One of the boldest statements in any of India’s Budget speeches was inspired by a prime minister, who, a few months before he took office, was in retirement mode, and spoken by a finance minister who was nowhere in anyone’s mind space even a couple of months earlier. So, when Manmohan Singh had his Victor Hugo moment on July 24, 1991, and said in his Budget speech, “No power on earth can stop an idea whose time has come… Let the whole world hear it loud and clear India is now wide awake,” it took time to sink in.
It was, however, a magic moment, no doubt, and India changed forever. Or has it?
Gautam Chikermane’s Reform Nation seeks to answer that question in a highly readable book. Much of the context of the “historic Budget” is well-known, but the story-telling style of the book, which is only to be expected from an acclaimed journalist, makes the pages come alive. The details and the perspective would be particularly useful for those who have reached their adult life after the 1990s. Reform Nation does live up to the author’s promise in the preface about the book being a reference on India’s economic history since independence.
Chikermane writes in detail about the swathe of announcements in the 1991 Budget, from the virtual abolition of industrial licensing, opening up to foreign direct investment and slashing the peak customs duty rate to 150% to establishing a statutory independent regulator for capital markets, etc. In the face of a huge foreign exchange crisis, India, instead of conserving its reserves and shutting its doors bravely, did the opposite—it opened its doors to foreign companies and foreign capital and changed the grammar of its economy.
But the usefulness of the book is in the details—the circumstances that finally led to the unleashing of reforms, which have been carried out with varying success by successive governments. Students of India’s economic history will find the chapters on Bombay Plan, the successive industrial policies, etc, quite useful. As the author says, in the run-up to and since independence, there were eight major attempts at changing the direction of the Indian economy. While most scholars have examined the Big 5 till the Statement on Industrial policy of 1980, few have explored the Industrial Policy statement of 1990. Apart from government policies, there was one bold, and perhaps the only since, statement from private visionaries, popularly called the Bombay Plan of 1944 and 1945, parts of which have infused intellectual vigour into India’s economic discourse.
Though Reform Nation seeks to give an impression that all’s good with reforms under Narendra Modi, the fact is that despite success with key reforms in insolvency and bankruptcy resolution, the goods & services tax, etc, there have been many spectacular failures as well— farm law, land reforms, for example, reinforcing the belief that a strong government at the Centre does not necessarily and always ensure an easy acceptance of tough reforms.
The author blames the Opposition, especially the Congress, for opposing the farm laws that were part of its own manifesto in the 2019 elections. In an otherwise fine book, the author should have avoided statements such as “India will need to look beyond the Congress for continued reforms. Politically too, India will need to search for an opposition beyond the party”. The fact is simple: This kind of politicking is nothing new in India. The Bharatiya Janata Party’s strong objection to insurance reforms when it was in the opposition is also well-known.
A better explanation for the lack of more robust reforms after the first one has been given by former finance secretary Montek Singh Ahluwalia: The first burst of reforms was much easier to conceptualise because the Indian economy was so constrained that it had become a no-brainer that the country needed to change. Subsequent stages of reforms are more difficult and require building of institutions, which takes time. Undoubtedly, the 1991 crisis was not an isolated event. It was the culmination of many incipient crises and challenges, given the then government’s tentative responses to bouts of unabated fiscal profligacy.
Many readers would agree with the author that despite their many remarkable contributions, the povertarian framework created and perfected by prime ministers Jawaharlal Nehru and Indira Gandhi did have a chokehold on India’s economic policies till 1991. Politically, this framework embraced wealth redistribution while shunning wealth creation; economically, it ended up redistributing little more than poverty, rent-seeking and corruption. The Janata Dal government did no better.
India is at the crossroads right now. Thirty years after it reintegrated with the world economy, it is a lower middle-income country that has sustained its economic momentum for three decades, one of the few countries to do so. But the biggest economic challenge now is to meet the aspirations of a young population through the creation of jobs with decent wages. All the necessary conditions for the next reforms are there—scale, technology, politics and aspirations. Now, the sufficient condition of an even greater conviction needs to articulate itself politically and materialise itself economically.
The last part of the book will engage students of India’s economic policymaking because of the insights on what economic reformers would have to deal with in future—the triple trinity as the author calls it. While the first is the trinity of disruptions—technology, geopolitics and narratives, the second is the trinity of major actors—producers, consumers and regulators—and enable them into becoming catalysts for growth, prosperity and wealth. The third is the ability to negotiate the threats and opportunities of the first two trinities to deliver the final trinity—dismantle the colonial legal infrastructure holding India back, reinstate India as one of the major fulcrums of the global economy and become an influential rule-maker, security provider and be counted among those redrafting the emerging new world order. In short, economic reforms, going forward, will need to look beyond economics.
Reform Nation: From the Constraints of PV Narasimha Rao to the Convictions of Narendra Modi
Pp 374, Rs 799