Pranab Mukherjee: How we repaid the IMF loan

I received brickbats for seeking NRI investments.

It was 1982. I had just placed my first Budget as Union Finance Minister on the Table of the House. Discussions had started. Suddenly, Shri Ravindra Varma "" an excellent parliamentarian "" dropped a bombshell: that my Budget documents had been given to the International Monetary Fund (IMF) before they were introduced in the Lok Sabha. At that time, the government had negotiated with the IMF a loan in the form of Extended Funding Facility to the tune of 5 billion SDRs. This IMF loan had raised enormous heat and dust in the media.

Varma, a minister in the previous Janata Party government, started reading out from the document he possessed and claimed that the Budget document of 1982-83 had been "leaked" to the IMF. Prime Minister Indira Gandhi, fearing trouble, summoned me to the Lok Sabha from the other House.

After observing the situation for a few minutes, I said to a tense Indiraji: "Don't worry. I'll reply tomorrow. We have done no wrong."

Next morning, the newspapers screamed that the Budget had been leaked. In the House, I rose to speak. I told Varma: "The text and the data you have mentioned are correct. But, you've made a small mistake. What you are reading is not the Budget of 1982-83 but the Budget of 1981-82. We had given last year's Budget documents to IMF, which are in any case, public property."

The whole House erupted into laughter.

I became Union Finance Minister on January 15, 1982. When Indiraji told me that she was appointing me as the Finance Minister, she also posed a question: "Will you be able to present the Budget on the scheduled day, in such a short time?"

The custom is to present the Budget on the last working day of February. In that year, February 28 was a Sunday. I had to present the Budget on February 27. I told her, "Let me see. I will try."

I called a meeting to explain my Budget priorities to my core team of officials. I also told them that I didn't want to delay the Budget. Initially they had some apprehensions. Finally, we were able to present the Budget on schedule.

At the very beginning of my tenure, I faced a major problem. The country had just emerged from a bitter period of inflation, whose rate of increase reached an all-time high of 21 per cent during Chaudhury Charan Singh's tenure as Finance Minister.

My tenure started in the middle of the sixth Five-Year Plan period. The Plan outlay was Rs 97,500 crore for the period (1980-1985) but in the previous two years, expenditure had been very low "" only around 22-23 per cent of the total outlay. This meant that in the remaining three years we had to spend almost 78 per cent to achieve the targets. My problem was to increase expenditure without unduly raising deficit financing, which could raise inflation.

It meant tight-rope walking but after three years when I left the ministry, it was a matter of great satisfaction that the Plan outlay had been successfully utilised. During those three years, the annual rate of expenditure was almost 26 per cent, enough to clear the backlog.

There was another serious problem when I took charge. Foreign exchange reserves were in abysmal shape. My predecessor, R Venkataraman, had signed that agreement with the IMF for an SDR of US $5 billion (5b) in November-December 1981 but it had to be implemented during my regime. As usual, I was at the receiving end of fierce criticism from all quarters, especially the Left parties. They raised a hue and cry, alleging that the economic sovereignty of the country had been compromised and that subsidies would have to be discontinued.

P Rammurthy, a prominent CPI(M) leader, was a close friend. The politburo member of the party used to stay at 9 Talkatora Road while my address was 7 Talkatora Road. He warned me: "You are on very slippery ground." I assured him: "I would tread carefully."

My confidence derived from another factor. I was previously handling the Trade and Commerce portfolio and during my tenure exports had started booming. I knew that our fundamentals were strong and exports will continue to grow, enhancing our foreign exchange earnings and strengthening our position to negotiate.

And I was right! The final installment of the SDR amounting to $1.1 billion was not required. I wrote to the IMF that we didn't need the money and instead paid back the entire loan in due course. This was perhaps the first time in the history of the IMF that a borrowing country didn't take the full amount of the loan. My Budget speech of 1984 reflected this proud moment.

When I look back at my tenure in North Block, one more decision I took gives me immense pleasure "" to tap the investment potential of the Non-Resident Indians (NRI). My calculations were that the NRIs had almost 15-20 billion dollars to invest in India. If this money reached India, no other assistance would be required.

At that time, the R N Malhotra committee report was submitted. In addition to various other concessions for attracting NRIs, the committee recommended permitting companies set up abroad by NRIs to make portfolio investment in Indian companies to a limited extent. I accepted the recommendations and allowed portfolio investment by NRI-owned companies up to 5 per cent. Investment by NRI individuals was restricted to 2 per cent.

As expected, many companies showed interest and made investments in large Indian companies. However, it created a huge uproar both in Parliament and the media.

Today, NRI investments are much sought after. But I received brickbats for this initiative. Perhaps, at that time, people were not ready for such a change.

After my first Budget was presented, Subramaniam Swami came and said, "This is certainly not a Budget with an IMF imprint." Veteran Socialist leader George Fernandes, one of Indiraji's staunchest critics, said: "The credit for this Budget doesn't go to Indira but to Lord Indra." A good monsoon season did help me to take various new initiatives in that Budget.

My first Budget speech in 1982 lasted for one hour and thirty-five minutes. I'll never forget what Indira Gandhi said in the House after I finished. She remarked: "The shortest Finance Minister has delivered the longest Budget speech."

Balram Jakhar, sitting in the Speaker's chair, quipped: "It's a long and short story".

The author was Union finance minister and is currently external affairs minister