How WB, IMF got India to adopt reforms in 1991

Sep 17 2010, 09:02 IST
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SummaryIt’s open to the public now. Declassified documents from the World Bank show how it and the International Monetary Fund chivvied and cajoled India into economic liberalisation in the summer of 1991.

It’s open to the public now. Declassified documents from the World Bank show how it and the International Monetary Fund chivvied and cajoled India into economic liberalisation in the summer of 1991. Significantly, it blamed the poor macroeconomic policies under the Congress regime of the 1980s for India’s eventual external sector debacle.

The new Congress government with finance minister Manmohan Singh was presented a stark choice by the two institutions. It will either have to undertake reforms that will promise the needed external support, or brace itself for a “disorderly and painful” transition that will significantly reduce growth for years to come.

The World Bank informed the government of PV Narasimha Rao, sworn in after a tumultuous year, that “the only real options (for India) are whether the adjustment is made in the context of an orderly, growth-oriented adjustment program with external financial support, or through a disorderly and painful process that will leave the country cut off from international capital markets for years to come and significantly reduce its growth”.

About the successive Indira Gandhi and then Rajiv Gandhi-led Congress governments of the eighties, the documents say: “Poor macroeconomic policies throughout most of the 1980s had led to unsustainable fiscal and external imbalances”.

The papers make clear how keenly the Bretton Woods institutions tracked the political developments in India during that period to assess whether India could stomach the economic reforms, which would change the economic and even the political history of this country. It advised the government that “successful implementation of an appropriate programme of stabilisation and reform will require adept political as well as technocratic management”.

Simultaneously, it assures the government about what to expect. “Restoration of rapid growth after a period of stabilisation will quickly ease transitional costs and ameliorate longer term problems”.

The documents, part of the Country Economic Memorandas prepared by the World Bank, usually as background papers to pitch for international aid to India, were absolutely accurate about the problems facing the Indian economy.

The papers make it clear that the Bank was aware of the magnitude of the changes which had to come within the government — of reinventing itself, within industry — to take the first steps to face up to global competition and the society, which will have to bear the adjustment costs including job losses.

For instance, when the term of the Congress government was about to end in late 1995, the

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