India Transformed

by Rakesh Mohan

  2.    Sitapati, Half-Lion, 2016.

  3.    E.g. Jairam Ramesh, To the Brink and Back, 2015.

  4.    See T.N. Ninan’s The Turn of the Tortoise: The Challenge and Promise of India’s Future (Gurgaon: Penguin Random House, 2015) for a comprehensive treatment of the political economy of Indian reforms.

  5.    Deputy governor of the RBI in 1991, and then governor from 1992 to 1997; a major actor in the 1991 rescue process. He later served as chairman of the Twelfth Finance Commission during 2002–05, and chairman of the Economic Advisory Council to the Prime Minister, 2005–08 and 2009–14.

  6.    Montek Singh Ahluwalia has been among the key policy leaders throughout the whole reform period from the mid-1980s. He had been economic adviser to Prime Ministers Rajiv Gandhi and V.P. Singh during 1985–90; he was commerce secretary during 1990–91 when the trade reforms were initiated; secretary, economic affairs, and finance secretary during 1992–98 when most of the fiscal policy and overall macroeconomic reforms were carried out; and deputy chairman of the Planning Commission from 2004–14.

  7.    I was only one among a whole group of economists who returned to India from the World Bank and IMF during the 1970s, 1980s and 1990s: Arun Shourie, Raja Chelliah, Bimal Jalan, Montek Ahluwalia, Isher Ahluwalia, Jayanta Roy, Shankar Acharya, Arvind Virmani and Ashok Lahiri, all of whom served with distinction in different positions, both inside and outside the government.

  8.    Then director of the National Institute of Public Finance and Policy, which he had founded on return from the IMF. He later served as a member of the Planning Commission from 1985–90; and chaired the Tax Reforms Committee in 1991–93. The recommendations of this committee laid the groundwork for the far-reaching tax reforms carried out in the 1990s.

  9.    His own role in the implementation of industrial policy reforms is described in Jairam Ramesh’s To the Brink and Back.

  10.  His lifetime role in Indian economic policy has been portrayed in Deepak Nayyar and Rana Hasan, Shaping India’s Future: Essays in Memory of Abid Hussain (New Delhi: Academic Foundation, 2017).

  11.  Our association continued over the years. As chairman of the Expert Committee on Small-Scale Enterprises in the late 1990s, he again asked me to be the member secretary of this committee. The report of the committee was very influential in the eventual de-reservation of small-scale industries, the last of which finally occurred in 2015.

  12.  Jayanta Roy had first come back from the World Bank to work in the Planning Commission during 1978–80. It was his example that paved my way into the Planning Commission in 1980. He returned in 1988 to join the commerce ministry where he contributed actively to trade policy reforms in the 1990s.

  13.  Rakesh Mohan and Vandana Aggarwal, ‘Commands and Controls: Planning for Indian Industrial Development, 1951–90’, Journal of Comparative Economics 14, no. 4 (December 1990): 681–712.

  14.  For a concise description, see H.K. Paranjape, ‘Indian Liberalisation: Perestroika or Salaami Tactics?’, Economic and Political Weekly Special Number (November 1988).

  15.  Defence of India Rules, Defence of India Act, Government of India, New Delhi, 1939.

  16.  The specified limit was updated with inflation over time. In 1990, this limit was about $60 million.

  17.  Known as ‘Appendix 1’ industries.

  18.  Small-scale industries were defined as enterprises with investments of less than a specified limit, which was also revised periodically to take account of inflation. In 1990, this limit was about $2,00,000.

  19.  T. Swaminathan, chairman, ‘Report of the Industrial Development Procedures Committee’, Government of India, New Delhi, 1964a.; P.C. Mahalanobis, chairman, ‘Report of the Committee on Distribution of Income and Levels of Living’, Government of India, New Delhi, 1964b; ‘Report of the Monopolies Inquiry Commission’, Government of India, New Delhi, 1965; R.K. Hazari, chairman, ‘Final Report on Industrial Planning and Licensing Policy’, Government of India, New Delhi, 1967; S. Dutt, chairman, ‘Report of the Industrial Licensing Policy Inquiry Committee’, Government of India, New Delhi, 1969a; ‘Report of the Study Team on Economic Administration’, Administrative Reforms Commission, Government of India, New Delhi, 1969b.

  20.  H.K. Paranjape, ‘Indian Liberalisation: Perestroika or Salaami Tactics?’.

  21.  Ibid.

  22.  Jagdish Bhagwati and Padma Desai, India: Planning for Industrialization (London and New York: Oxford University Press, 1970).

  23.  V. Dagli, chairman, ‘Report of the Committee on Controls and Subsidies’, Government of India, New Delhi, 1979.

  24.  Isher Ahluwalia, Industrial Growth in India: Stagnation since the Mid-sixties (New Delhi: Oxford University Press, 1985).

  25.  L.K. Jha, former governor of the RBI, was appointed as the chairman of the Economic Administration Reforms Commission by Mrs Gandhi in 1981.

  26.  M. Narsimham, chairman, ‘Report of the Committee to Examine Principles of a Possible Shift from Physical to Financial Controls’, Government of India, New Delhi, 1985.

  27.  Abid Hussain, chairman, Report on Trade Policy, Government of India (New Delhi: Ministry of Commerce, 1984).

  28.  Arjun Sengupta chaired a HLC on the performance of public-sector enterprises in 1984.

  29.  All three of them were among the small band of distinguished, long-serving economic policy mandarins. They entered the government as advisers in the Planning Commission in the 1970s and 1980s. Both Lovraj Kumar and Vijay Kelkar were influential as petroleum secretaries. Vijay attempted very significant petroleum-sector reforms in the late 1990s, which were eventually stillborn as documented by Vikram Mehta in this volume. Vijay Kelkar later contributed to fiscal policy reforms in the 2000s as chairman of an influential tax policy committee in 2002–04 and to Centre–state fiscal relations as chairman of the Thirteenth Finance Commission from 2007–10. Yoginder Alagh served in various capacities, ascending to the post of minister of planning in the late 1990s.

  30.  Arvind Panagariya, India: The Emerging Giant (New York: Oxford University Press, 2008), chap. 4, 78–94.

  31.  Another member of the small bunch of long-serving economic policy mandarins, Bimal Jalan returned to India from the World Bank in the early 1970s and served the government in the industry ministry, finance ministry, Planning Commission and as governor of the RBI (1997–2003).

  32.  Nitin Desai served in the Planning Commission from the early 1970s to the late 1980s. He was later undersecretary general of the United Nations.

  33.  This document is now very difficult to find even though it was formally announced in the Indian Parliament. Fortunately, Arvind Panagariya has reproduced it in full as Appendix 1 (455–59) in his book India: The Emerging Giant (New York: Oxford University Press, 2008).

  34.  Indian Trade Classification based on the Harmonized System of Coding (ITC-HS) is used in India for classification of imports and exports. The first group of items happens to be animals and animal products. Hence this entry.

  35.  A career generalist bureaucrat from the Indian Administrative Service.

  36.  Former economic adviser in the Ministry of Commerce (1983–85), long-time professor of economics at the Jawaharlal Nehru University, and later vice chancellor of Delhi University (2000–05). His view of the economic reforms is available in Economic Liberalization in India: Analytics, Experience and Lessons (Calcutta: Orient Longman, 1995).

  37.  These policy differences led to their departure from the finance ministry in late 1991, with Montek Singh Ahluwalia becoming secretary of economic affairs (later finance secretary), and Ashok Desai, a former colleague of Dr Manmohan Singh at Cambridge, succeeding Deepak Nayyar.

  38.  Montek Ahluwalia has given a broader account of the 1991 reform process in his contribution to this book. As he describes, and unbeknownst to me at the time, similar and more comprehe
nsive reforms had been advocated in his own so-called secret ‘M document’ that he had been tasked to prepare in the PMO by V.P. Singh.

  39.  Then minister of health and family welfare, and old Nehru-Gandhi family loyalist.

  40.  Then minister of human resource development.

  41.  Along with Dr Manmohan Singh, a key economic policy reformer. Led trade-policy reforms as commerce minister (1991–92 and 1995–96) and the continuation of macroeconomic reforms as minister of finance during 1996–98, 2004–08 and 2012–14.

  42.  Attached as Annex 1 is the first part of the 1991 Industrial Policy Statement. Paragraphs 1 to 8 constitute the main new parts of the preamble.

  43.  Later Indian ambassador to the United States.

  44.  Now deputy chairman of the Rajya Sabha, the upper house of the Indian Parliament

  45.  For this reason, the 1991 Industrial Policy Statement is usually thought of as part of the Budget speech.

  46.  I had lobbied hard (with stout support from Montek) for this restriction to be limited to cities of above 4 million only, but had to compromise!

  47.  It was only in 2016 that a bankruptcy Act was finally put in place. It is still to be implemented.

  48.  We had not had the courage to make this radical proposal. We had only proposed to increase the threshold limit to Rs 1000 crore (Rs 10 billion, $500 million at the July 1991 exchange rate). The then minister for company affairs, R. Kumaramangalam, asked us what the rationale for this number was. We had no answer, so he said, ‘Abolish it!’

  49.  The relevant passage: ‘A special Empowered Board would be constituted to negotiate with a number of large international firms and approve direct foreign investment in select areas. This would be a special programme to attract substantial investment that would provide access to high technology and world markets. The investment programmes of such firms would be considered in totality, free from predetermined parameters or procedures.’

  50.  The 2017 Budget speech of Finance Minister Arun Jaitley finally announced its abolition.

  51.  Paragraph D (ii) of the Statement on Industrial Policy 1991, http://dipp.nic.in/English/Policies/Industrial_policy_statement.pdf. Accessed on 15 March 2017.

  52.  The National Renewal Fund has largely been forgotten but details are available in V.R.S. Cowlagi, ‘The National Renewal Fund: Promise, Performance, and Prospects’, Vikalpa 19, no. 4 (October–December 1994), http://www.vikalpa.com/pdf/articles/1994/1994_oct_dec_3_14.pdf. Accessed on 14 March 2017.

  53.  A career IAS bureaucrat, he had earlier served in the Ministry of Finance as the key interlocutor with the IMF and the World Bank.

  54.  The data in this paragraph were provided by Arvind Panagariya in a personal communication. It is understood that he is arguing constantly on this issue within the government and providing such data on a formal basis at the present time.

  55.  This was published later as: Rakesh Mohan, Small Scale Industry Policy in India: A Critical Evaluation (New Delhi: NCAER, 2001).

  56.  Abid Hussain, chairman, ‘Report of the Expert Committee on Small Enterprises’, Government of India (New Delhi: NCAER, 1997). Published on behalf of the Ministry of Industry, Government of India; the Executive Summary, http://www.dcmsme.gov.in/publications/comitterep/abid.htm. Accessed on 14 March 2017.

  57.  To some extent, this happened due to my pestering the then finance minister, Yashwant Sinha, in my then role as his chief economic adviser!

  58.  Expert Group on Commercialization of Infrastructure Projects, Indian Infrastructure Report (New Delhi: NCAER, 1996).

  59.  A civil servant member of the economic reform team, N.K. Singh has served almost continuously in the Government of India since the early 1990s. He was the chief interlocutor with the IMF and the World Bank during the 1991 crisis-management period. He later served as secretary of the departments of expenditure and revenue in the late 1990s. As secretary to Prime Minister Atal Bihari Vajpayee, he contributed to the continuity of economic policy during the early 2000s. He made a major contribution in the conceptualization of the National Highway Development Project that ushered in the long-lasting investment programme for four-lane highways. He continued the economic policy thrust on infrastructure as a member of the Planning Commission during 2002–04. Most recently, he chaired the committee on Fiscal Responsibility and Budget Management to recommend new fiscal rules.

  60.  Another member of the long-serving band of civil servant/economist technocrats, Y.V. Reddy was chairman of the Fourteenth Finance Commission during 2012–14. He was instrumental in recommending the large increase in the share of taxes to be devolved to the states. He served in the finance ministry at the time of the economic crisis in 1991 and had a significant role in managing India’s external debt at that time. After serving briefly as banking secretary, he became deputy governor of the RBI during 1997–2002, where he instituted significant reforms in the then moderate policy framework and debt management. He rose to become governor of the RBI during 2003–08 when his sagacious policies preserved financial stability in the country, which served well during the North Atlantic financial crisis. I had the unenviable task of succeeding him as deputy governor in 2002.

  61.  Martin Wolf is chief economics commentator for the Financial Times. His interest in India began in the 1970s when he worked as an economist on the India desk of the World Bank, intentionally writing a book on Indian exports.

  62.  Shyam Saran has been a distinguished foreign-service officer who rose to be foreign secretary during 2004–06. He advised the prime minister on foreign policy and defence issues during 1991–92 when the economic reforms were initiated. As foreign secretary and later as adviser to the prime minister, he has had a special role in shaping Indian nuclear policy, particularly in negotiating the Indo-US nuclear deal. He was also special envoy of the prime minister on climate change.

  63.  After serving in the most sensitive posts as the Indian ambassador to China and high commissioner to Pakistan, Shivshankar Menon succeeded Shyam Saran as foreign secretary in 2006 and was later national security adviser to Prime Minister Manmohan Singh. He also had a major role in implementing the Indo-US nuclear deal.

  64.  As an economist and journalist, Sanjaya Baru has actively observed and analysed Indian economic and security policy since the early 1990s. He was my colleague and the only other economist member of the first National Security Advisory Board set up by Prime Minister Vajpayee after the 1998 nuclear test. He later served as Prime Minister Manmohan Singh’s media adviser and chief spokesman in his first term during 2004–08.

  Chapter 2: India’s 1991 Reforms: A Retrospective Overview

  1.    Research assistance in the preparation of this paper was provided by Utkarsh Patel and is gratefully acknowledged.

  2.    The exim scrip system was equivalent to a dual exchange-rate system and was substituted by a dual exchange rate on 1 March 1992.

  3.    See Ahluwalia (2016).

  4.    This has obvious costs, because the benefits of reforms are delayed, and it also gives those opposed to the reforms more time to mobilize against them. However, one can imagine a conscious choice being made in favour of this approach, on the grounds that a fuller discussion allows a broader consensus to develop.

  5.    Prior to the Tendulkar poverty lines, the Government of India was working with the Lakdawala Poverty lines established in 1978 and periodically updated for inflation. Responding to complaints that these poverty lines were too low, the government appointed a committee under Suresh Tendulkar to recommend a new poverty line. For a fuller background on these developments, see Datta (2015).

  6.    The low growth in the labor force reflects a decline in the participation rate of female workers, much of which was due to the increase in retention of girls in school.

  Chapter 3: Remembering 1991 … and Before

  1.    Incidentall
y, the reason why Delhi witnessed so much arson after Indira Gandhi’s killing has everything to do with who got ration shop licences, and the date of her death. In India then, as now, ration shops were allotted to politically connected people of the locality. Not surprisingly, most ration shops in Delhi in 1984 were operated by Congress supporters. In Model Town, Delhi, henchmen of Congress’s H.K.L. Bhagat got the ration-shop licences for groceries and kerosene. Now the date. Indira Gandhi was killed on 31 October 1984. All the kerosene ration shops were fully stocked, ready for distribution on 1–2 November. It was all too easy to divert this kerosene to burn Sikh houses and families.

  2.    See Mohan and Aggarwal (1990) and Anant and Goswami (1995).

  3.    R.C. Bhargava with Seetha, The Maruti Story: How a Public Sector Company Put India on Wheels (Collins Business, 2010), 96.

  4.    Data from the RBI, Database on the Indian Economy (www.dbie.rbi.org.in) and the Economic and Political Weekly Research Foundation, India Time Series (EPWRF-ITS).

  5.    These were (i) coal and lignite; (ii) petroleum and its distillates; (iii) alcoholic drinks; (iv) sugar; (v) animal fats and oils; (vi) cigars, cigarettes and other tobacco products; (vii) asbestos and its products; (viii) plywood and other wood-based articles; (ix) raw hides, skins and leather, including tanned or dressed fur skins; (x) motor cars; (xi) paper and newsprint; (xiii) electronically controlled aerospace and defence products; (xiii) industrial explosives; (xiv) industrial explosives and hazardous chemicals; and (xv) drugs and pharmaceuticals according to the drug policy. Some of these seem absurd today. But the pruning was truly revolutionary at the time.

  6.    The restricted list comprised (i) arms, ammunition, defence equipment, aircraft and warships; (ii) atomic energy; (iii) coal and lignite; (iv) mineral oils; (v) mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, copper, lead, zinc, tin, molybdenum, wolfram, gold and diamond; (vi) minerals required for atomic energy; and (vii) railways, including railways transport.