Unsung Heroes of 1991 Reforms

There are a lot of unsung heroes. That’s life. But it’s always good to see the odd, sincere acknowledgment of such folks. Shruti Rajagopalan does just that in case of Dr C Rangarajan, the RBI deputy director in 1991 and then the RBI director from 1992-97; along with the bureaucrats and technocrats behind the scenes.

 

Typically, a country on the verge of bankruptcy (like India in 1991) ends up with a “tin pot currency”. Desperate countries, in such circumstances, take IMF loans. Those loans come with conditions to restructure the economy. The country can’t or won’t restructure (internal pressures, political compulsions, ideological aversion), and so the cycle repeats itself.

 

India itself went through such cycles in its past. Why didn’t history repeat itself in/after 1991? Because, this time, says Rangarajan, the desire to reform the economy came from within. It was not just something, unlike the last few times, when it was being imposed from outside. As Rangarajan said:

“The reforms were our own making. We had decided that the time has come to move in a different direction.”

 

Since India was serious about reforms, it actively sought out the necessary pre-condition for reform, namely stability. In other words, money.

“Before we can initiate reforms, some degree of stability has to be established. Therefore, stability and reforms went together, and therefore we took the money from IMF and other international institutions and many others.”

At this point, the desire of the lender and the borrower aligned:

“The conditionalities, if they want to call them that way, were conditionalities from their point of view. They were the reforms that we wanted to introduce at that particular time.”

 

As an example of this seriousness, Rangarajan contrasts what was done in the past v/s 1991 post-currency devaluation.

“In the previous occasions when we devalued the currency, the steps that we took later on were essentially in the nature of controlling imports and so on. But whereas this time in 1991 when we devalued the currency, we went on to embrace, so to say, free trade and decided to become part of the global trade—in fact, reduce the tariff rates and remove the quantitative controls and so on.”

 

Shruti Rajagopalan agrees with that:

“The incredible feat that the team of 1991 reformers pulled off was… in a completely homegrown way. They pursued some reforms gradually, such as reducing deficits and tariffs, while passing others with a single stroke, such as eliminating the license control system in trade and industry. Most of the reformers were career bureaucrats or technocrats who had built long-term relationships and trust within the Indian political system. Additionally, most of the reforms were based on the legwork done by expert committee reports over a decade prior to the 1991 reforms.”

 

Structural changes almost never have just one great man (or woman) behind them. While that one person may be the biggest driver, you still need a lot of believers who are competent and work tirelessly and sincerely.