Who was the real star of India's two-stage rupee devaluation in July 1991? Jairam Ramesh's latest book - To The Brink And Back : India's 1991 Story - throws some fresh light on the dramatic developments that led to the devaluation of the Indian currency against major international currencies, including the dollar - by seven to nine per cent on July 1 and then again by 11 per cent on July 3.
P V Narasimha Rao, prime minister at that time, was opposed to the idea of devaluation because of its political risks, writes Ramesh. However, Manmohan Singh, who was the finance minister then, was keen on a two-stage devaluation, as the first move would have tested the markets and the second one would have helped stabilise the currency closer to a more desirable level. For obvious reasons, Rao was even more wary of a two-stage downward adjustment of the value of the Indian currency.
Predictably, writes Ramesh, the first stage of devaluation evoked strong political reaction and Rao became more uncomfortable with the idea. In the early hours of July 3, Rao called up Singh to ask him to stop the second devaluation. Singh argued with the prime minister, but gave up in the face of Rao's insistence. In the normal course, the second stage of devaluation should have been aborted after the prime minister of the country had desired the process to be halted.
But something else happened. Singh made a call to the Reserve Bank of India (RBI) only at 9.30 am asking for the second stage of devaluation to be held back, according to Ramesh.
More significantly, the call was made to the deputy governor at that time, C Rangarajan, who informed the finance minister that the devaluation had already been carried out a little earlier at 9 am.
Singh was "delighted that this had been done, but conveyed the news to the prime minister less enthusiastically," Ramesh writes. Ramesh's account of that crucial morning does not answer a couple of obvious questions though.
One, if Singh received the instructions from the prime minister in the early hours of that day, why did he choose to call up RBI only at 9.30 am? Two, why did the finance minister decide to call up deputy governor Rangarajan and not the RBI governor at that time S Venkitaramanan?
Is the real star of the second stage of devaluation only Singh or Rangarajan as well, who played along with the finance minister's strategy? Ramesh offers no clear answer to these questions, but explains that the decision on devaluation was taken by the prime minister and the finance minister and the proposal had not received prior clearance of the Cabinet. Ramesh's book brings out a few other interesting stories of the 1991 reforms that have so far remained outside the public domain.
For instance, a list of policy decisions that the new government would initiate had been prepared for consultation with the International Monetary Fund and the World Bank. But for strategic reasons, devaluation of the Indian currency did not figure as one of the initiatives that the government would take.
Similarly, it was originally decided that there would be a major big-bang announcement of the industrial policy changes that delicensed most industries, freed India Inc from the controls of the MRTP Act and introduced easier foreign investment norms. As the proposals met with stiff political resistance, it was suggested that they could be made part of the Budget that Singh was to present on July 24.
But as it happened, the new industrial policy statement was played down further when it was tabled in Parliament without any fanfare by then minister of state for industry P J Kurien. Its significance dawned on the nation a few days later, but by then history was already made.
