IIPM INTERNATIONAL - NEW DELHI, GURGAON & NOIDA
One wonders where India would have been today if events hadn’t unfolded the way they did in 1991. Clearly the BOP crisis proved to be a unique blessing in disguise
This writer recalls a conversation with an elderly Hyderabad-based Sikh gentleman on a train journey to New Delhi in 2002. When asked about his opinion on New Delhi, his reply was a landmark lesson in diplomacy as he said, “People in New Delhi are crazy!” Of course, his prejudice was not sans basis. On his previous visit to New Delhi, he had suffered the horrendous experience of a one hour traffic jam at Dhaula Kuan, one of the city’s key intersections. For Delhites, it was daily fare then, but of course, our Sikh friend had the experience of a lifetime!
That intersection has improved since, with an impressive network of flyovers, but most of India is still crying for better highways, reliable power, clean water, two meals a day, employment et al. Experts have often compared India’s course to economic development to a typical two lane Indian road laden with potholes. Piecemeal measures to convert our roads to smooth superhighways do happen, but it needs a severe crisis in terms of traffic to initiate such changes. And our economic saga is not very different,
So, while all over the world, people may dread the word crisis, we Indians must take it in our stride. It took a crisis in 1967 for the government to take baby steps towards liberalisation, but then they retreated like a crab on the beach does on seeing ‘huge waves’ of protectionist jingoism. And it took a huge Balance of Payments crisis in 1991 for India to initiate a wave of economic reforms. Thankfully, our crabby traits did not get the better of us this time around.
Before that fateful year, ‘free India’ was shackled by a range of problems, including babudom, ‘Swiss bank accounts’, red tape, protectionism, poverty, inefficient PSUs and pathetic services for its citizens. As per reports, fiscal deficit had touched an alarming 7.9% in 1989-90. The shock started in 1991 with the crude oil peak that came due to the Gulf war. India’s forex reserves dropped suddenly from an entirely unimpressive $3.11 billion in August 1990 to a decisively perilous $896 million in January 1991 (Ministry of Finance report). Reserves at that time could not even have funded two weeks of imports. India took a loan of $1.814 billion from the IMF in January 1991. The new coalition government led by the Congress took up a slew of measures, including import compression (later deemed counter productive) and allowing export of its gold reserves (some 47 tonnes of gold were sent by RBI to England, which raised around $700 million).
Apart from short term measures, the new government decided that economic reforms are a must to get the country firmly on the road to recovery. Therein, India saw a welcome saviour in the form of the then Finance Minister Dr. Manmohan Singh. Fiscal profligacy was shunned with steps like abolishment of export subsidies, increase of fertiliser prices and a rain check on non-plan expenditure. Enterprise was encouraged with simplified clearance processes for trade and business and moves towards less interference by the state. The oppressive licence raj of the 1980s had breathed its last. Tax reforms were initiated and a programme was launched to divest government stake in non-performing PSUs. State influence was rightfully shifted to the social sector and towards regulation to ensure fair competition and consumer interests.
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Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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