To the Brink and Back: India’s 1991 Story (17 page)

Criticism of the budget from within the Congress mounted when the debate started in both houses of Parliament. Clearly, we were on the defensive and even the normally unflappable
A.N. Verma looked distraught, blaming me at one stage for excessive zeal. I wondered whether he was reflecting the prime minister’s views, but chose not to probe him further on the subject. The finance minister was also a bit rattled with the intensity of reaction within the Congress to some of his budget proposals.

It was then that the prime minister decided to allow Congress MPs to vent their spleen freely. A meeting of the CPP was called on 1 August 1991, in which the finance minister defended his budget. The prime minister stayed away and allowed Manmohan Singh to face the flak on his own. This was followed by another set of meetings on 2 and 3 August, in which
Narasimha Rao was himself present throughout. Thereafter, three meetings of the CPP took place on 27, 28 and 29 August, in which the discussions focussed on agriculture—the main concern of the Congress MPs. The CPP meeting on industrial policy itself only took place on 16 December 1991—long after the industrial policy reforms had been fully digested and understood.

It would not be an exaggeration to say that barring in Jawaharlal Nehru’s time, the CPP had not been as active or interactive as it was in August 1991. This was undoubtedly the prime minister’s way of allowing the MPs to have their say, while reserving the right to have his way at the end. Of course, he did not put it across that way, but it seemed to me that this was smart politics—something neither the finance minister nor I fully appreciated then, but which we understood in our own ways in subsequent years as the finance minister became prime minister, and I, an MP and cabinet minister.

In the CPP meetings, the finance minister cut a lonely figure and the prime minister did nothing to alleviate his distress. He had no support whatsoever for his proposals to cut subsidies. Only two MPs were fulsome in their backing of the finance minister’s budget—
Mani Shankar Aiyar, the newly-elected MP from Tamil Nadu and one of Rajiv Gandhi’s closest aides; and
Nathuram Mirdha, the veteran farmer leader from Rajasthan. In view of his later opposition to what Manmohan Singh stood for, the support from
Mani Shankar Aiyar would appear very surprising. He has justified his stance at the CPP as the outcome of his inside knowledge of the esteem that Rajiv Gandhi had for Manmohan Singh and his conviction that the late ex-prime minister would have approved of the 24 July budget given the extraordinary circumstances in which it had been prepared and the catastrophe that awaited India had such a budget not been presented.

In the CPP meeting of 2 August, when Mani Shankar Aiyar spoke of how the 24 July 1991 budget conformed to Rajiv Gandhi’s beliefs on what needed to be done to stave off financial doom, his views were immediately challenged by
R.K. Dhawan—who had also been an aide to
Indira Gandhi and Rajiv Gandhi—on the grounds that it was impossible for anyone to know the late prime minister’s opinion. Soon, the agriculture minister,
Balram Jakhar, and the communications minister,
Rajesh Pilot, went public against the proposal of their own cabinet colleague. Ironically, even the minister of state for chemicals and fertilizers,
Chinta Mohan, expressed his disquiet, and mobilized several farmer organizations to protest against the cut in fertilizer subsidy.

Subsequently, fifty Congress MPs under the aegis of the
Farmers’ Parliamentary Forum signed a letter to the finance minister, critical of the budget proposal. The signatories made a strange grouping. The chairman of the forum was
Prataprao Bhosale, a senior MP from Maharashtra believed to be close to the prime minister,
⁷¹
and one of the signatories was
Murli Deora, the MP representing South Mumbai whose proximity to industry circles was known. To add to the tension, several opposition parties threatened to move a cut motion
⁷²
against the fertilizer price hike. With the prevailing mood across the political spectrum, there was every prospect of the cut motion being passed, which would have spelt disaster for the government.

Moreover, another cut motion had been threatened on an announcement contained in the budget—a grant of
100 crore to the newly-created
Rajiv Gandhi Foundation. The prime minister and the finance minister may have felt that they would be pleasing Congress MPs and the Congress as a whole, but, in point of fact, the move boomeranged badly. It was criticized both by Congress MPs and the opposition. The foundation’s trustees led by
Sonia Gandhi had not even asked for it and, in fact, wanted its withdrawal. Wisely, the finance minister scrapped the idea on 6 August in the Lok Sabha.

The finance minister had proposed, as part of his
budget speech, a 40 per cent increase in the prices of fertilizers to contain the subsidy bill. However, given the barrage of criticism he was subjected to from all political parties, including his own, he bowed to the pressure, and on 6 August 1991 announced in the Lok Sabha that the increase would be lowered to 30 per cent. However, even this did not pacify members, including Congress MPs. While the protests were still on, Manmohan Singh went ahead and announced that small and marginal farmers—who had about 76 per cent of the operational holdings, 29 per cent of the area under cultivation and accounted for 30 per cent of the fertilizer consumption in the country—would be totally exempted from the price hike. He did not roll back the increase in LPG and petrol prices but his concession on fertilizer prices silenced his critics, particularly within his party. I was a bit puzzled about how a dual pricing system would work in actual practice but kept my reservations to myself because it seemed to me that this was a huge political victory for the prime minister and the finance minister. Within a few months, though, the idea’s unworkability became apparent.

Behind the scenes, what had happened was this. The
Cabinet Committee on Political Affairs (CCPA) had met informally on 4 August, and then again the next day on 5 August, in response to persistent pressure from Congress MPs from all states—including the prime minister’s home state—and had decided the statement that Manmohan Singh would make on 6 August in the Lok Sabha on this matter.

Normally, no press statements are issued after CPP meetings. But this time, a statement was indeed released by the party spokesperson and MP, Professor
C.P. Thakur, after the CPP meeting of 3 August which formed the basis of the CCPA deliberations. The statement dropped the idea of a roll-back which had been demanded over the past few days, but now spoke of protecting the interests of small and marginal farmers and—in what can only be described as classic
Rao-Singh language—stated: ‘The deliberations indicated clearly the bridging of the gap between political concerns of the members and the unfortunate economic realities that the Government has inherited.’

Both sides had won. The party had forced a rethink, but the fundamentals of what the government wanted—the decontrol of prices of fertilizers other than urea and an increase in urea prices—had been preserved. This was political economy at its constructive best—a textbook example of how the government and the party can collaborate to create a win-win situation for both.

Thereafter, there was one issue on fertilizer subsidies that had Narasimha Rao worried for a brief while. The former prime minister, V.P. Singh had written an article in
The Hindu
on 5 August arguing that farmers were being penalized for wrong investment decisions made by the government and that the technology we had selected was substandard. The prime minister asked me for my comments on the article. I knew something about the subject and assured him that the energy consumption of the gas-based fertilizer plants along the
Hazira-Bijaipur-Jagdishpur pipeline was on par with global best practices. I added that while competitive bidding had not been resorted to for eight of the ten urea plants and the
fertilizer pricing system needed an overhaul, the allegation of the former prime minister that the new generation of plants was energy-inefficient was not borne out of facts. Narasimha Rao seemed relieved that the V.P. Singh article could be countered were it to be raised in Parliament. As it turned out, the matter did not come up.

⁶⁵
T.T. Krishnamachari—TTK for short—presented a watershed budget, which made the first attempt to distinguish between active income (salaries or business) and passive income. However, his introduction of expenditure tax, high rates of income tax, wealth tax and estate duty earned him the sobriquet ‘Tax, Tax and Kill’.

⁶⁶
The March 1985 budget shortlisted industries for delicensing, announced measures to deepen the stock market, proposed setting up the BIFR to deal with sick industrial units, and promised to formulate a long-term fiscal policy.

⁶⁷
See
chapter 9
, ‘Statements: Right and Left’.

⁶⁸
Bimal Jalan, finance secretary in V.P. Singh’s government, had been appointed chairman of the Economic Advisory Council to the Prime Minister by Chandra Shekhar and continued for a few months under Narasimha Rao as well.

⁶⁹
Julius Nyerere had, in fact, met the prime minister on 15 July 1991.

⁷⁰
V. Narayanasamy was a Rajya Sabha MP and secretary of the CPP.

⁷¹
In December 1991, Bhosale was to chair a eleven-member Joint Committee of Parliament on
Fertilizer Pricing, a step taken by the prime minister to assuage persistent political concerns on this issue. The committee submitted its report in August 1992. Most of its recommendations—like decontrol of pricing, distribution and movement of phosphatic and potassic fertilizers and a 10 per cent reduction in consumer prices of urea—were accepted.

⁷²
A cut motion is a powerful veto power given to MPs in the Lok Sabha to express their opposition to proposals contained in the budget presented by the government. If the MPs oppose a cut in the fertilizer subsidy, for instance, they can move a motion seeking to reduce the allocations for the Ministry of Chemicals and Fertilizers or the Ministry of Agriculture by any specified amount, including just one rupee. If admitted, such a cut motion will have to be put to vote and if the government loses the vote it has to resign.

y 14 August 1991, much of what we had set out do on 21 June had been accomplished. The devaluations had happened. Bold trade policy changes had been put in place. Dramatic reforms had been introduced in industrial policy. A watershed budget had been presented. After some initial foot-dragging at the official level, the
Narasimham Committee on the Financial System had been announced on 14 August 1991.

I think it was on 15 August at the Red Fort that I suggested to the finance minister that he call key officials to review where we were and to identify the steps to be taken after the first round of policy changes and announcements. This meeting took place just one day later—after, I am sure, the finance minister had got the go-ahead from the prime minister. I kept notes of that meeting which are reproduced below: