'The 1991 Reforms Did Not Happen Suddenly'

I am delighted to have this opportunity to release a collection of essays in honour of my esteemed friend and our Finance Minister Shri P. Chidambaram. The book, edited by Sameer Kochhar of the Skoch Foundation, contains a number of excellent essays by well known distinguished experts.

I noticed that all the authors date their association with Shri Chidambaram from 1991, when he was our Minister of Commerce, and a key ‘reformer’, initiating trade policy reform. I have known him as a ‘reformer’ from even earlier.

In 1986, Prime Minister Rajiv Gandhi appointed him as the Minister of State for personnel, and later for internal security. In both these capacities, Shri Chidambaram pioneered key reforms in our processes of governance. Under Rajivji’s guidance he launched a mid-career programme for civil servants, sending officers to IIMs and other teaching and research institutions. Many civil servants told me that they highly appreciated the opportunity to return briefly to academic pursuits, and benefitted greatly from this experience.

Shri Chidambaram and I were Cabinet colleagues in Shri Narasimha Rao’s government when I was Finance Minister and the reforms of the 1990s were initiated. I recall that Shri Chidambaram was one of the strongest advocates of economic reforms whenever the programme came under attack, both in the Union Cabinet, and also in the wider political arena.

Academic economists who have written about economic reforms in India tend to see the process as an acceptance of technical recommendations which have long been advocated by economists. However, reforms don’t happen just because there is a professional consensus. They happen when the political leadership of the time decides to back these initiatives.

In a democracy, reform – be it of economic policy or of institutions – is essentially a political process. We have to build a sufficiently wide political consensus in favour of the policies we wish to adopt. Having a parliamentary majority alone is not enough, because there are differences within parties. For reforms to be credible it is necessary that a wide cross section of society should understand the need for and accept the policy changes that a government wishes to introduce.

The 1991 reforms did not happen suddenly. They were preceded by a push in that direction in the second half of the 1980s, by the Congress government under the leadership of Shri Rajiv Gandhi. The Congress Manifesto in the 1990 election also gave a very strong reform message. When the Congress government was formed in 1991, under Prime Minister Shri Narasimha Rao, his leadership and support for reforms was equally crucial.

After 1996, we had a non-Congress government with Left Front support, under the leadership of Shri Deve Gowda and later Shri I K Gujral. The policies we had implemented in 1991-96 were not only not reversed, they were in many respects even taken forward. This must have been helped greatly by the fact that Shri Chidambaram as Union Finance Minister in the United Front Government, contributed to a continuity of policy. But I also like to think that it reflects the fact that beneath the loud disagreement and debate that is characteristic of democracies, there is also a growing consensus.

In one of the essays in this book, Montek Ahluwalia has given a detailed account of Shri Chidambaram’s role in the trade policy reforms of 1991. He was Shri Chidambaram’s Commerce Secretary at the time, and his account is therefore an insider’s view of the truly dramatic changes in trade policy that Shri Chidambaram introduced. The fact that within a few weeks of taking over his first economic Ministry, he brought about radical changes in trade policy, which many academics had advocated for many years, is a tribute to the high qualities of his leadership.

Montek draws six lessons from that experience, which he points out are very relevant today. I think, these lessons are worth recounting:

• First, for reforms to take place, Ministers must be willing to give up their discretionary power in support of a system with much less discretion; Montek rightly says that Shri Chidambaram’s readiness to give up his discretionary power was absolutely critical.
• Second, there has to be a willingness to take political risks in launching new initiatives;
• Third, bureaucratic hesitation is not an impediment if the political leadership is clear about what it wants done;
• Fourth, it is easier to bring about change when there is sufficient prior discussion and a reasonably wide consensus;
• Fifth, one must adopt a holistic approach to reform, rather than pursue piecemeal efforts;
• Finally, our system has the capacity to act quickly when it decides to. In those days changes in import policy needed the approval of the Commerce Minister, the Finance Minister and the Prime Minister. It is indeed remarkable that Shri Chidambaram as Commerce Minister was able to get all the approvals in less than 24 hours.

These lessons are relevant today because we are at a critical juncture. Over the past decade, we have seen and experienced the new energy of a rising India. The numbers tell an impressive story.

Over the past decade, when the economy had absorbed the full benefit of the reforms that began in 1991, our economy has grown at close to 7.5 per cent. Our growth rate has slowed down to 5 percent in 2012-13. But this should not make us feel disheartened and imagine that we have slipped back to our old growth path.

The last couple of years have been challenging not only for India, but for the whole world. We must now view this as a short term deceleration. Our Government is determined to once again accelerate the pace of change. Once again, we will prove the Naysayers and Cassandras of doom wrong.

The policy agenda for bringing back India’s growth momentum has been outlined in detail in the Twelfth Plan. Most of the important points are also fairly comprehensively described in the different articles in this excellent volume. We have to deal with macro economic imbalances that have developed. We also have major challenges in key sectors such as energy, water, and land.

Infrastructure is today a key constraint with many large projects held up. The Cabinet Committee on Investment which we have set up gives us a mechanism to overcome bureaucratic delays. Urbanisation is a new challenge which deserves greater attention.

Our strategy must not only aim at faster growth but must also ensure that the growth processes are more inclusive. There are many policies that can help achieve this objective. This also calls for special programmes to meet the needs of hitherto excluded sections, especially the Scheduled Castes and Scheduled Tribes, the OBCs and the Minorities. We have many such programmes. These need to be expanded and made more effective.

An important achievement of the past five years is that growth has been much more inclusive. Agricultural growth has accelerated from 2.4 percent in the Tenth Plan to 3.6 percent in the Eleventh Plan. Poverty is falling faster even though there are disputes going on among the professional colleagues about the pace of change. Per capita consumption in real terms in rural areas has increased four times faster from 2004-05 than it did earlier. The erstwhile BIMARU states are doing much better.

All this suggests that India has all the ingredients required to achieve rapid and inclusive growth.

I am enthused by the good work that many of my Cabinet colleagues are doing to step up the rate of investment, to generate new employment, to re-energise the forces of competition and, above all, to make the growth process socially inclusive.

I find many of my young colleagues handling key infrastructure ministries are working hard and with sincere dedication. They seek inspiration from their senior colleagues like Mr Chidambaram. He has shown that hard work can deliver results. I have no doubt that we will deliver results and once again place India on the path of high and socially inclusive growth.

The people of India expect this. The world expects and awaits this. Let me assure you, we will not disappoint.

I do not underestimate the task before us. As the Twelfth Plan points out our preferred scenario of strong inclusive growth at an average rate of 8 percent per year will not come from business as usual policies. We have to act boldly and decisively.

As Prime Minister, I feel greatly strengthened by the fact that I have a Finance Minister who fully understands this and is capable of taking risks and asserting political leadership. He is not only intellectually brilliant and dedicated to end results: he is also politically savvy. It is these attributes that have made Shri Chidambaram a leader with an enviable reputation both nationally and internationally.

With these words, I conclude by wishing Shri Chidambaram a long, healthy, purposeful and fulfilling life. He has done the nation proud. He has miles to go before he can rest. May his path be blessed.