It was Rajiv Gandhi who in the early eighties set in motion the first moves towards liberalisation and deregulation. But his experiments with change were to be short lived. In a very short time his tremendous charisma was neutralised by inexperience and growing arrogance. So when the party showed disappointing results to parliamentary by-elections and state legislative elections in 1985, the first target of attack was the reform policies. As opposition within the party gained in stridency and the Bofors scandal reared its ugly head, Rajiv backed off completely.
P V Narasimha Rao was the next Congress prime minister to give the liberalisation process its most decisive shove in the right direction. This was albeit under tremendous pressure from the World Bank and was made possible by the fact that the country was on the verge of a default on its debt repayment commitments. Rao accelerated change in the capital market, abolished the controller of capital issues, allowed Indian companies to raise money abroad and introduced a slew of trade reforms and encouraged foreign direct investment as well as foreign portfolio investment in the capital market.
The economy which grew a bare 0.9 per cent in 1991-92 soon shot up to 5.3 per cent in 1992-93 and further up to 6.2 per cent 1993-94, 7.8 per cent in 1994-95, and 7.2 per cent in 1995-96. Current account deficit dropped from 3.7 per cent of GDP in 1990-91 to 0.5 per cent in 1994-95 while foreign exchange reserves rose from default level to $ 17 billion at the end of 1995-96.
Ironically, even as industrial policy reforms spurred a dramatic recovery in manufacturing (from 0.6 per cent in 1991-92 manufacturing grew by 4.2 per cent in 1992-93 and averaged a 10.7 per cent annual increase during the following four years while peaking at 13.6 per cent in 1995-96), the opposition to reform within the Congress Party began to reach hysterical proportions.
The Opposition led by Congress MP Arjun Singh demonstrated that the party even at that stage had lost the foresight and vision to build on the dramatic recovery and market its benefits. Part of the problem was Rao's dour and uncommunicative demeanour; the other was that in the process of liberalising the economy, the government unleashed an unprecedented wave of corruption. It was clueless about the shenanigans in the securities market by a cabal of unscrupulous brokers and bankers, the gold plated infrastructure projects justified by slogans such as "any power is better than no power", and worse yet the attitude that all restrictions and supervisory powers were bad.
One example was the abolition of the controller of capital issues with a one-line order, which failed to protect investors from the loot by rapacious industrialists. The orgy of fund-raising by existing industrialists as well as traders and accountants grabbing an opportunity to pocket public funds ultimately killed the initial public offering market for three years. Even five years later the IPO market has not fully recovered and investors remain deeply distrustful of business.
The hodge-podge United Front government tried to maintain the pace of reform, but its tenuous hold on political power and the deep contradictions within its own ranks negated many of its efforts. For instance, P Chidambaram's Dream Budget was quickly marred by the collapse of the H D Deve Gowda government and the I K Gujral regime that followed never really enjoyed real credibility. The tragedy is that it is the United Front government, which had attempted to correct the problems of reckless liberalisation by setting up regulators to supervise insurance and telecom. It also set up the Divestment Commission to enable credible divestment of public sector units and tried to push infrastructure development through a new institution. But all these bodies were killed by the refusal to empower them adequately.
Economic performance began to decline under the United Front government -- GDP dropped from the peak of 7.5 per cent (1996-97) to five per cent (1997-98). Industrial production which was at 7.1 per cent in 1996-97 slumped and exports plummeted from 20 per cent plus to 5.4 per cent in 1996-97 and further to around 2.6 per cent in 1997-98. The strong anti-reform lobby immediately concluded that too much of liberalisation was to blame.
Since the UF government's performance remained patchy, it is Narasimha Rao along with Finance Minister Manmohan Singh who would probably go down in history as India's biggest reformers. The irony is that on one hand a few chickens of those years are still coming home to roost and the Congress is desperate to distance itself even from the positive aspects of those policies.
The party now headed by Rajiv's Italian-born widow has decided that pseudo populism with a kisan bachao slogan will do for her cash-strapped party what garabi hatao did for Indira Gandhi.
It is a moot question whether poor farmers of Bharat react to the Italian widow championing their cause in the same manner that Thakur leader Amar Singh reacted to her Doon School educated-former foreign service spokesperson -- with a firm kick in the rear.
Sadly the Congress volte-face about reforms comes at a bad time for the country. The Bharatiya Janata Party struggling with power for the first time cannot seem to kick-start the economy and is groping for ways to balance the Budget. Old economy industrialists, struggling to cope with new economy reality including the consequences of the World Trade Agreement, are lobbying for protectionist import barriers. Neta-babu vested interests and banks have literally sabotaged public sector divestment and insurance companies which have been thrown open to competition from the private sector face an uncertain future.
Typically, the introspection document released last week, which is allegedly endorsed by former finance minister Manmohan Singh is drafted so cleverly that any direct allegation that the Congress is abandoning reform can be countered with specific fine print. Here are examples -- it says that higher growth is the single most important means of poverty removal, but it is the 'quality' of growth that marks the shift in stance. Similarly, it argues that one "must persist with the programme of economic reforms initiated in the early eighties" and at the same time says that the Nehruvian patter of mixed economy is the answer to our economic ills.
While regretting that "reforms have run out of steam and fallen below the rates achieved during the Narasimha Rao regime", it is silent over its own efforts to strangle reforms during the last days of Rao's tenure. Having made appropriate noises about supporting growth and reform, the document goes on to elaborate its thrust areas -- food security, poverty alleviation, continued subsidies, health insurance, backward area development, land reforms and land records, rejection of de-nationalisation of banking sector and a white paper on divestment.
Funnily enough, nothing the Congress paper has mentioned -- except perhaps the view on bank nationalisation and divestment -- have ever been jettisoned by any other government. In fact, from Manmohan Singh to Chidambaram, everybody had a set of platitudes to cover poverty alleviation to backward area development. Also, neither the Nehruvian mixed economy nor Indira's garibi hatao slogan or bank nationalisation cured India's problems of poverty, illiteracy and poor health care systems.
We were so smugly content with our closed economy and planning process that we refused to acknowledge the rapid growth happening in war-ravaged Europe and later in Japan and the East Asian countries. Similarly, we ignored China's reform drive. The rest of the world debated the merits and demerits of investment in China versus India.
But here in India, the Chinese economic threat was rarely discussed leave alone countered with a specific action plan -- that is, until cheap Chinese imports have threatened to wipe out several small scale sector industries here.
The Congress owes a lot of explanations to the people of India and is directly responsible for many of our problems. The party is free to choose any public rhetoric to win votes, but if its new economic agenda is aimed at derailing the reform process by playing an obstructionist role in Parliament then it ought not to be tolerated.