Half - Lion: How P.V. Narasimha Rao Transformed India

by Vinay Sitapati

  If Narasimha Rao’s reaction to satellite television was to look the other way, and to airlines was to (mostly) get out of the way, mobile telephony was one sector where Rao actively paved the way. The consequence has been the most visible—and arguably most empowering—transformation in India since the 1990s.

  With the arrival of mobile technology in the early ’90s, the Indian government was grappling with the question: should private and foreign players be allowed to provide mobile phone services? This debate reached policy stage by late 1993, and by early 1994, Narasimha Rao was briefed.

  Bureaucrats and politicians were jittery about private involvement in telecom. In April 1994, N. Vithal, the chairman of the telecom commission—and another reformer whom Rao patronized—wrote to the prime minister a private note on the soon-to-be-announced policy. Rao read it carefully, underlining in red ink, and writing comments in his flowing hand. While recommending private sector entry, for example, the document stated: “We are going to put a condition that they should go to rural areas also. On the left margin, Rao made a wry comment: ‘Who goes to rural areas? The phones or foreign operation personnel?’89

  In that same month, news reports claimed the policy was being held up because the telecom minister Sukh Ram ‘believed in the old school of government control on the economy’.90 Sukh Ram—who would later be convicted for accepting a bribe for a telecom cable contract—wrote a clarifying letter to Rao’s new Cabinet secretary Zafar Saifullah. ‘As you are aware, I am all for the liberalisation of the economy and have used every platform to espouse the government policy and [the] telecom revolution taking place . . . under the directive of Hon’ble Prime Minister, Shri P.V. Narasimha Rao.’91

  The final telecom policy, announced in May 1994, made telephone lines freely available and opened up mobile telephony to private and foreign investment. Narasimha Rao, however, made the mistake of listening to his minister and imposed onerous licensing rules on mobile operators. This was the very practice he had ended in other sectors.92 It would take later governments to grow the mobile phone market. But Rao’s policy, by allowing private operators in telecom, had let the genie out of the bottle. By 2015, 969 million mobile phone subscriptions existed. Of these, a telling 92 per cent—891 million—were serviced by private firms.93 Provided a choice between public sector and private options on telecom, Indians have voted with their voice.

  If there was one ‘father’ to India’s telecom industry, it was not Rajiv Gandhi; it was his Congress successor. Characteristically, though, the prime minister refused the spotlight. He used even these reforms to co-opt his political opponents. When the first mobile phone call was made in July 1995, it was between the telecom minister, Sukh Ram, and Jyoti Basu, the communist chief minister of West Bengal.94

  By 1994, the opponents of liberalization had been calmed, if not converted. The journalist Sanjaya Baru says that Narasimha Rao had stayed true to his blunt message to Michel Camdessus, the managing director of the IMF: “I am willing to do whatever is good for the economy, as long as not one worker tells me he has lost his job because of me.’95 Attitudinal changes among politicians were also being achieved through lobbying. Tarun Das of CII remembers that ‘state by state we briefed MPs [on economic reforms]. It was all new to them. It was amazingly new to us. That time [there was] no PowerPoint, so we had to use slides. We had to do it in Tamil, Telugu, Hindi. It was very challenging, [but also] very rewarding. You built relationships.’95 In addition, Narasimha Rao and Manmohan Singh had learnt to carry out incremental reductions in tariffs and licences by executive decisions that rarely made it to the front pages of newspapers. As Manmohan put it, ‘After 1992, we did that for which we didn’t have to go to Parliament for approval. That was how we were able to go through reform.’97 As we shall see in a later chapter, Narasimha Rao had also cobbled up a stable majority in Parliament by 1994, and survived three no-confidence motions. The accidental prime minister was now sure of completing his five-year term, the first for any minority government in Indian history.

  Making use of this political capital, Narasimha Rao took the final plunge into the global economy. His government engaged in secretive negotiations at the Uruguay round of the General Agreement on Tariffs and Trade, or GATT. The Uruguay round sought to limit worldwide import restrictions, and harmonise domestic laws in areas as diverse as agriculture, textiles and patents. Along with around 122 other countries, the Indian government signed on in April 1994. That agreement stipulated the creation of a World Trade Organization (WTO), to which all signatories would become members. The Opposition was furious. It was as if, a magazine editor noted, ‘New Delhi had bartered its economic sovereignty to a latter day East India Company.’98

  Judging this opposition to be weak, Rao refused to budge. He personally drafted the Congress party’s resolution in support of the Uruguay round. He wrote, ‘The Congress Working Committee wants to reiterate once again that . . . The Final Act of the Uruguay Round of Negotiations does not compromise the interests of its farmers, scientists and common people.’99 He even took his case to the public. In 1994, he gave a speech in Telugu in his constituency in Nandyal, declaring, ‘I spoke for umpteen hours on [the Uruguay round] Dunkel proposals with the people and farmers. I explained the proposals to all.’100

  Four years ago, it would have been impossible to envision India tolerating such an opening to the West. In the time since, Rao and his team had helped reimagine India. On 1 January 1995, India became a member of the WTO.

  This astute management of the economy had financial consequences. By 1994, macro indicators showed a soaring India. GDP growth was 6.7 per cent for that year, and would be 7.6 and 7.5 per cent for Rao’s final two years as prime minister. As Rao readied to visit the United States that summer, the New York Times gushed: ‘. . . the 72-year-old Mr. Rao has become, in effect, the Deng Xiaoping of India—an aging party leader who, in his sunset years, has abandoned many, if not all, of the economic precepts that had guided earlier governments, challenging not only the old orthodoxies but an entrenched network of vested interests that had built up under the old system.’101

  Investors were bullish. In a survey conducted on businessmen by CII in April 1994, two-thirds said that they were planning to increase capital expenditure in the near future. Net profits, for 1,200 private companies surveyed, increased by 84 per cent.102 The iconic western brand Coca Cola had just returned to India, after being eased out seventeen years ago. The Bombay Stock Exchange was back to its high before the Harshad Mehta scam broke.103 India’s foreign exchange reserves—the cause for the 1991 crisis—were now beyond comfortable. As Rao noted in his Independence Day address in August 1994, ‘We have foreign exchange reserves worth Rs 51,000 crore. Just imagine, in 1991, we had foreign exchange worth only Rs 3000 crore. It is no mean achievement.’104

  Behind all these numbers was a psychological transformation that mere statistics could not capture. The India that Narasimha Rao had inherited was used to being second-rate. By 1994, this pessimism had given way to confidence that India could compete with the best in the world without losing her soul. An Indian—Sushmita Sen—won the Miss Universe contest that year, while Aishwarya Rai was crowned Miss World. It was also in 1994 that Sachin Tendulkar opened for India for the first time, hammering a career-defining 82 of just 49 balls in a one-day international match against New Zealand.

  Perhaps the best metaphor for this confidence that the Narasimha Rao government had sparked off was the film Dilwale Dulhania Le Jayenge. Released in October 1995 and loosely translated as ‘The Big-Hearted Will Take Away the Bride’, the Indian-origin characters in the film lived entirely in Europe. Yet they retained their language, family values and tradition—navigating the West without losing their Indian essence. The critic Rachel Dwyer wrote that the film showed ‘being Indian is cool, and does not involve pretending to be western’.105 The movie’s most famous lines—at once inane, at once profound—became so emblematic that US President Barack Obama repeated it on a
visit to India two decades later. ‘Senorita, bade bade deshon mein aaisi choti choti baatein hoti rehti hai.’ (‘Senorita, in big, big countries such small, small things keep happening.’)

  In most countries, a growing economy is a sign of the political strength of the leader. India is not most countries. Even as the economy was booming in 1995, Narasimha Rao was facing rebellion within his party. Arjun Singh and N.D. Tiwari—whom Rao had beaten to prime ministership—went public with their criticisms. In his resignation letter from Rao’s Cabinet, Singh wrote that ‘A perception has emerged that liberalisation of economic policy perhaps has become liberalisation of corruption.’106 Shortly after heading a breakaway faction of the Congress, N.D. Tiwari was asked, ‘Do you agree with Mr. Rao’s economic reforms?’ ‘I do not agree with their implementation,’ Tiwari said. He added, ‘. . . I have not favoured an unlicensed industrial policy either.’107

  With the national election due in less than a year, Narasimha Rao responded, by the middle of 1995, by compromising economics for politics. He announced subsidies and populist schemes on rural housing and clothing.108 The IMF managing director complained in mid-1995 that Indian reforms are ‘possibly slowing down’.109 Rao’s finance secretary remembers: ‘On reforms in the insurance sector [allowing foreign investment], Manmohan Singh was very clear that we have to keep doing this. By then [Rao] was looking at the next elections. He lost heart on insurance, even though it was a no-brainer.’110 To give a sense of what it means when a government loses momentum on reform, the ‘no-brainer’ insurance law was finally passed by the Narendra Modi government in 2015—a full twenty years later. Sensing that reforms were slackening after mid-1995, foreign investment into India reduced.

  The irony was that just as Narasimha Rao was slowing down reforms at the Centre, they were picking up in the states. A series of state elections was held in which the Congress did badly. The new chief ministers, however, vowed to continue liberalization at the state level. In Maharashtra, the Shiv Sena-BJP government had come to power opposing the Enron power project. Once in power, they simply renegotiated, and allowed the project to continue. In Andhra Pradesh, the Congress lost to the regional Telugu Desam Party (TDP). The TDP was soon taken over by Chandrababu Naidu, who, it turned out, was more Narasimha Rao than the Congress itself—calling himself CEO of his state and wooing investors.

  These were not spontaneous instances of states turning to capitalism. They were the natural consequence of ending the licence raj, as Narasimha Rao, a past chief minister, understood well. As he put it in a speech in Houston, ‘A happy development these days is that there is a healthy competition among the various states in the matter of attraction of foreign investment . . .’111 This ‘happy development’ has brought prosperity to states such as Tamil Nadu and Gujarat. But it has also increased their distance from states such as Uttar Pradesh, whose politics do not permit investor-friendly policies.112

  While Rao, the former chief minister, was lauding the federal effects of his liberalization policies, Rao, the election campaigner, was only interested in what would win him votes. A survey conducted just before the 1996 national elections found that those with incomes above 2000 rupees a month were part of the ‘consumer boom’ of the past five years. But 66 per cent of those earning less than 1000 rupees—classified as ‘poor’—felt little change to their lives. Rao refused to engage with this nuanced story of the benefits of liberalization. In his election campaign in March and April of 1996, he stressed poverty reduction and welfare schemes, but sidestepped any conversation on economic reforms.

  The election results were announced in May. The BJP was the single largest party, while the Congress had been reduced to 140 seats. On 16 May 1996, a new prime minister was sworn in. Rao’s career in government was over.

  The young, idealistic Narasimha Rao had been unable to appreciate the conflict between honourable means and ends. Where the older, prime ministerial Rao was more clearly in the ‘realist’ tradition of Chanakya and Machiavelli was by believing that consistent and moral means were unsuited to the complexities of governing India.

  Given that each sector of the economy had distinct problems and interests, Rao’s incoherent, crafty approach was perhaps his greatest strength. He continually deployed Chanakya’s upayas of dana, bheda (division) and maya to prevail upon opponents of reform. His finance minister was made the face of liberalization, while the mechanism for reforms was kept running in the prime minister’s office. When it came to business houses, Rao catered to their immediate interests without hindering the arc of liberalization. He used secularism to divert Left parties from economic reforms. Rao and Manmohan also plotted to bypass Parliament, using executive orders to implement liberalization. And when it came to the Congress party, Narasimha Rao used cunning tools (IB reports) and convenient interpretations (Nehru, socialism) to checkmate his rivals.

  Rao also knew when to be equanimous (what Chanakya called upeksa) and delegate responsibility. On capital market reforms, he trusted the advice of Manmohan Singh and G.V. Ramakrishna; on satellite television, he mistrusted his own instinct to regulate. The bang in India’s stock exchanges as well as boom in the number of airlines and TV channels owes much to Rao’s wisdom in letting technocrats and technology do the talking.

  Even his frontal attacks can be explained through Machiavelli and Chanakya. When it came to reforming banking and telecom, or attracting foreign investors, Rao judged that the Opposition was not strong enough to topple him. He was a lion, leading from the front, using all the resources at his command to noisily push reforms through.

  Rao’s ‘realism’ also explains his limitations. A strategy that sought concessions (sama) when the enemy was too strong meant that Narasimha Rao sometimes chose not to fight the good fight. After 1995, with one eye on the national elections, Rao ignored Manmohan Singh’s pleas and slowed down reforms. His halting approach to infrastructure reform—scared off by entrenched interests—brought little electricity to Indians. The Enron and Harshad Mehta scams tarred liberalization with charges of corruption that still persist today. More damaging was Rao’s unwillingness to sack a single public sector official, because he feared a backlash from the unions.

  His failure to enact labour reforms—making it easier for companies to hire and fire workers—has, ironically, forced firms to employ less. Manufacturers continue to be hobbled by a slew of smaller regulations that has pushed India to the bottom end of the world ‘ease of doing business’ rankings. India is the only country moving directly from agriculture to services, bypassing manufacturing.

  In many ways, Rao’s inability to ‘make in India’ ranks as his single biggest economic failure. While China, Vietnam and even Bangladesh have had some success in making products to meet world (and domestic) demand, India has botched the opportunity to leverage cheap labour and become a manufacturing hub, creating millions of factory jobs.

  This let-down has meant calamity for farmers stuck to unproductive land. The lack of factory jobs for them has been made worse by the failure to reform agricultural markets where the licence raj still persists. Farmers are forced to sell their produce at predetermined prices to predetermined middlemen; laws passed in the name of food security prevent them from exporting to the world.

  Even these shortcomings can be explained by the prime minister’s fear of instability. As we shall see in the next chapter, the agricultural sector—with its entrenched lobbies of rich farmers and middlemen who supply rural votes in return for subsidies—was a giant that Rao preferred not to awaken. Besides—and like in the case of the power sector—land and agriculture are controlled mainly by the state governments. Rao realized he was too weak to take them on.113

  The most toxic legacy of this Machiavellian approach to reforms, however, has been the lingering belief that the Indian voter is not to be trusted to vote for liberalization. The Congress’s indifferent performances during the state elections held between 1991 and 1996 led Rao to conclude that the public was not ready for ref
orm, a conclusion that his successors have also come to.

  While ‘realism’ does explain these retreats as well as victories, it does not explain all of Rao’s actions.

  His decision to stick with liberalization even after the crisis of 1991 abated, cannot be explained by the need to acquire and consolidate power. He ran a minority government in a divided democracy, and was not even in control of his party. As we shall examine later in this book, in his five years as prime minister, Narasimha Rao was a besieged fort, withstanding three attacks from outside—in the form of no-confidence motions in Parliament—while dealing with never-ending rebellion within. No other reformer in modern history has had these handicaps.

  Chanakya and Machiavelli not only advocated wicked means to achieve the common good, they also felt that the ruler should not attempt those ‘good’ policies that endangered his stability. They would have advised Rao to abandon liberalization—unpopular with party and Parliament—far earlier than he actually did.

  That P.V. Narasimha Rao was still able to cause (there is no other word for it) the most sweeping economic advance in Indian history is proof of his political genius, of course. It is also a testament to his idealism.

  9

  A Welfare State?

  Narasimha Rao’s commitment to liberalization policies even when it threatened his government cheered pro-market ideologues. They began applauding him as the next Margaret Thatcher, someone who would encourage business, shrivel the public sector and cut welfare spending. The Left were coming to the same conclusion. As the communist politician Somnath Chatterjee said in February 1992, ‘We contended that the [1992] Budget was nothing but a faithful implementation of the fiats of the IMF and the World Bank that compromised India’s sovereignty. The market economy of the Western world became the mantra of the government.’1