1991 - The Chandra Shekhar Saga

India had been lurching towards an economic crisis for a while – 1991 was just the culmination of where things had been heading, writes Sanjaya Baru in 1991. In August, 1990, VP Singh was being urged to seek an IMF loan. An IMF loan was (and has been) more than just the dollar amount of the loan issued.

“(An IMF loan) was a character certificate that would help India deal increasingly worried creditors.”

But VP Singh did not ask for the loan, largely because he needed the support of the Left for his coalition to stay in power.

 

It was a really, really bad time for India, and not just on the economic front. The Mandal agitation, the Ram Mandir agitation, insurgencies in the North East and Punjab, and the resentment in Tamil Nadu over the aborted attempt to help the LTTE in Sri Lanka…

 

By December, 1990, Chandra Shekhar was the PM and things had become worse. When he asked for a loan, the IMF demurred. In that case, said Chandra Shekhar, India would have no option but to curb imports drastically (other than oil and food). The IMF issued a $1.8 billion contingency loan, the contingency being the sharp rise in oil prices due to the invasion of Kuwait.

 

But IMF loans always come with terms and conditions demands. The US, being the largest shareholder in the IMF, “never shied away from making both economic and political demands on debtor nations”. In this case, one of the conditions was that India allow US fighter jets to be re-fueled as they flew in preparation of the Kuwait war.

 

The other IMF condition was that the annual budget be passed with certain policies (like reduction in government debt and subsidy spending). Normally, this would have been a formality but Chandra Shekhar was always at the mercy of Congress’ continuing support. At this critical juncture, Rajiv Gandhi got petty – he didn’t want the Chandra Shekhar government to get credit for securing the critical IMF loan by passing the budget. So Rajiv asked for a “vote on account” (instead of the budget). The difference? A vote on account only allows for existing laws and payments to continue, but no changes are allowed. A budget would have allowed for changes as well.

 

Soon after, a controversy arose (created?) – was Chandra Shekhar spying on Rajiv using government machinery? True or not, Chandra Shekhar had had it with Rajiv and his demands and disrespect. He (Chandra Shekhar) resigned as PM, before Rajiv could bring him down.

“Rajiv wanted Chandra Shekhar to crawl, not resign”, read the headline of Economic Times…”

Unfortunately, this meant the budget never got passed, and so the IMF loan got scuttled…

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