Pioneer of the current Indian economic miracle – PV Narsimha Rao: A tribute by his son

Pioneer of the current Indian economic miracle – PV Narsimha Rao: A tribute by his son

by June 28, 2018 0 comments

PV Narsimha Rao28 June 2018 marked the 97th birth anniversary of P.V. Narasimha Rao, the former Prime Minister of India, whose term from 1991 to 1996 laid the foundation for the rapidly-growing Indian economy of today. One of the statesmen-politicians of India, Mr. Rao’s term as Prime Minister was one of the most transformative periods in the history of post-independent India.

“Father of Economic Reforms”

The idea of economic reforms was not new but its time came only in 1991. It is said that if a miracle has to happen three ingredients are needed – the man, the moment and the idea. In this case, the last two ingredients – the idea of economic reforms and the opportunity to reform were available to prime ministers before 1991 – in fact, this was a much-discussed idea in the corridors of power since the 1970s. However, 1991 saw the emergence of the third ingredient – the man – P.V. Narasimha Rao. Once Mr Rao assumed power, the miracle called economic transformation happened, resulting in a paradigm shift in the thinking of people not only within India but in the way other countries perceived India.

The catalyst for the reforms was the unprecedented economic crisis, in essence a Balance of Payments crisis, of 1991. Many economists have described this in great detail. Loans taken earlier had to be repaid to IMF in dollars and India simply didn’t have those dollars. This crisis was the culmination of a long-standing BoP problem that plagued Independent India, barring a few years. In the initial decades, budget deficit was met by concessional assistance flowing into the country. By the 80s, deficit had to be met through non-concessional loans, mostly borrowed at market terms from the IMF. The result was a debt-driven economy where borrowed foreign exchange loans were used for imports as well as investments instead of growing the exports. This was a completely unsustainable model that led to the near collapse of the Indian economy. By 1990-91, most of these loans became due for repayment. Adding to the woes, the flight of NRI deposits and drastic reduction of dollar inflows from the Middle East NRIs because of the Gulf War aggravated the situation. The final assault came from the tripling of oil prices and consequent depletion of foreign exchange reserves. It was a crisis unprecedented in Independent India. It was at this juncture that P.V. Narasimha Rao became the Prime Minister of the country.

Within 45 days of taking over, Mr Rao changed policy and procedure to accommodate liberalisation of the economy by bringing in trade reforms, devaluation of rupee by 20%, tariffs and subsidies, and introduced free exchange regime. He unshackled the private sector industry by abolishing the Licence Permit Raj and by connecting it to the global markets. He also allowed foreign investment in literally every sector, save 18 specific areas. Narasimha Rao’s big bang reforms were comprehensively targeted to overcome the BoP crisis but also saw an opportunity to create a new economic structure. The reforms demolished the three pillars of the old dispensation – state spending on the public sector, shackled private sector and the Indian economy getting cut off from the rest of the world. The new economic policy of Liberalisation, Privatisation and Globalisation replaced the old model.

Reforms with a ‘Human Face’

While ushering in such far-reaching reforms in the economy, Mr. Rao believed that creating wealth and its redistribution equitably to the masses were two sides of the same coin and were interdependent. He would go on to say at various fora that economic reforms were the tools used to meet the same objective as always – serving the poorest of the poor and ensuring their well-being. He stressed upon the different roles of the market and the government, explaining that they should complement each other and not replace each other.

He was always committed to inclusive growth, as clearly visible in his thought and action in the 5 years of his tenure. His tenure has not only seen economic reforms but also some firm steps towards poverty alleviation. His speech in Davos 1993 clearly elucidates the thought behind the economic reforms – “In the newfound enthusiasm for change, the Government should not go overboard and plunge large chunks of people into mass misery. We have to find solutions which involve reforms but with a human face. Each society has to find its middle way suited to its genius and circumstance. We accept the change because it is necessary, not because we are helpless – definitely not because there is no other solution – voluntary acceptance is the crux of the matter.”

PV was therefore of the opinion that while economic reforms result in accelerated development of the economy, simultaneously benefits should also accrue to the socially deprived section of society – an idea that is an early expression of today’s catchphrase of ‘Inclusive Growth’. He believed that economic reforms should not create disparity or create social tensions. The fruits of reforms should reach the lowest rung in the social pyramid and ensure that they become self-reliant and lead a life of dignity and freedom. Not just inclusive growth, his ideas of reform and development encompassed another buzzword of today – ‘sustainable development’. He strongly believed that the process of economic reforms should depend on three considerations – level of material benefit necessary for a human being to attain his full creativity, the level of exploitation of nature consistent with its need to replenish itself and the need to ensure comparable benefits to the vast mass of people and life.

PV Narsimha Rao

Commitment to Rural Development

His birth in a farmer’s family, his upbringing in rural India, and his own experiments in agriculture as a progressive farmer left Mr Rao with strong insights into the rural economy. He realised that if the country has to grow, infrastructure has to grow, manufacturing has to grow for employment generation, but most importantly, there has to be a huge rural development programme. He never believed in piecemeal rural development. He advocated comprehensive and overall development of all the sectors contributing to the rural economy and rural welfare. He wanted clean water to be made available, women empowerment through DWCRA, improvements in primary health, primary education, empowering of artisans, animal husbandry, poultry, small and tiny scale industry, khadi and village industry, textiles, in fact, improvements in every possible sector. Implementing such schemes for rural development would require huge funds. And so, the allocation of funds was increased to Rs 30000 crores in the Eighth Plan from a mere Rs 7000 crores in the Seventh Plan. Ambitious targets of Rs 60000 crores were set for the Ninth Plan. But where did these funds come from? The answer to this question comes from Mr Rao’s vision for economic reforms. For the first time in the history of Independent India, he proposed that the large infrastructure projects hitherto being funded by the State, instead be thrown open to the private sector and foreign investors. As a result of this, it became possible to utilise the thousands of crores, which would have been tied up in these projects, for rural development and social welfare. He used to say, “Let the top be taken care of by private funds and we will take care of the grassroots.” The idea was to create more wealth for the country which could be effectively and meaningfully distributed between development and welfare.

P.V. Narasimha Rao – Socialist or Capitalist?

Naysayers have often accused the first generation economic reforms of 1991, and Mr Rao, of being pro-capitalist. As evinced by the concept of ‘reforms with a human face’, and with his personal commitment to rural development, it is clear that the reforms were neither capitalist nor socialist. If increasing the wealth of the nation is a capitalist idea, then the appropriate redistribution of such wealth amongst the people is a form of socialism. Both go hand-in-hand. So was P.V. Narasimha Rao a socialist who went astray? Was he a capitalist? Did he stay a staunch socialist? In my analysis, he was a social democrat who believed in hardcore pragmatism. Ultimately, no ‘ism’ mattered to him as long as his policies yielded results and benefited the poorest of the poor. The vision of the economic reforms was ultimately to improve the lot of India’s economically backward population. Mr Rao braved many brickbats in attaining his vision. He was aware of the strong socialist-capitalist criticism he was facing, but did not care as long as the common man benefited. He quipped during the TATA Memorial Lecture 1999 – “I lost one job pursuing a so-called socialist policy, and as though to compensate that, I lost the second one pursuing the capitalist policy!”

PV Narsimha Rao

Remembering a great patriot-statesman

P.V. Narasimha Rao once said, “I have been a doer throughout my life, less of a talker and very few to talk for me.” In the years after his term as Prime Minister, this has largely been true. Mr Rao has been ignored at best, and unfairly vilified at worst. It is only now that India is waking up to the fact that this man’s foresight and vision paved the way to a better and greatly improved (and still improving) India. He spelled out the most important decisions post-Independence, so much so that if someone sits down to write the history of post-Independence India, he will have to write it in two parts – pre Narasimha Rao’s term as PM and post Narasimha Rao’s Prime Ministership. The result of his efforts is that the foreign exchange which was hovering around Rs 3000 crores in 1991 increased fifteen-fold by 1996. GDP grew from 3.5% to 7-7.5% There was substantial increase in growth figures of industry agriculture and exports and the inflation almost halved from the double digit figures of 1991. The benefits of his policies are still being enjoyed by the average Indian.

The name P.V. Narasimha Rao brings to our mind attributes like intellectual excellence, exceptional political sagacity, and a man of learning. Above all it carries the image of a great Prime Minister who changed the destiny of millions of Indians through his policies. It is time we honour a man who spent his life serving his country and his fellow-citizens by awarding him the Bharat Ratna.

About the author: P. V. Prabhakar Rao is the President of the Swami Ramananda Tirtha Institute of Socio-Economic Research and National Integration, a member of the Swami Ramananda Tirtha Memorial Committee, and the Managing Director of a not-for-profit company he started in the name of his father, statesman politician Sri P.V. Narasimha Rao. Mr. Prabhakar Rao is very conversant with post 1980s politics in India. In addition to his four-decade long career as an industrialist and entrepreneur, Mr Rao assisted his father by coordinating his activities with other senior political dignitaries and bureaucrats, handling his media interactions, and collating data from the grassroots.

Tribute note by Prabhakar Rao.

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