Half - Lion: How P.V. Narasimha Rao Transformed India

by Vinay Sitapati

  In that same month, the political scientist James Manor spent a week with Narasimha Rao. He asked the prime minister about his ideological inclinations. ‘My model is not Margaret Thatcher but Willy Brandt,’ Rao replied. ‘I do not believe in trickle-down economics.’2

  Rao’s choice of exemplar was curious. The Nobel-prize-winning Willy Brandt was Germany’s first ‘social democratic’ chancellor. At the heart of this vision was the mundane question of public finances, i.e. government revenue and expenditure. These European welfare states would promote private capitalism, ensuring higher tax revenues. They would then lavish the money on expensive public goods such as education and social protection schemes. It was not just the scale of these social schemes that was vast; smartly designed policies and a competent ‘last mile’—i.e. teachers, doctors, welfare officials and other frontline bureaucrats—ensured that benefits actually trickled to the poor.

  This social democratic vision, where growth and redistribution went together, was nothing like the ‘socialism’ of Indira Gandhi.

  For all her talk of ‘garibi hatao’,3 an economy that grew at around 3 per cent did not have much tax revenue to redistribute to the poor. The result was that government schemes were too underfunded to touch the lives of India’s poor.

  The sources of tax revenue were also skewed. Since companies and the middle classes were intentionally kept pygmied during this period, the little taxes collected were from indirect (sales and excise) taxes rather than direct (income and corporate) taxes. By 1991, direct taxes contributed to just 23 per cent of total tax revenue while indirect taxes took up a whopping 75 per cent.4 Since the poor save very little and spend almost all their income on consumption, indirect taxes tend to hurt them more. In contrast, the rich and middle class save more than the poor, and therefore pay less indirect tax as a percentage of their income.5 What was doubly ironical about Indira-style socialism was that not only was there little money to redistribute to the poor, the poor actually paid relatively more in taxes compared to the rich.

  India’s ‘socialist’ schemes were also badly designed. Indira’s left-leaning advisors were telling her to constrict business, nationalize banks, and partner with the Soviet Union. But when it came to the education, health and social insurance schemes that really mattered for the poor, they had little to contribute. This lack of expertise led to welfare policies that rarely reached their intended beneficiaries. For example, fertilizer subsidies benefitted rich farmers, not landless peasants. And even a study sympathetic to bank nationalization found that formal credit was still ‘concentrated in the hands of the rich and the already developed regions. The poor still depended in a big way on the informal sector.”6 The final, endemic drawback of Indian-style socialism was a bumpy ‘last mile’, populated by grasping middlemen and venal officials.

  The results were unsurprisingly stark. Forty-four years after Independence, around 36 per cent of all Indians were still classified as poor,7 47 per cent as illiterate,8 and 26 per cent as undernourished.9 These were the statistics that prime minister Narasimha Rao inherited in 1991. He also inherited a number of vested interests who—like with the liberalization—would resist any attempt at reform. To judge whether Rao was more Brandt than Thatcher is to measure how much these changed on his watch.

  Narasimha Rao and Manmohan Singh spent their first year improving India’s public finances by conserving rupees. In return for fresh loans, the IMF demanded that Rao reduce existing subsidies. Most of these (for example, cheap fertilizers) went to politically connected groups. It was therefore courageous of Rao and Manmohan to reduce them. Subsidies accounted for 11 per cent of all Central government expenditure in 1990-91. By the time Rao left office in 1996, it had reduced to around 7.5 per cent.10

  Not only did Rao limit subsidies in the early months of his premiership, his speeches made little mention of the welfare schemes—for education, health, farmers and students—that were the rhetorical staple of every new prime minister. Soon after the 1992 budget, the journalist Sanjaya Baru wrote a news piece on how ‘education and health saw the largest squeeze’.

  ‘Manmohan Singh read it,’ Baru remembers. ‘He was very upset.’11

  Even as Rao and Manmohan were avoiding spending on schemes, they were quietly altering taxation policy—alterations that would eventually benefit the poor. One of the consequences of liberalization was that it expanded middle class and corporate incomes, as well as rationalized tax policy. This has led to higher revenue from direct taxation. It is a subtle but progressive change, ensuring that the rich and middle class now contribute more to tax revenue, compared to the poor.12

  The less subtle improvement that economic reforms brought about in the lives of the marginalized was that total government revenue—necessary to fund welfare schemes—went up. When Rao became prime minister in 1991, Central government income13 (in real terms) was just 302 billion rupees. By the time he left office, there had been a 22 per cent increase.14 More spectacular has been the revenue rise since the Rao years. In 2010, total revenue was 946 billion rupees in real terms15—a tripling in the size of government income since the onset of liberalization. This increase in revenue—primarily due to liberalization-led growth—is a necessary condition for welfare schemes the world over.

  It is, however, not a sufficient condition. Between 1986 and 1991, Central government revenue actually grew at a higher percentage than during the Rao years—thanks to Rajiv Gandhi’s deficit-led growth. But that additional money had not spurred the governments of Rajiv Gandhi, V.P. Singh or Chandrashekhar to craft better schemes for the poor.

  Unlike these predecessors of his, Narasimha Rao was well placed to use increased revenues to fund schemes on education, health, food and social security. No Indian prime minister could match his experience on these issues. He had overseen education and health in both Delhi as well as Hyderabad. His private archives are full of handwritten notes and underlined articles on social policy.16 Rao may have been a neophyte on the economy, but when it came to welfare schemes, he was a walking encyclopaedia.

  By the middle of 1992, India’s foreign exchange was back to safe levels, and the need for fiscal discipline had somewhat eased. Free to pursue his passion, Rao began laying out his vision for a social democracy. ‘No multinational will build a primary school in India, no foreign investor will set up a health centre. These are jobs for the government. Let the multinationals handle the top sector, we will manage the grassroots. This is the way forward as I see it.’17 When Rao visited South Korea, he noticed how economic growth had taken place alongside improvements in well-being. He told the diplomat Prabhakar Menon, ‘This is what we have to do. We have to emphasize education and health at home. Look at the way young people are coming up.’18

  Like everything else about the man, this welfare vision was shaped as much by idealism as it was by self-interest. Rao knew that economic growth would take long to ‘trickle down’ to the voter. He decided, instead, to channel the increased revenue from economic growth to straightaway help the poor. He told a bureaucrat working on the public distribution system, ‘You are the man who will sell my [liberalization] policies.’ Rao also had an eye on the cycle of state elections held every year, each of which would be seen as a referendum on his national government. As one of his closest aides put it, ‘He was sincere about the [welfare schemes]. But the electoral impact . . . that was important also.’

  As we saw in the chapter on rescuing the economy, the fact that prime minister Rao kept the industry ministry for himself shows how seriously he took industrial reform. Similarly, Rao decided to also serve as rural development minister (the first prime minister to do so) signalling his commitment to welfare.19 He gathered an unusual team of bureaucrats who would implement these reforms. His initial rural development secretary was S.R. Sankaran, a man ‘completely wedded to social causes’.20 After his retirement, Sankaran shared his meagre pension with SC/ST students.21 He was succeeded by another socialist B.N. Yugandhar. The sharp-feature
d Yugandhar was described by an Andhra politician as ‘pro poor [with] strong left leanings’.22 K.R. Venugopal was the other leftist official whom Rao tasked with working on food and employment security. Reed thin, energetic and uncompromising, Venugopal had decades of experience with the public distribution system in Andhra Pradesh.

  These men were as different as could be from the pro-marketers who manned Rao’s economic turrets. They were, however, rather like the younger Rao. When Rao was minister in Andhra Pradesh in the 1960s, he too believed in the obligation of the state to transform India’s ills. That Rao had morphed into a pragmatist when it came to the economy. But when it came to welfare schemes, his choice of stubborn socialists as point men indicated which model he had in mind.

  The primary way in which countries provide subsidy to the poor is through affordable food. In India, the availability of foodgrain had been solved through the Green Revolution, and by 1991, government godowns were bursting with rice and wheat. The problems of the public distribution system (PDS) were subtler, and in his first months as prime minister, Rao spoke about them candidly: ‘The stuff doesn’t reach the fair price [ration] shop. That has been the most important bottleneck so far. I have a long experience . . . both at that state level and here; I think that if you are able to reach the stuff to the last village where there is a fair price shop, you can expect some results, some relief to the people. But if you are sold out at the wholesale point, then it only means that you are spending your money and driving the stuff into the big black market.’23

  Rao knew that PDS money was being siphoned off by corrupt middlemen and bureaucrats. Also benefitting were the rich farmers from whom the government procured rice, wheat and other grain. Since these farmers were politically connected, Rao ensured a steep increase in the procurement price which his government had to pay. To balance this increase, he simply raised the sale price at ‘ration’ shops. This ensured that while the farmers made more money, many consumers were driven by increased costs to abandon these fair-price shops.

  Political scientist Rob Jenkins sees in this a general strategy of the Rao government: maintaining the appearance of continuity (in terms of the unchanging level of overall subsidy) while radically altering the PDS system.24

  Having subtly starved this system, Rao sought to replace it with a more sophisticated form of food subsidy: the Renewed Public Distribution System, or RPDS.25 The RPDS would focus on the poorest parts of India—around one-fifth of all districts—where rice and wheat would be sold at a rate even lower than in the normal ‘ration’ shop.26

  The scheme was monitored directly from the prime minister’s office, aided by the zealous K.R. Venugopal. Rao’s private papers are full of his notes on the subject. On the back of one such note, he wrote, in red ink, ‘In the RPDS blocks, rice and wheat are at present being sold at Rs. 0.50 per kilo less than the prevailing price. It is proposed to increase the concession in price to Re 1/-.’27 Rao was especially concerned with the implementation of RPDS in election-going states. A bureaucrat working in civil supplies remembers: ‘He told me I should go in advance and monitor. There should be no complaints.’

  RPDS did not win Narasimha Rao any elections. It also did little for the poor. A survey found that ‘Not a single consumer [in the twenty-one RPDS villages surveyed] had ever got subsidised food grain from the ration shop.’28 As the Congress politician Jairam Ramesh put it, ‘RPDS was not successful. Total offtake from the PDS declined between 1992-93 and 1995-96 . . .’29

  Rao’s failure to ensure that inexpensive food reached the hungry is instructive. Money was not the principal constraint; in absolute terms, food subsidy doubled during Rao’s term.30 The problem was in part the design of the RPDS. ‘Why should only the poor in the RPDS areas alone benefit, and not the poor everywhere? And why should the wealthy in the RPDS areas benefit?’ Venugopal asked Rao. He wanted the government to universalize the PDS to all districts, while targeting only the genuinely deserving. The main reason why RPDS failed, however, was that it did not reform the corrupt lower-level bureaucracy—such as storage officials—who prevented affordable food from crossing the ‘last mile’. This had been the problem of the original PDS; it remained the problem of its ‘renewed’ avatar. As we saw in the last chapter, Narasimha Rao had similarly balked from reforming public sector firms. He judged he was too weak to take on government employees.

  Another welfare measure on which Rao expended much rhetoric was on employment guarantee. ‘The prime minister and I had sessions of conversations on this,’ K.R. Venugopal remembers.31 Rao’s private secretary, Ramu Damodaran, adds, ‘This was something Rao spoke a lot about.’32 There had been previous schemes where the government guaranteed a job to a poor person,33 but these had been confined to isolated states (such as Maharashtra). For the first time, Narasimha Rao made it a national-level scheme. He announced 100 days of assured employment in the 1700 RPDS blocks in the country, and devoted a lengthy paragraph to it in his 1993 Independence Day speech.34

  ‘It was all talk,’ says Venugopal. ‘There was not enough money in it, and it wasn’t justiciable.’ Rao’s was still the first national employment scheme, a precursor to the more famous NREGA, passed in 2005. Unlike NREGA, however, those who were denied employment under Rao’s scheme had no form of redress. This inattention to detail ensured that Rao’s employment assurance, like his RPDS, had little impact on the lives of the poor.

  ‘Rao understood the problems,’ Venugopal says. ‘He knew the kinds of schemes needed. But when it came to action . . .’ Venugopal was also angry that, in the tussle between the fiscally cautious officials in the finance ministry and socialist bureaucrats who wanted larger entitlements, Rao sided with the former. Venugopal submitted his resignation in 1993. Rao sat on it, only accepting it two years later. The PM was perhaps reluctant to lose a man who was a portrait of his younger self.

  To show that he supported his socialist bureaucrats personally (if not policy-wise), Narasimha Rao decided to ‘gatecrash’ the engagement ceremony of Venugopal’s daughter, Anupama Priyadarshini, in 1992. Anupama was marrying the son of B.N. Yugandhar, Rao’s other left-leaning official. The groom’s name was Satya Nadella. Despite a father and father-in-law who were committed socialists, Nadella would go on to become the global head of that quintessentially capitalist empire, Microsoft.

  The engagement ceremony was set in Venugopal’s official bungalow in Lutyens Delhi. It was a simple affair, and the prime minister had not been invited.35 Rao, however, decided to make an appearance. Choosing not to travel in his entourage of several dozen cars, he and Ramu Damodaran got into an Ambassador with blackened windows and drove with just one escort car for protection. Since the streets had not been cordoned off, Rao was stuck in traffic, an unusual experience for the prime minister. He ever so gently complained to Ramu.36

  ‘I had forgotten what traffic is like.’

  While Narasimha Rao’s interventions in employment guarantee and food security were less than effective, his forays into education were more successful. As we saw in an earlier chapter, Rao had pushed through radical policies as Union education minister in the 1980s. He also had a reverence for education that was Brahminical as well as socialist. The journalist Sanjaya Baru remembers travelling with Rao on his official plane once. A teacher from his Nagpur days had just died, and Rao flew all the way for a condolence visit. ‘We landed at Aurangabad, went to a small house in the village. Rao addressed a small meeting where he paid tribute to the man in Marathi. That’s it. We flew back without any fuss.’37

  The most dramatic change that prime minister Narasimha Rao brought to education was in funding. Central spending on education38 was just 951 crore rupees in 1990. By 1995, it had risen to 2042 crores.39 Rao also went out of the way to cultivate bureaucrats like Anil Bordia, and brought expertise on schooling from the states to the Centre. In the words of education expert Akshay Mangla, ‘Rao handpicked babus, and made education into a prestige posting.’40

  As we saw earlier,
education minister Narasimha Rao had first operationalized Rajiv Gandhi’s idea of Navodaya boarding schools for poor children. Now, as prime minister, Rao expanded the number of such schools. The bureaucrat Keshav Desiraju, who was education secretary in Uttarakhand in 2008, says: ‘The Navodaya idea was one of the few that worked. By making it a residential school in rural areas, it ensured that teachers lived on campus, and helped solve teacher absenteeism.’41 Rao’s liberalization policies also allowed states to directly get World Bank and foreign funding for primary education. ‘More than the money, a lot of new ideas poured in,’ an education expert says. ‘Many of those ideas would later become national policy.’

  Education policy since Rao has sharpened these strengths. A series of Central government schemes—such as the Sarva Shiksha Abhiyan—have poured money into schools. This has improved the quality of facilities as well as enrolment rates.42 Yet, many of Rao’s blind spots, such as the inability to reform the education bureaucracy, persist in later administrations. By the late 2000s, while teacher and student enrolment figures were officially high, only one-third of students actually attended school, and teacher absenteeism was rife.43

  This incapacity is reflected in learning outcomes. A 2006 survey found that only 37 per cent of children in classes four and five could ‘read fluently’; a 2011 study found that only 58 per cent of students in classes three to five were able to read a class one text.44 This lack of quality is why, studies show, poor parents prefer to send their children to private schools (at exorbitant costs even) rather than free government ones.45

  Yet, education policy refuses to acknowledge this ‘private exit’ by the poor, a denial that can be traced back to Rao’s era. When it came to economic sectors like banks, mobile phones and airlines, Rao empowered consumers to choose efficient private options over government ones. But when it came to education, Rao made little attempt to open up schooling to the private sector (he could have still ensured state funding—through vouchers, for example). The result is a licence raj that endures in education, with all its attendant ills.