The Tabling of the New Industrial Policy of 1991

In one sweep, the New Industrial Policy of 1991 put an end to the shackles that had made the Indian industry inefficient and non-competitive. Barring 18 industries, the Rao government abolished the decades-old regime of industrial licensing. The MRTP Act was diluted allowing market players to scale up without government approval. Automatic approvals for foreign direct investment with majority holding and qualifiable foreign technological agreements were assured. Some of the sectors solely under the government’s purview were opened up to the private players.

But bringing about such change is never easy. Especially when it appears to be an affront to the legacy of those who came before. Through Jairam Ramesh’s observations as an insider and witness, as published in his book To the Bring and Back, find out how Rao and his confidantes outmaneuvered external and internal opposition to the policy.  

The prime minister won the vote of confidence in the Lok Sabha on 15 July. After his widely-appreciated reply on the same day, the prime minister instructed us to get the cabinet note on industrial policy reforms ready. The Ministry of Industry prepared the note and the cabinet was to meet on 19 July to consider and approve it.

On 6 July, The Hindu carried a headline, ‘New radical industrial policy coming’. But on 19 July, the headline read, ‘New industrial policy may not be radical’! This newspaper generally had its hand on the pulse of the government at the highest levels—so one certainly had cause for worry!

Expectedly, there were fireworks in the cabinet on 19 July. Many ministers objected both to the substance and style of the note on industrial policy reforms. Some felt that we were abandoning Congress’ ideology while some others felt that a strong case had not been made for these far-reaching changes. The predominant view was that the cabinet note appeared too damning of the past.   

That very evening, A.N. Verma called me to his residence and told me what had happened. He said that the prime minister had set up a Group of Ministers (GoM) to look at the proposals once again and that he wanted me to reshape and recast the cabinet note in a suitable manner. I asked A.N. Verma what ‘a suitable manner’ meant, to which his reply was ‘tum jaano (you’d know)’. When leaving, Verma told me that the prime minister wanted me to attend the GoM meeting the next day and answer any question that may be raised. After listening to the deliberations of the GoM, I was to redo the cabinet note and send it to Verma and the prime minister immediately—which meant on the evening of 20 July.  

The GoM met the next day. Madhavsinh Solanki was worried that the industrial policy reforms would hit the development of backward areas and said that tight controls had to be retained on industrial location policies. Arjun Singh and M.L. Fotedar were apprehensive that we had gone too far in relaxing MRTP controls. B. Shankaranand was unhappy with the provisions for opening ourselves to foreign investment, that too in such an obvious manner. Balram Jakhar and Rajesh Pilot too felt that we were diluting the party’s public sector ideology significantly. But the commerce minister, P. Chidambaram, defended the reforms proposals unequivocally, addressing every single concern raised in his own inimitable style. I mostly listened, intervening only once or twice to clarify some doubts raised by the ministers.  

As the meeting ended, Manmohan Singh smiled at me on the way out and said, ‘Now it is up to you, Jairam.’ I was confused and completely at a loss about what needed to be done. Were we going to abandon industrial policy reforms or were we to go ahead? The prime minister himself had not said anything, and A.N. Verma wasn’t sure what the prime minister expected of me. Besides, I had barely been given any time.  

I tried to make sense of the GoM meeting. It appeared that the political packaging of our reforms proposal was not right. It also appeared that the cabinet note, considered by the cabinet on 19 July, lacked historical context. I spoke to the finance and commerce ministers, and they orally gave me some formulations to mull over. I took about two hours to think them through and draft a longish preamble to the cabinet note. I showed it to A.N. Verma and he liked what he read. He dispatched it to the prime minister and asked me to go home.  

A little while later, Verma called me and said that Narasimha Rao was appreciative of what I had done and felt that, with the preamble, we might still be able to get the industrial policy reforms through. Moreover, the prime minister had made some additions after consulting the finance and commerce ministers. The actual content of the cabinet note, however, remained unchanged.  

What the preamble did was provide a political context to technocratic text, with the clincher being the line ‘continuity with change’ at the very end! To use Narasimha Rao’s own words (enunciated in another context), the preamble was a lesson in how to facilitate a desirable U-turn without it seeming to be a U-turn! This was my first major lesson in political packaging and marketing, and I would have numerous occasions to use this lesson on crucial occasions over the next quarter of a century in public life.  

The union cabinet met again on 23 July 1991 to consider the revised cabinet note with the preamble. Most of the original sceptics who had protested on 19 July felt reassured after reading the preamble. M.L. Fotedar, a political heavyweight, took the lead and said that had the original cabinet note come with such a preamble, there would not have been so much as a murmur. He concurred with the cabinet note, and after he had spoken, others followed suit. Thereafter, in a most unusual move, the larger union council of ministers met to give a seal of approval to what the cabinet had decided.

CWC Meeting

Prime Minister PV Narasimha Rao with Congress party leaders at the CWC meeting

Narasimha Rao did not want to leave anything to chance. He convened a meeting of the CWC at 3 p.m. at his residence. The official minutes of this meeting that lasted ninety minutes read as follows:  

[…] at the permission of the Chair, Shri Manmohan Singh, Union Finance Minister, who was specially invited in the meeting apprised the Working Committee about present financial position of the country and the Industrial Policy of the Government. After hearing Shri Manmohan Singh, the Working Committee endorsed the Government’s industrial policy in principle and made it clear that every effort should be made to remain within the framework of the Party’s manifesto.  

The next day was really an anti-climax. I was imagining a big bang announcement of the industrial policy reforms, as were many others. Instead, at about 12.50 p.m. on Wednesday, 24 July 1991, about four hours before Manmohan Singh was to present his budget, P. J. Kurien, the minister of state for industry got up in the Lok Sabha and read out a brief statement: ‘Sir, I beg to lay on the table a statement (Hindi and English versions) on Industrial Policy.’ That was it. A bland sentence to usher in a radical transformation of Indian enterprise.   

Published with permission of the author.

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