Backstage: The Story behind India’s High Growth Years

On 3 July 1991, Dr. Manmohan Singh devalued the rupee the second time and wanted to follow up with necessary trade reforms. It took only eight hours—the preliminary briefing Commerce Secretary Montek Singh Ahluwalia gave the Minister, P. Chidambaram, preparation of the draft reforms and getting final approvals by Prime Minister Rao and Dr. Singh—to finalize and announce the reforms.

This was possible because Ahluwalia had already prepared a blueprint on the reforms on the behest of Prime Minister VP Singh in 1990s. Dubbed as the M-document, it formed the basis of the trade reforms that were announced on 4 July 1991 in the Narasimha Rao Government. To know how it was drafted and what reaction it elicited in 1990s, read the following excerpt as reproduced from Ahluwalia’s memoir Backstage: The Story behind India’s High Growth Years, which offers several such rich insights into the making of the reforms and more on Indian governance through the eyes of one of India’s key policymakers.     

Backstage: The Story behind India’s High Growth Years

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In June 1990, I got an opportunity to present my views on economic policy to an inter-ministerial forum. It started with an informal exchange with V.P. Singh during his visit to Malaysia. He observed that he had visited the country as deputy minister of commerce in the 1970s and was impressed at the progress the country had made since. I responded that I had the same impression based on my visits on World Bank missions in the early 1970s. Kuala Lumpur had a distinctly provincial character in those days with a lone Hilton Hotel as the only visible link with the global economy, but had transformed itself into a much more modern city over the years. When the PM asked me what I thought was the reason, I replied, perhaps a little cheekily, that they had been much more forthright in undertaking economic reforms whereas we seemed to lack the will. He reflected for a moment and then asked me to prepare a note indicating the kind of reforms we needed to consider.

Deshmukh had earlier asked me to prepare a paper on policy issues that we could submit to Rajiv if he was re-elected. I quickly dug out my working notes and prepared a 34-page paper for V.P. Singh titled ‘Restructuring India’s Industrial, Trade and Fiscal Policies’. It put together some key changes I felt were needed in the interrelated areas of macroeconomic, industrial, trade and foreign investment policy. 

Many of these ideas had been discussed informally at official levels but had never been put together as an internally consistent set of specific policy changes. I sent the note to the PM, wondering what he would do. He directed it be submitted formally for inter-ministerial discussion in the Committee of Secretaries chaired by the cabinet secretary. Vinod Pande congratulated me on the note and the discussions in the Cabinet Secretariat took place over two days, 13 and 14 June. They were among the most stimulating discussions I have had in government.

The note did not indicate authorship but all recipients knew it had come from the PMO, which ensured serious attention even though there was no indication the PM had approved its proposals. Many journalists speculated it came from me. A leaked copy of the note was published in The Indian Express of 11 July 1990 and this led to a spate of articles by leading economists, including C.T. Kurien, R.M. Honavar, Manu Shroff, B.S. Minhas and P.R. Brahmananda. Ashok Desai, writing on 8 August 1990 in The Indian Express, said the paper was widely attributed to me, but as I neither accepted nor denied authorship, he had decided to call it the ‘M Document’. The name stuck and many commentaries of the period have referred to the paper as such.

 […]

When the note was discussed in the cabinet secretary’s meeting, it revealed interesting differences across ministries. Amarnath Verma, industries secretary, was strongly supportive. He later became principal secretary to the PM in the Narasimha Rao government and played a critical role in implementing the 1991 reforms. I learnt later that Verma, ably supported by Rakesh Mohan (whom I knew well from my days at the World Bank), economic advisor in the ministry, had actually persuaded Minister of Industry Ajit Singh that major liberalization of industrial policy was needed, but they faced opposition from Finance Minister Madhu Dandavate as well as the officials of the ministry.23 The Industrial Policy announced on 31 May 1990 was therefore a scaled-down version of what Ajit Singh had initially approved and Verma was happy to support the proposal in the M Document to push industrial liberalization further.

Backstage: The Story behind India’s High Growth Years

The Ministry of Finance was represented by Finance Secretary Bimal Jalan and Chief Economic Advisor Nitin Desai. They had reservations about the trade liberalization measures proposed in the note in view of the BOP position. I had a strong feeling their position was constrained by the views of Dandavate. It may also have reflected the traditional unwillingness of the Ministry of Finance to give up import licencing, which was viewed as an instrument for controlling the BOP.

Members of the Planning Commission who had earlier clashed with me on the draft approach paper were particularly unhappy that the PM had sent my note to the Committee of Secretaries just a few days before the approach paper was sent to the National Development Council (NDC). Writing in The Times of India on 24 June, Bharat Bhushan described the M Document as a ‘counter approach paper to planning’ and quoted unnamed senior officials of the Planning Commission as saying that ‘if the policies argued for are adopted by the Government, the NDC’s efforts would then seem to be sheer waste in retrospect’. Bhushan also stated that several secretaries objected to the proposals in the M Document on the grounds that ‘this was what several multilateral lending institutions like the World Bank and IMF wanted India to do’.

Damning an idea by putting an IMF or World Bank label on it was common practice. I would not have minded criticism of the substance of my proposals because these could be examined rationally, but being criticized just because what I was saying had some resemblance to what the World Bank was also saying was both irrational and irritating.

The Planning Commission was especially unhappy at the recommendation that new commitments such as the Right to Work should be avoided until the finance position improved. Jain was quoted by the press as saying, ‘The suggestion can only come from a mind which wants the government to be scuttled.’ Another member (unidentified) took a more nuanced view, saying, ‘There was a need for modernization of Indian industry and competition to make industry more efficient, but this should not be at the cost of self-reliance in certain crucial sectors.’

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The debate showed general support for the call for macroeconomic discipline. This was common ground for all economists, though there were differences on how this objective should be achieved. There were different views on the proposals for industrial liberalization and opening of the economy, but the majority opinion seemed to favour greater liberalization. My former boss, Honavar, who was chief economic advisor when I had just joined the Ministry of Finance, did not question the logic of the proposals but asked whether there was any political will.

Ashok Desai was broadly supportive, but felt it should have gone even further. He concluded with the words, ‘M has been a model bureaucrat for long enough: self-effacing, press-avoiding, conciliatory, well behaved and sedate—in short, studiously colourless. In this paper, he is seen with his grey suit off, almost losing his shirt so to speak. Maybe the Government should leak its discussion papers more often; they are not all that bad.’

The PM maintained a studied silence as the controversy continued. He never discussed the issue with me in the PMO, so I cannot say how far he would really have been willing to go if circumstances were more propitious. In my judgement, he knew perfectly well that we needed to move in this direction but he had other worries. He gave some indication of his thinking on 28 June 1990 at the National Convention on Growth with Employment, when he spoke about the need for India to adapt to changes taking place in the world economy, and the need to welcome competition. This reinforced my feeling that his views were not very different from those of Rajiv Gandhi, with whom he had worked very closely and effectively as finance minister.

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Published with the permission of the author. The book is available here.

Backstage: The Story behind India’s High Growth Years

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