It is amusing how Congress and team portrays Dr. Manmohan Singh as the saviour of Indian economy, a messiah, a superman who with a cape of his economic wisdom saved the drowning Indian economy.
Let us have a reality check in the simplest words possible.
The newly independent India’s economy was Socialist and it was called as “Nehruvian Socialist model”, it had been followed for decades but this model was not generating capital.
Then comes the year of 1989, a year of political instability, battling the charges of corruption, Rajiv Gandhi had lost the general elections. The new government was incapable.
During this time only, The IMF, The WORLD BANK AND The US DEPT OF TREASURY came up with “Washington Consensus”, a set of 10 economic policies for developing countries that could shape the economy, India here failed to apply those policies properly. India entered into a turbulent decade. The great economic crisis was caused due to the fiscal imbalances over the past years. Several issues made the economic situtation worse.
India’s imports were higher than its exports resulting in having the problem of Balance of Payments (BoP). India’s oil import cost went up due to Gulf war, export was almost nil causing a large fiscal deficit. It was year 1991 when the existing government had fallen and Rajeev Gandhi campaigned to become the new Prime Minister of India. On 21st may 1991, he was assassinated.
Due to a country wide sympathy, Congress rose to power again with PV Narsimha Rao as the new Prime Minister of India and Manmohan Singh as the new finance minister. The new government started to rebuild the economy but there was no money.
The government had to knock the door of IMF.
Under the Extended Fund Facility (EFF) Programme of the IMF, countries got external currency support from the fund to mitigate their BoP crisis, but such supports had some obligatory conditions.
And the conditions put forth for India were:
1. Devaluation of rupee by 22%
2. Reduction in peak import tariff from 130% to 30%.
3. Excise duty to be hiked by 20%
4. All government expenses to be cut down by 10%.
So, at this point of time, IMF dictated India’s economy and FM was just a puppet in the hands of IMF. Interestingly, a lot many conditionalities related to IMF loan was not disclosed to the public.
On June 29, Dr. Singh had sent a letter of Intent to IMF, but no one cared to ask what was in it. The government did not even table the Letter of Intent in Parliament, not even a single MP cared to ask.
Press closed its eyes and wrote columns congratulating the government for its “bold steps” and for opening up the economy.
I, here, will not go into the details of the timeline and amount of loans or about the tonnes of gold that were pledged for the loan. The main intent of writing this post is to convey the fact that these loans were acquired on conditions which were presented to masses as economic reforms, the LPG- Liberalisation, Privatisation, Globalisation.
Finally, FM added cherry on the cake in his poetic budget speech in 1992, receiving applause and patting on the back, but I believe that he was at the right place at the right time taking advantage of the worsening economic situation, and political consensus moving towards some bold reforms which was absent in the earlier decades.