Recently on a dinner outage with a close friend, he mentioned that it is Rajiv Gandhi government which introduced economic refroms in India (I thought he really sounded like Sonia Gandhi ). it was a such a shock for me as he is from India and he lived in India as a teenager under Rajiv's rule and he has in college during Manmohan-Narasimha Rao stewardship. Unfortunately he is not only guy who said such things about India govts before 1991 , I heard things like that when Indira Gandhi nationalised banks, it helped poor people. ( joke is less than 35% of todays Indians have banks accounts and even in those nationalised banks, private sector IT employees had difficulties openings bank accounts 10 yrs back. Indira Gandhi nationalised banks and Insurance becoz it allowed govt borrow money at their low interest rates). My friends and others comment made think that I atleast attempt to correct this wrong so I decided to write about 6 part article on economics
Before 1991 reforms , following is the economic conditions in India
- Foreign Currency control ( all persons have to surrender foreign currency on landing in India) and that also means no FDI and FII investments
- there is passport and visa restrications/advanced permissions requirements for foreign travel
- Export control ( nothing can be exported without Govt permission)
- Import control ( nothing can be Imported without Govt permission)
- Production control ( govt thru excise duty controls how much product is produced like there is always a shortage of RIN, surf or kwality/Arun ice creams before 1990, like for eg. no more than 100 bars of RIN can be produced per day per factory)
- Monopolies Restrications (MRTPC) for example HLL owned RIN,SURF, lakme, fair and lovely they are different companies, leading to low hourly wages, poor distribution of managerial skills and so on
- Most of the jobs were in Govt and public sector
- tought labor laws mean very few recruitments and also layoffs
- License raj, govt permission required to start any business
- Small scale industries reservations, many products were reserved for small scale industries.
- Banks hardly lend to public, people bought houses on their savings or thru employee thrift funds
- Money lenders profited
- restrications of export mean among others gold, foriegn currency were smuggled illegally and it led to the development of Mafia in Bombay thru the Gulf-singapore route
-Ration shops thru Food corp of India bougth most of the rice and wheat meant that 80% of India which "still" has no ration shops faced food shortage and increased poverty. (Govt created poverty and food shortages thru ration shops)
- Inflation was 15% during Rajiv Gandhi period ( slighlty better than 20% during post-1962 period)
- GDP Growth was 8% ( but average for 1950-1991 is still 3%)
- Income tax was very high around 55%
- Poverty rate was close to 60%
- Foriegn Debt went from 15Bn USD to 75 bn USD ( that eventually led to 1990/1 foriegn current crisis on account of US invasion of Iraq)
and so on it is such a pain to even write about all these. None of these changed till Manmohan singh was appointed as Finance Minister
What Rajiv Gandhi really did are and succeeded
- New Education policy - which led to private colleges and good quality Navodaya schools
- Telecom policy - Govt relaxed export of electronic goods , which allowed BSNL and MTNL to export routers, switches and fiber cables, which led to a dawn of digital telephone in India
- Computerization of Government, his government favored computerization of government ( note there is no support for private sector)
- Panchayati Raj introduction
- Consumer act law
- His government prepared papers of election reforms, judicial reforms, education reforms, Labor reforms, liberalsation reforms, privatisation reforms, globalization reforms.( BUT he IMPLEMENTED NONE in spite of having 400 MPS in Lok sabha)
Where Rajiv Gandhi really failed
- He and his govt slept thru collapse of communism ( compare to Nehru or even Indira)
- Bofors - his failure is not in bofors corruption, but after exporting bofors guns, he cancelled all business deal with bofors, resulting in those guns having no bombs, those guns one of the best in mountain terrains like kashmir lived empty for over 13 yrs before kargil forced the govt to buy the bombs from Israel for emergency and then from Bofors
- HDW submarine, HDW is a West Germany company which was building submarines in bombay with transfer of technology to India, but becoz of bofors and another round of corruption accustions, Govt cancelled the contract. HDW packed up. The end result even after 23 yrs, India has no capability to build submarine even today.
- Having huge majority in parliament , he did not go ahead with 33% women reservation nor he allowed pachayats to raise their own tax.
MY next article will be " Part 2:- Why I disagreed with My Friend" It will be in general in What Manmohan singh did and did not achieve during 1991-96
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4 comments:
I am sorry to inform you that I would have to agree with your friend. It is a general accepted answer to the arguement in government and administratvie circles that Rajiv Gandhi is the architect of Indian economic reform. It was economic liberalization that was first ursued in PV Narisimha Rao's government from 1991. The conditions in 80's was drastically different from 70's which is more associated with government raj.
Although the facts you have suggested in article are more to do with corruption, it was Rajiv's era that the actual reforms started. Sam Pitroda's communicatins changes is widely considered as the starting point of Indian economic reform
Hi Goofy, you mean buying for 250 crores worth of switches, routers and fiber cables from taiwan has liberalisation?. Do you know many of these equipments were lying in godowns even in 1995. Sam pitroda converted analog rotary devices to digital devices. I do not know how it is economic liberalisation. Private sector was still hampered, computerisation was with government, public sectors.
IBM in 1996 bought more than DOT bought in 1980s to connect its office in australia, singapre with chennai, pune, mumbai, bangalore offices.
One thing that can be called reforms in terms of privatisation or liberalisation is New education policy of Narasimha Rao, which allowed private colleges w/o licenses with only approval from AICTE and UGC. I do not know how my facts are do with corruption? it was pure control of private enterprise by government.
Perhaps I'm one of those ill informed ones - but wasn't liberalization thrust upon us by the World Bank because we only had enough foreign exchange reserves to pay for two weeks of oil imports, and our economy was on the verge of collapse? They gave us loans, and forced us to open up the economy...
Rather than give credit to any government, or Rajiv Gandhi, Narasimha Rao or even Manmohan Singh, perhaps one should put it down to circumstances. I'd say that the post-liberalization governments were responsible for that situation. But then again...maybe I'm ill informed.
Goofy and Nikhil, Thanks for dropping in.
It may be India discussed with IMF & world bank. ( India took the loan only in august-Sep). While India pledged gold in may and reforms was announced in Jun-jul, 1991.
In the global context of failure of USSR in Sep-1991, failure of all communist countries ( 1989 berlin wall) and discredit of socialist movement, Rise of a capitalist china, economy success of Japan, korea, Thailand, Indonesia, Malayasia made ManMohan singh go for very bold decisions like to dismantle license raj and disinvestment and reduction in taxes.
Also BJP had anti-socialist attitude, so it helped in parliament. One of the grudges aganist Rajiv Gandhi was his huge majority in parliament and very poor legislative record. On the other hand, Manmohan singh thru current congress government passed very tough laws like IRDA, SEBI , banking laws, MRTPC, Foriegn currency, telecom ..etc.
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