Geography Reference
In-Depth Information
Clearing the Cobwebs
'We have got to get rid of the cobwebs,' Prime Minister Narasimha Rao told top officials on
21 June 1991, the day he formed his new Congress government. Go away to your office, he
said to Manmohan Singh, and work out some details. Thus was born, with a classic under-
statement, India's biggest burst of economic liberalization that, over the past 25 years, has
touched almost every corner of this vast country and affected the lives of virtually everyone
in the billion-plus population. Chalta hai had been pushed aside by a dire financial crisis,
but none of the officials in Rao's office that morning could have dreamed of the long-term
effects of the measures they would be launching, and nor could he. They knew they were
about to remove industrial, trade and financial controls that would help to solve the crisis
by freeing up economic activity and generating international trade.
What happened, however, was far more dramatic. The moves they initiated gradually
unleashed previously repressed entrepreneurial drive, skills and aspirations. This was ac-
celerated by unpredictably rapid expansion of information technology and the internet, plus
India's growing involvement in international business and trade.
Manmohan Singh was at the meeting because he was about to be named finance minister
- he was sworn in later in the day with the rest of the cabinet. The country's financial plight
was desperate. A collapse of international confidence in the rupee had caused capital flows
to dry up. Foreign exchange reserves had plunged so far that they only covered two weeks
of imports, which was not viable. Talks were in progress with the International Monetary
Fund for a rescue package. The rupee was devalued in two 10 per cent tranches a few days
later on 1 and 3 July, and dramatic trade reforms were quickly introduced to coincide with
the second devaluation. Two weeks after that, 47 tonnes of gold were ignominiously flown
to the capital of India's former colonial ruler and deposited in the vaults of the Bank of
England to cover a desperately needed bridging loan. Major reforms were announced in a
'New Industrial Policy' on the same day as Singh's first budget speech on 21 July, which
made it clear that real and not cosmetic change was happening.
1
The Beginnings
The ground for all this had been well prepared, and there were plenty of ideas ready for
Singh to pick up. Plans for reform had emerged in various debates and policy papers over
several years, notably in the 1980s when Rajiv Gandhi was prime minister, and then during
