By Mad Marx Jul. 01, 2016
Dr Manmohan Singh changed the course of Indian economic history in exactly the same way he spoke – quietly.
t was 1991. I was trying to get a book on wars in the Middle East off a tall shelf in my mother’s study. Some time back, a megalomaniac named Saddam Hussein had invaded Kuwait. Sadly, for him, the US and its allies pummelled his forces and forced him back to Baghdad, tail between his legs. With the world’s media bringing pictures of the war to our television sets, I was in a frenzy, reading up on wars and famous generals like Subutai the Mongol, Vietnam’s Võ Nguyên Giáp, Israel’s Moshe Dayan, and India’s Sam Manekshaw.
Just as I managed to reach the book, I heard my father exclaim with much agitation, “India is bankrupt. That’s it. We are done.” I did not understand what he meant back then. With war on my mind, I wondered for a second whether we were headed for one. But, I dismissed that idea in the following days. Years later, I realise what a big war we’d actually fought at that time.
As I type, I am trying to remember the main characters and circumstances that led to 1991 when the Indian economy faced one of its toughest challenges. The country was left with just enough reserves to buy less than a month’s imports. Our current account deficit – what we owe other countries for the goods we buy from them – was going up. The price of oil, which we continue to import, had gone through the roof thanks to an angry Saddam. Government finances were in bad shape, inflation was high. Our biggest ally on the world stage, the Soviet Union, was collapsing. And the economic model we borrowed from them had proved inefficient, corrupt, and was in a shambles. Mind you, we did not have nuclear weapons back then, like North Korea and cuddly Kim now, who can blackmail the world into donating food and essential items.
We approached the mother of all weirdos for help – the International Monetary Fund. The IMF has changed a lot over the years, thankfully, for the better. But, back then it had some strange ideas: Create markets everywhere and you will suddenly become rich, seemed to be their guiding principle. The fates of Argentina, Russia, and parts of Asia tell us a different story. Anyway, we begged the IMF for a loan and as collateral offered our gold. Of course, like any moneylender, it levied strict conditions: Free markets, less government control, and all that jazz.
Narsimha Rao stepped in to fight the economic collapse with a solution that would be brilliant, audacious and raise the hackles of not just the opposition, who prized Lenin and Stalin, but of his own party. He knew there would be stiff resistance from industries long protected by the license Raj and from the bureaucracy that had much to lose from privatisation.
In such a bloody war, Rao needed a general by his side, to shout down the dissenting voices and bring about aggressive reform. He made a strange choice… a quiet economist by the name of Dr Manmohan Singh.
It was an afternoon in 2003, and I was desperate to stay afloat among the brilliant minds in the hallowed confines of Delhi School of Economics. I strode to the notice board to check if the exam results were out, or worse, if I had been relegated to some hall of shame. As I scanned the wall, I couldn’t help but notice the stranger on my right who seemed very familiar. Polite greetings followed, though I still couldn’t place the guy. As I kept thinking, a renowned economist from DSE rushed in. Grabbing the stranger’s outstretched hands, he asked, “What took you so long, Manmohan?” The low-decibel answer was epic. “Oh, my car broke down and I had to wait for a taxi.”
As reforms flowed in, one after the other, the economy suffered for a year or two just like a patient does after a major surgery.
The man who would go on to set the stage for the rupee to be valued by market forces, help Indian exporters compete successfully at the global stage, usher in India’s IT boom and bring stability to the country’s financial dealings with the rest of the world, did all of this in exactly the same way he spoke – quietly.
Dr Singh and his team got cracking on measures to reform banking and financial services. If you did not know it, back then the RBI used to monetise the government’s budget, meaning that the central bank would “print money” to help the government pay debts. As economists will vouch – and history too, through Mohammed Bin Tuqhlaq – monetisation makes the government irresponsible, pushes up inflation, and leads to economic ruin.
As reforms flowed in, one after the other, the economy suffered for a year or two just like a patient does after a major surgery. But, things eventually changed for the better. Today, as we emerge as one of the fastest growing economies in the world, we must acknowledge how much we have achieved even though challenges still abound. We have a vibrant private sector, a responsible central bank, better management of government finances, reduced poverty, increasing presence on the global stage, and an economy open to doing business with the world.
My father was wrong. India was far from done. In fact, we had only just begun.