India moved from being a slowly growing economy to one of the faster growing emerging market economies.
What do you think was the single biggest economic event of this country?
I have no doubt that the 1991 economic reforms was the most important single event in the country’s recent economic history. The realisation that we had to change was there in the 1980s but the changes made were incremental. The 1991 reforms signalled a system change. We moved away from the idea that the public sector must occupy the dominant position in the economy and the private sector must be held back from expanding. We liberalised imports, which were earlier heavily controlled through import licenses. We also liberalised inflows of capital both in the form of FDI and portfolio flows. The shift was not without controversy. The strategy for bringing about decontrol was a gradualist strategy and I think we took more time than we should have. Nevertheless, the results were positive. India moved from being a slowly growing economy to one of the faster growing emerging market economies.
Who was the one person you would credit for these path-breaking reforms?
This question really boils down to a choice between Prime Minister P.V. Narasimha Rao and finance minister Manmohan Singh. Narasimha Rao knew the country was in deep trouble and he was not an ideologue wedded to old ways of doing things. He knew that policies needed to change and it is to his credit that he chose Dr Singh to be the finance minister and let him determine the detailed architecture of the reforms. More importantly, having outsourced the design of reforms to Dr Singh, he backed him fully.
Dr Singh was the person who ensured that the architecture of the reforms was sound. He was also responsible for selling the reforms domestically. Narasimha Rao backed the reforms in the first two years, making it plain that the country was in a crisis and we could not afford to procrastinate. We had to take hard decisions. But I think once the crisis was over, he did not give clear signals that reforms were not just a strategy for managing the crisis, but a necessary process if the economy was to prosper. It was left to Dr Singh to make that case and he did that job superbly. I would therefore give the credit for designing and implementing the reforms primarily to Dr Singh. However, Narasimha Rao deserves full credit for backing his finance minister fully. Had he not done so, the momentum of reforms would have been lost within a few years.
Having worked with Dr Singh in a lot many capacities over more than three decades, would you say he was a better economist or a better politician?
He is certainly a very good economist and widely respected as such. It is difficult as to know how to judge him as a politician. One way to do so is to judge how well he managed a coalition government for two successive terms. In my book, I point out that in the first seven of those 10 years, economic growth was 8.4 per cent. This was higher than it had ever been in the past for an extended period and it is also higher than it has been since. This was also the period when for the first time ever poverty declined sharply.
To achieve such good results while working within the constraints of a coalition government is surely some proof of political skills. If you ask me whether he would have been even more effective if he had more political power, the answer is clearly yes, but the Congress Party did not have that power.
Has India lost the momentum gained with liberalisation?
There is no question that the economic situation has shown a downturn in the last two or three years. The most recent quarterly growth rate was down to 4.5 per cent. It looks as if we will end the year with growth below 5 per cent. It is expected to do better in 2020-21, but only to the extent of recovering to 5.5 per cent. This is not enough to create employment. We need to provide good jobs to our young population. However, I think this is not necessarily a permanent feature. The underlying capacity of the Indian economy to grow fast is still there. But we have to recognise that we are currently stuck in a bad situation. We then have to work out what to do to get out of this situation.
Has India changed for good both economically and socially?
On the economic side, I think the economy has many positive features relating to its underlying fundamentals. As I have pointed out, we are currently growing very slowly but this can be corrected if the right policies are followed.
On the social side, we are going through a difficult period. The CAA and the proposed NPR and the subsequent NRC has created alarm among the Muslim minority, leading to widespread popular protests in different parts of the country. Several state governments have backed the protesters. The resulting divisiveness is disturbing. We must take steps to not allow this divisiveness to persist. Social harmony is desirable in itself but it is also necessary for economic growth. It is difficult to envisage a revival of private investment if social harmony is disturbed. I hope the government will give priority to dealing with the situation and reassuring the minorities that their rights will not be trampled with.