A month after licences for private banks were issued, a Bangalore-based software company listed itself in stock exchanges across India. By 2015, Infosys would have 1,93,383 employees42 and a market capitalization of 43 billion dollars.43 But in February 1993, it was a midsize company hungry for money to expand. Since banks hesitated to help a company whose only collateral was the brains of its employees, capital markets were all the more critical to its growth.44
A co-founder of Infosys, Nandan Nilekani, remembers its initial public offering in 1993. ‘Four reforms that the Narasimha Rao government made really benefitted us. [The] abolition of the controller of capital issues allowed free pricing of public issues. We were able to price our own shares . . . It made a big difference. The entry of FIIs [foreign institutional investors] helped. The FIIs understood the new economy. We were able to present ourselves as ethical, transparent. They had an understanding of technology.’45 The liberalization of foreign exchange also made it easier for Infosys—earning in dollars—to expand. But the biggest boost that Narasimha Rao offered software companies was free advertising. As Nilekani says, ‘Just the fact that the economy opened up, was in the news, made foreign companies think of India. That helped us market ourselves to them.’46
Software companies employed only a fraction of Indians. But they came to symbolize a newer, younger India where honesty and hard work could make millionaires of the middle class. Narasimha Rao made sure to link software to his reforms. At an information technology exhibition in 1993, he crowed about the success of the Indian software industry. And in a speech in Telugu in the year that followed, he told his audience in Andhra Pradesh that ‘we got good name regarding computer software’.47
Rao had a personal interest. He knew two computer languages, COBOL and BASIC, could write code in UNIX, and would spend solitary evenings punching away at his laptop. And so, at another public speech while inaugurating IT-ASIA, he could not resist lodging a customer complaint: ‘I use one package of word processing. For years the upgrades are coming and when I look into the literature of what the upgrade means . . . I find very little difference . . . I think we should be careful about these things. You skip four upgrades, maybe the fifth will be really useful to you. It will mean a real upgrade. Pardon me, saying so. This has happened to me.’48
While foreign investors were naturally attracted to the software industry, they were less sure about the traditional sectors of the economy. Getting them to invest in consumer goods, infrastructure and manufacturing required more than changes to the law. It meant cajoling investors at summits and shaking hands with CEOs. The laconic, dhoti-wearing prime minister could not have been more unsuited to dangle gifts and negotiate with businessmen. So it is all the more creditable that when it came to drawing foreign investment, Narasimha Rao led from the front.
He visited the World Economic Forum in Davos twice, the first prime minister to do so. Tarun Das of the business lobby CII travelled with him both times. ‘No Indian prime minister had gone to Davos,’ Das remembers. ‘For Rao to go twice was huge for us.’ In his speech in 1992 at Davos, the prime minister left no one in any doubt as to who was running India. ‘My officials and my experts have learnt my languages instead of my learning their language . . . the dotted lines are what I wanted them to be and I sign on them.’49 He was back again in 1994, quoting Nehru and speaking of a ‘middle way’ that was not just laissez-faire.
This was for domestic consumption; Rao did not want his audience back home to think that he was selling out to foreigners. But this was also to tell the global leaders gathered in Switzerland in the depths of winter that economic reform in India had to be done without outside pressure. ‘Those who wear the shoe and know where it pinches should have full say in deciding how to mend it.’50
In his state visits to foreign countries, Rao would play the role of a travelling salesman. Nowhere was this more evident than when he journeyed to Japan. The usual drill on such occasions was that the prime minister would speak to a roomful of industrialists. But Montek Singh Ahluwalia suggested to Rao’s principal secretary that the prime minister meet each businessman one-on-one instead. Twelve minutes were allotted to each corporate leader. When Akio Morita, the head of Sony, entered the room, Rao put his hand over Morita and said, ‘Every Indian wants a Sony TV, and you are not making it.’ Morita shrugged. Sony was willing to invest only if they could own 100 per cent of the local company, which Indian rules forbade. ‘You apply,’ Rao told him. ‘We will give it.’51
Without going back to his Cabinet or Parliament, Rao had changed policy. But he was trusted, and Sony soon began selling in India. By July 1993, the Narasimha Rao government had approved foreign equity investment of 3.2 billion dollars from around 1100 different cases.52 Ahluwalia explains why these investors took Rao at his word: ‘The problem with us Indians is that we make a deal, then we go back on it. We then argue that it was a different deal . . . this irritates foreigners. But people didn’t view Rao that way. The sense people got was [that] if this man makes a deal, he will stand by it. Since he didn’t say much, when he did, it was taken seriously.’53
While Narasimha Rao worked hard to charm investors, he also realized, as he told Parliament, that ‘about investment from outside the Government, the word “foreign” somehow seems to invoke certain pictures, certain concepts . . .’54 One of his many tricks to alter these images was to stress the domestic origins of some investors—something that Deng had done so well in China. While inaugurating a steel plant built by the investor Lakshmi Mittal in Ramtek (his former constituency), Rao asked the audience, ‘If our own people want to come back, if they want to set up some factories in India . . . should we put obstacles in their way as soon as they land here? It is not fair.’55
These tactics worked, and resistance to foreign investment from the public and Parliament was mostly muted through Rao’s years as prime minister. More serious was the hostility from Indian businessmen who were worried that they would be swamped by foreign competition. Part of the reason Rao was able to assuage them was that the character of Indian industry was changing.56 But part of the story is how Rao and his team nimbly exploited this change.
Industry in India was divided into three lobbying groups. The oldest was ASSOCHAM, or the Associated Chambers of Commerce and Industry of India. Set up in 1920, the chamber represented British-run firms that had given way, after Independence, to local management. The other business chamber, FICCI, or the Federation of Indian Chambers of Commerce and Industry, was set up in 1927, and had Marwari origins—leading some to term ASSOCHAM as ‘topiwallas’ and FICCI as ‘dhotiwalas’. Both groups, however, were shaped in the licence raj. They were both opposed to external liberalization, and worried that internal liberalization would threaten their monopolies. From these traditional groups emerged a third, the CII.
The Confederation of Engineering Industry had changed its name to the Confederation of Indian Industry (CII) in 1992. This change in name was necessitated by liberalization, which was allowing engineering companies to diversify into other sectors, as well as the other way around.57 The businessmen who supported CII were modern, many of them south Indian exporters. ‘There is no doubt in my mind,’ Ahluwalia says, ‘that CII was the only organization that had a breath of fresh air, and young people.’58 Its members supported delicensing and were not as hostile to global competition. As a result, Tarun Das concludes, ‘We [CII] became cheerleaders for the government’s economic policies.’
Narasimha Rao made sure to talk to all three industry groups. But it was CII who were given pride of place, always invited to Davos, always accommodated in the prime minister’s aircraft, always the face that greeted foreign investors. Narasimha Rao’s conduits to corporate India—P.V.R.K. Prasad and Amar Nath Varma—would go out of the way to court CII. Even the careful Manmohan Singh had links with them. The usual Indian story is of businessmen profiting from fissures between India’s political parties. But here was the Narasimha Rao government practising Chanak
ya’s maxim by sowing dissension between old and new industry groups, all to pursue reform.
The changes that Narasimha Rao and Manmohan Singh had so far made were either to move the state out of the way (delicensing, tariff reduction, devaluation) or allow businessmen to grow (foreign investment, capital markets and banking reforms). But by 1992, entrepreneurs as well as the growing middle class were complaining about rough roads and erratic electricity. The average power shortage in 1992 was 8 per cent, while peak shortage was as much as 19 per cent.59
Power and roads were not priorities for Narasimha Rao, who had never held these ministries in Delhi or Hyderabad. This is perhaps why his government responded cautiously in late 1992, declaring that ‘the public sector will continue to play a dominant role in [infrastructure]’. It did, however, add that ‘private initiative’ in ‘power plants, roads, bridges . . .’ would be ‘positively encouraged’.60
The promise of public sector dominance would fail on its own terms; by 1997, spending on the five infrastructure sectors was 14.4 per cent lower than the target set in 1992.61 More encouraging, though, were attempts to involve private financing and expertise, especially in road-building. The first private toll road was built in 1993, in Madhya Pradesh, allowing the private partner to ‘Build Operate Transfer’.62 This private sector involvement has transformed the resources available for infrastructure, as well as visibly improved the quality of roads.
If road-building was a relative success during Narasimha Rao’s years, the power sector—where control is largely with state governments—remained a failure. States governments provided 70 per cent of all electricity, the Central government contributed 20 per cent, while just 5 per cent was provided by the private sector.63 Like elsewhere, this public sector dominance ensured that many Indians had no access to electricity.
The Rao government responded with piecemeal changes in the coal sector, through which almost 70 per cent of electricity was generated.64 Given the power of the coal mafia, the Narasimha Rao government was forced to deny private companies the right to mine coal.65 But it did eventually allow ‘firms investing in power generation, steel, and cement projects to establish “captive” coal mines’.66 Even Rao realized this was hardly a solution. ‘We are today constrained to tell the investor from outside, “If you want power you have your captive power plant.” Now whatever he wants, if he has to get captive, then what are we here for?’67
Of the many private companies the government courted to invest in electricity, the most infamous was the American multinational Enron. Soon after Rao became prime minister, Enron signed a memorandum of association to set up a natural gas power plant in Dabhol, Maharashtra. Rao eventually agreed to give them assured profits with a sovereign guarantee. The plant became the focal point for mobilization against Narasimha Rao’s policies of liberalization. Local farmers complaining of land-grab and ecological ruin joined hands with anti-globalization critics who accused Enron of extracting exorbitant rates. The fact that the contract had been awarded by the Congress government in Maharashtra without a transparent bidding made it a symbol of crony capitalism.68
These criticisms have turned out true. Years after Enron failed in the United States, its handiwork lives on in India, continuing to deplete the state exchequer. If there is a single monument of caution to where liberalization could go wrong, it lies on the coast of Maharashtra.
The opacity of the Enron contract fed into a larger criticism that Narasimha Rao and liberalization began facing in 1993. Left intellectuals had long argued that ‘neo-liberalism’ was shorthand for ‘crony capitalism’. From 1993 onwards, an impression was created that suitcases of bribe money were making their way to the very top.
In May of that year, Rao’s own Cabinet minister and rival, Arjun Singh, sent him a public letter citing reports of ‘a loss of more than Rs. 3000 crore to the Government in the process of disinvestment’,69 and demanding more ‘transparency’.70 That he chose to write this in a letter shows not just how keen Arjun Singh was to damage Rao, but just how damaging he thought these corruption charges were.
A month later, on 16 June 1993, the disgraced stockbroker Harshad Mehta, now out on bail, appeared at a dramatic press conference. He accused Narasimha Rao of accepting a bribe of one crore rupees from him. The prime minister denied these charges, declaring, ‘I will emerge out of this trial by fire in the same manner as Sita did.’71 Mehta’s allegations were eventually dismissed by the courts. But the stain would smear Narasimha Rao through his tenure.
Even the scrupulous Manmohan Singh was subject to insinuations. It was whispered in the corridors of Parliament that his children were bankers who had benefitted from the scam. This was a lie, as Manmohan Singh told Parliament: ‘I have three daughters but none of them is working in the banking system. And that applies to the officials who are working with me.’72
But the hounding of reformists on charges of corruption—some reasonable, some unfair—would not stop. A parliamentary committee formed to investigate the banking scandal questioned finance ministry officials. While most bureaucrats dithered in their defence of liberalization, Montek Singh Ahluwalia was less restrained. ‘When you have any period of rule change,’ he argued, ‘you are bound to get some people who illegally make use of it. That does not mean that the policy is responsible.’73 The committee chairman—a Congressman—said, jokingly, ‘Sardarji bahut bolta hai.’ [‘Sardarji talks a lot’.]74
In the final report submitted in December 1993, the finance minister was blamed for being in ‘slumber’ through the scam.75 Attacked in such words by Congressmen themselves, a shaken Manmohan Singh submitted his resignation to Narasimha Rao.
On hearing of Singh’s resignation, Rao told his secretary, P.V.R.K. Prasad, ‘[Manmohan Singh] does not understand that I am the target of their criticism. He assumes that all our MPs are under our control and we can dictate them . . . he does not realise that they want to embarrass me, and not him.’76 Narasimha Rao was also exasperated at Manmohan’s complaints against fellow Congressmen. ‘I don’t have the mandate of Indira. I have not yet acquired the strength to take action against Congressmen like Arjun Singh.’77
Irritated that Manmohan did not understand that he was expected to absorb attacks meant for his prime minister, Narasimha Rao considered accepting his resignation.78 That meant giving the finance ministry to either P. Chidambaram or Pranab Mukherjee.79 While Rao weighed his options, Manmohan was pilloried in the media and Parliament. When Rao finally asked Singh to stay,80 the reaction to the banking scam report had subsided. The prime minister was unscathed.
Around the time Rao was fending off corruption charges, a consumer revolution was in the making. The opening up of sectors such as airlines, soft drinks and television was part of the logic of the initial reforms of 1991. But hand-holding by the Narasimha Rao government was needed to attract new players while combatting entrenched interests. This hand-holding took various forms—looking the other way, getting out of the way or paving the way—as the stories of private television channels, airlines and mobile phones show.
The first Indian-owned private channel, Zee TV, had broadcast its opening show in late 1992. But the story of satellite television began earlier, and it was technology rather than Narasimha Rao that lengthened it. A month before Rao became prime minister, an unknown network called Satellite Television Asian Region—or STAR—began broadcasting from Hong Kong.81 The subscriber base tripled within ten months, from 4,00,000 to 1.2 million.82
These new channels were of dubious legality. The nineteenth-century Telegraph Act, enacted by colonial India, had since continued to give monopoly of the airwaves to the Indian government. Narasimha Rao himself was sceptical. He told P.V.R.K. Prasad, ‘You don’t understand how dangerous this can be . . . anyone can install a device on his roof and see anything in the world. We have no control.’83 But despite his instincts, Narasimha Rao hesitated to ban satellite TV. He was desperate for foreign investment, and realized that it would have sent the wrong si
gnal if he were to ban private channels.84 And so the prime minister did nothing while technology and popular demand created a proliferation of channels. This legal grey zone continued until 1995 when the Supreme Court held that the airwaves belonged to the people of India and not its government—thus legitimizing these channels.85
This backdoor liberalization—where Rao’s contribution was to mute his own roar—has had results even he could not have imagined. By 2015, Indian television viewers were watching an astonishing 832 channels.86 The changing content of TV channels has been as remarkable as their changing numbers. Broadcasters realized that soap operas set in Santa Barbara, California, were not resonating with the Indian viewer. These were replaced by dramas of Indian joint families adjusting to a changing world while struggling to retain their traditional values.
It was also in 1993 that the first private airline since the nationalization of the sector, Jet Airways, took off. Damania, East-West, Sahara and ModiLuft followed—enticing India’s middle class to travel by plane. Today, air travel is one of India’s fastest growing segments, with 82 million passengers flying in just the year 2014.87 But this opening of the airline sector was rife with favouritism reminiscent of the licence raj. The businessman Ratan Tata, who wanted to start an airline in the early 1990s, claimed, ‘The same government that asked us to start an airline . . . made sure that this airline would never happen.’88
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