Late Narasimha Rao, who was fondly called PV by many, will be remembered for his many contributions to the nation foremost amongst which, in my opinion, is his sterling success in taking the nation to the next level of reforms in 1991. These economic reforms enabled the nation to traverse the path of realisation of its economic potential. He assumed the reins of the prime minister of India at a time when the country was confronted by severe economic problems. It was a period when India’s foreign currency reserves had plummeted to around $1 billion that was barely sufficient to finance two weeks of imports.
Faced with the financial crisis, in an unprecedented and courageous move, he departed from the usual policy of appointing a senior political leader as the finance minister. Instead, he appointed Manmohan Singh, our present prime minister, as finance minister. He is an economic administrator and a well-known economist himself. He gained rich experience in policy-making as the economic affairs secretary and Reserve Bank of India governor. He was entrusted as the doctor, with the responsibility of nursing and strengthening the economy. Rao displayed great foresight in making this choice and as the present bears witness, this was a brilliant decision that could not have come at a more appropriate time.
Rao gave Singh full freedom to navigate the crisis and introduce far-reaching economic reforms. He lent full support to Singh and the two together, took the nation on a path that has made India an economic powerhouse that the world today admires. The duo of the practical politician and the economist finance minister, thus, steered the nation through the economic crisis, admirably ushering in the seminal policy of economic liberalisation. In fact, Rao had himself spearheaded the move for dismantling the licence regime as the prime minister, while holding additional charge of the industry ministry.
That a large number of big Indian corporate houses have today become the powerhouses of growth and have earned their spurs across the globe is in part on account of the vision of Rao. It is these economic reforms that were ushered in during his tenure as the prime minister, that have charted the course of our economic history since then. The economic reforms unlocked the entrepreneurial skills of the Indian mind cutting across the various sectors of the economy. In the financial sector, measures to bring capital adequacy and prudent norms for asset classification in our banks, licensing of new private banks, besides gradual decontrol of foreign exchange and currency convertibility were implemented.
With the objective of providing market-orientation and to make our public sector enterprises competitive, private sector participation was encouraged through privatisation and disinvestment. Other sectoral reforms such as liberalisation of foreign investment norms, external trade and tax reforms spawned the much-needed change in the incentive structure of the economy. These measures unleashed the productive and competitive spirit dormant in our businesses. The reforms in many ways signalled the transformation of the State’ as a facilitator than as a direct provider of goods and services.
The nature of the economic reforms appeared to some as revolutionary and encouraged many to oppose them. But it did not dampen the enthusiasm of Rao who faced strong political challenges to sustain these reforms. It required the strong courage and conviction that he displayed in abundant measure.
But the adoption of the policy of liberalisation did not signal the end of the role of the state in pursuing the important task of social development. This is where the pragmatism of Rao was writ large. While he recognised the need for a greater role for the private sector in the development of the nation’s economy, he simultaneously emphasised the importance of state intervention in the development of human capital that was given the position of primacy in the Eighth Five-Year Plan.
Towards the achievement of this goal, emphasis was laid on employment generation, literacy, education, health, drinking water and provision of adequate food and basic infrastructure. The government was fully willing to take the primary responsibility for providing the basic elements that would help the development of human capital. These policies resulted in greater employment, reduction in poverty and self-sufficiency in agriculture and achieving 6.5 per cent economic growth, the highest ever until then for any Five-Year Plan period.
Another important decision was India’s accession to the World Trade Organisation (WTO) in January 1995 and Rao’s role in it was pivotal. The Uruguay round of multilateral trade negotiations, wide ranging agreements including the creation of WTO to subsume General Agreement on Tariffs and Trade had come to a halt and India’s position under the then government of V P Singh was hesitant and ambivalent. The implications of India acceding to an all-encompassing multilateral trade regime met with strong domestic opposition. I, as the then commerce minister, signed the multilateral WTO trade agreement at Marrakesh in April 1994, along with other nations.
Rao had a unique functioning style. He understood the virtue of patience and depending on the exigencies of the situation, he was ready to wait till he achieved consensus. When he decided to refrain from acting, it was with a singular purpose. To quote him: “When I don’t make a decision, it is not that I don’t think about it. I think about it and make a decision not to make a decision.” But, when it came to matters of administration and governance, his decision-making abilities were writ large in the speed and decisive manner in which they were implemented.
It was his unique style and political deftness that made him successful in leading a Congress minority government after the 1991 general elections that gave the Congress party 232 members of Parliament in the 10th Lok Sabha. Yet his government survived for the full five-year term and he achieved his feat laying the foundation for politics based on consensus.
Edited excerpts from President Pranab Mukherjee’s speech at the memorial lecture on Late P V Narasimha Rao in Hyderabad on December 31