When Dr.Manmohan Singh joined Mr. Narasimha Rao’s Cabinet on 21st June 1991, India was facing severe economic crisis, with fiscal deficit close to 8.5 per cent of the gross domestic product, huge balance of payments crisis, the current account deficit close to 3.5 percent of India's GDP, and India's foreign exchange reserves barely amounting to USD$1 billion, just enough to pay for a few weeks of imports.
Singh started with 2-stage devaluation of the rupee (on 1st and 3rd July 1991) and abolition of export subsidies (cash compensatory support) on 4th July 1991 and went on to obtain financial assistance from International Monetary Fund (IMF) to tide over the immediate crisis, dismantle the ‘license raj’, launch a series of reforms to free the economy from State monopolies and controls and set India on a course of unprecedented prosperity. He remained undaunted by criticisms of ‘sell out to IMF’ and remained steadfast and committed to reforms despite setbacks such as the securities scam of 1993.
Twenty years later, India is much better placed in June 2011 than in June 1991. From a ‘basket case’, India is now seen as ‘emerging economic power’. But, politically, the new Narasimha Rao Government enjoyed more goodwill and room for manoeuvre in 1991 than the present Government, which looks beleaguered and unable to act. Economic growth has brought in fresh challenges that the Government seems unable to cope with.
Recent headlines talk of impending global financial crisis, looming balance of payments pressures, slowdown of investments and industrial growth, spook in investor confidence, crumbling infrastructure besides debilitating allegations of corruption in high places, declining morale of the top level bureaucracy and strident activism of civil society that threatens established democratic institutions and even the basic framework of the Constitution.
Singh has a great opportunity to recapture the spirit of 1991, take the difficult decisions and launch India onto a different orbit of greater prosperity that will benefit poorer sections of society. He needs to lift the prevailing sense of gloom and bring in fresh air of optimism. The nation looks to the Prime Minister for leadership. He can start with the promised and much delayed reshuffle of the Cabinet by dropping the tainted Ministers and bringing in fresh, cleaner and younger Ministers.
On the Foreign Trade Policy front, most of the reforms, in terms of abolition of quantitative restrictions and lowering of import duties are through and quite a few initiatives for further liberalisations through regional or bilateral trade negotiations have been taken. However, there are too many exemptions making the Customs tariff as complex as the Excise tariff. Singh should insist on simplification and rationalisation of duty rate structure.
Singh should also insist on fewer and more effective export promotion schemes. Further proliferation of Special Economic Zones and Export Oriented Units is not at all necessary. The existing schemes for Domestic Tariff Area (DTA) Units are unnecessarily numerous and unnecessarily complicated. Singh should insist on pruning the number of schemes and also insist on a cleaner mechanism for delivering the benefits of the export promotion schemes to the exporters. He should find ways to wind up the licensing offices of the Director General of Foreign Trade just as he found a way to wind up the mighty Directorate General of Technical Development (DGTD) in the nineties.
email: tncr@sify.com
