

Jakhar, Balram, 91, 109
Jalan, Bimal, 106
Janata Dal (S), 7, 14
Jha, L.K., 2
Jogi, Ajit, 41
Joshi, Kailash, 123
Joshi, Vijay, 16

Kaldor, Nicholas, 104

Kamat, Gurudas, 30
Katyal, K.K., 39–40
Kaur, Gursharan, 25
Kesri, Sitaram, 141
Khandekar, R.K., 20
Khurshid, Salman, 6
Kothari, Rajni, 58
Krishnamachari, T.T., 104
Krishnamurthy, V., 5, 114
Kulkarni, A.G., 54
Kumaramangalam, Mohan, 78
Kumaramangalam, Rangarajan, 77, 98–99, 102, 107
Kurien, P.J., 98–99
Kutty, Madhavan, 142

Limited Partnership Act, 103

Little, I.M.D., 16

Mahindra, Anand, 103

Malhotra, R.N., 53–54, 56
Mandal Commission recommendations, 11
Manley, Michael, 34
Mathai, John, 25
Mathur, Jagdish Prasad, 56
Mathur, Suresh, 10, 77–78
Mirdha, Nathuram, 109
Mishra, R.K., 53
Mishra, S.K., 20
Misra, Pinaki, 131
Mitra, Ashok, 58, 132
Modi, Narendra, 138
Mohan, Chinta, 109
Mohan, Rakesh, 77–78, 103, 123, 130
Monopolies and Restrictive Trade Practices (MRTP), 77–79, 84–86, 96, 99, 102
Mukherjee, Pranab (Pranabda), 5–6, 13–15, 26–28, 30, 35, 129, 131

Naik, Ram, 57–58, 125–126

Narasimham, M., 2, 52–54, 56, 114
Narasimham Committee on the Financial System, 113
Narayanan, M.K., 20
Narayanasamy, V., 107
National Policy on Education, 1986, 137
National Renewal Fund, 100, 115, 117
Nayyar, Dr Deepak, 24, 104

Observer Research Foundation (ORF), 53

Panja, Ajit, 125

Pant, Govind Ballabh, 51
Patel, Dr I.G., 21, 24, 45, 51–52, 54, 56, 107, 114, 145–146
petrol and LPG prices, 106–107, 110
Pilot, Rajesh, 91, 109, 131
Pitroda, Sam, 3, 23–24, 116, 118
Planning Commission, 2–3, 7, 9, 22, 27, 58, 114, 126, 128–131
Pradhan, R.D., 3, 5, 23, 32
Prasad, Alok, 88
Prasada, Jitendra, 29, 140
public distribution system (PDS), 116

Radhakrishnan, S., 52
Raj, Dr K.N., 75–76
Rajiv Gandhi Foundation, 48, 110
Ram, Takht, 66
Rangarajan, Dr C., 37
Rao, C.H. Hanumantha, 58
Rao, N.T. Rama, 6
Rao, P.V. Narasimha, 1, 3, 9–12, 20–24, 27–28, 31, 35–37, 40, 96–97, 108, 111–112, 116, 119, 121,
124, 127–133, 135–144, 147–148
9 July speech, 67–71
as Congress president, 1, 4–8
CPP speech, 7–8
discussions in Sanskrit, 72–74
Rashtriya Samajwadi Congress, 26
Ray, Siddhartha Shankar, 142
Reddy, Vijaya Bhaskara, 78, 98–102
Reserve Bank of India (RBI) Act, 1934, 44
Roy, R.K., 26

Sahu, Rajni Ranjan, 30

Sen, Sukomal, 50
Sengupta, Dr Arjun, 2, 36
Seventh Five-year Plan, 93
Shah of Iran’s modernization programme, 119
Shankaranand, B., 91
Shekhar, Chandra, 6, 9, 13–14, 16–17, 26, 33, 44, 48, 65–66, 76, 104, 145
Shukla, S.P., 104
Singh, Arjun, 91, 98
Singh, Dr Manmohan, 3, 9–12, 16–18, 75–76, 84, 91, 97, 102, 126, 129, 133, 139, 142, 144–148
24 July 1991 budget, 104–112
devaluation of rupee, 36–43
discussions at the IMF, 31–34
exchange of letters with Jyoti Basu, 60–62
as finance minister, 20–27, 144–148
gold sales, 45–48
government’s priorities in economic policy, 28–30
integrity of, 145
joint statement controversy, 52–59
post-budget stock-taking, 113–117
Singh, Jaswant, 120, 145
Singh, K. Natwar, 121
Singh, V.P., 2–3, 5, 11, 13, 26, 33, 48, 65, 77, 104–105
Sinha, Yashwant, 13, 16, 26, 33, 44, 46–47, 55, 105
Sixth Five-year Plan, 93
Solanki, Madhavsinh, 91, 119–121
Soviet Union, political developments in (1991), 118–119, 122
special protection group (SPG), 120
State Bank of India (SBI), 44–45, 115
Surjeet, Harkishan Singh, 33, 122, 145
Swamy, Dr Subramanian, 66
Tata, Ratan, 123
Teerth, Swami Ramanand, 130
Telugu Desam Party (TDP), 6
Thakur, C.P., 111
Thakurta, Paranjoy Guha, 38
Thungon, P.K., 99, 102
Tiwari, N.D., 6
Two Crucial Years: India under Shri P.V. Narasimha Rao’s Stewardship, 138–140

United Nations Conference on Trade and Development (UNCTAD), 146

United Nations Development Programme (UNDP), 146
Unnikrishnan, K.P., 45
Upendra, P., 33

Vajpayee, Atal Bihari, 47, 120, 132, 134, 145

Venkataraman, R., 13, 23, 36
Venkitaramanan, S., 24, 44, 48
Venugopal, K.R., 116
Verma, A.N., 9–10, 63–64, 73, 77–78, 83, 87, 90–92, 108, 119, 123, 128, 130, 146
Vikal, Ram Chandra, 30, 126
Virmani, Arvind, 130

Xiaoping, Deng, 141

Yadav, Chandrajeet, 45
Yadav, Ram Naresh, 127

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Rajiv Gandhi flanked by P.V. Narasimha Rao and Madhavsinh Solanki at the release of the 1991
Lok Sabha election manifesto of the Congress on 16 April 1991. This document was extensively
used by Narasimha Rao and Dr Manmohan Singh to defend economic reforms in June, July and
August 1991.

A meeting of the Congress Working Committee (CWC), under the chairmanship of P.V. Narasimha
Rao on 22 May 1991, that unanimously decided to elect Sonia Gandhi as Congress president—an
offer she declined a day later.
Prime Minister P.V. Narasimha Rao with two immediate ex-prime ministers, Chandra Shekhar and
V.P. Singh, on 21 June 1991.

P.V. Narasimha Rao’s first press conference as Congress president on 2 June 1991.
Dr Manmohan Singh’s press conference of 25 June 1991 that led to the flap on the roll-back of
prices.

The prime minister’s meeting with opposition leaders and the finance minister’s briefing on the
economy on 27 June 1991.
P.N. Dhar and three other economists issued ‘An Agenda for Economic Reform’ on 1 July 1991 that
led to an uproar in Parliament subsequently. Here is P.N. Dhar with Dr Manmohan Singh and P.
Chidambaram at a seminar on the statement.

The prime minister with Julius Nyerere, former president of Tanzania and chairman of the South
Commission, of which Dr Manmohan Singh was secretary general between 1987 and 1990.
Dr Manmohan Singh on his way to presenting his first and most historic budget on 24 July 1991.
 Protests outside Dr Manmohan Singh’s North Block office on 9 August 1991. Such a protest is
unimaginable these days. It will never be permitted!

Prime Minister Narasimha Rao and Finance Minister Manmohan Singh meet trade union leaders
at the prime minister’s residence on 17 August 1991. G. Ramanujam, co-founder of INTUC (Indian
National Trade Union Congress), is to Narasimha Rao’s right.
 The first meeting of the reconstituted Planning Commission on 19 September 1991 with Sharad
Pawar, Pranab Mukherjee P.V. Narasimha Rao, Manmohan Singh, Balram Jakhar and the author
in the background.

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