The Hindu Business Line : `Confessions of a Swadeshi reformer'

Mr Sinha respected the RBI's independence in the measures it took at the critical juncture to control inflation, raise interest rates and curb credit growth.

FORMER FINANCE Minister Mr Yashwant Sinha, with his book Confessions of a Swadeshi Reformer... Impressive narration of events that marked an eventful tenure.

Mr Yashwant Sinha has written his memoirs dealing with his successive terms as Finance Minister. Particularly impressive is his narration of events that marked his brief — but eventful — tenure as Finance Minister under Mr Chandra Sehkhar in 1990-91. It was in November 1990 that Mr Chandra Shekhar took office as Prime Minister in an arrangement marked by the support of the (late) Rajiv Gandhi-led Congress Party from outside.

The country was in the grip of a financial crisis, brought on mainly by the escalating events in West Asia, the hostilities leading to a sharp spike in oil prices and paradoxically the erosion of NRI remittances as a number of NRIs were displaced from their jobs following the troubles in Kuwait.

While Mr Yashwant Sinha quotes with obvious relish the views of the late Dr I.G. Patel describing the crisis as the justly earned reward of alleged fiscal mis-governance and profligacy of Mr Chandra Shekhar's immediate predecessors, Mr V. P. Singh and Rajiv Gandhi, subsequent economic research has, however, discerned some merits in the economic management of the 1980s, which incidentally saw the highest rate of economic growth since Independence.

Mr Sinha has a point, however, when he says that Dr Patel is right in stating that India should have gone to the IMF earlier. The reasons for failure to do so in time are rooted in the political contradictions of the time. I was a participant in a discussion held by the IMF Managing Director, Mr Michel Camdessus, in early 1989 with the late Rajiv Gandhi when he suggested that the IMF was prepared to grant a safety net to help India out of an imminent BoP crisis.

He was prepared to take as an earnest display of good intentions the Rajiv Gandhi Budget of 1989-90. The forthcoming elections made Rajiv stay his hand. The Opposition would have gone to town, arguing that the Congress had pledged India's future with the IMF. Rajiv Gandhi was categorical that if and when he returned to power after the elections, India would go to the Fund, but the fates willed otherwise.

Immediately after the formation of the Congress-supported Government under Mr Chandra Shekhar, I went to Delhi and called on Rajiv Gandhi, as desired by him. The latter was gracious and recalled our conversations a la Camdessus' offer. He said he had commended my name to Mr Chandra Shekhar for consideration for appointment as Governor, RBI, and suggested that I call on the latter.

I sought and got an appointment with him at his farm-house in Bondisi. Mr Chandra Shekhar acknowledged that Rajiv Gandhi had, indeed, suggested my name. Shrewd statesman that he was, he said he had also checked out my record with the then President, Mr R.Venkataraman. At Mr Chandra Shekhar's suggestion, I called on Mr Yashwant Sinha at his residence. He was courteous and discussed the problems and prospects of my appointment. Before returning to Madras, I had called on Rajiv Gandhi once again. He said that while he had, indeed, recommended my name, it was up to Mr Chandra Shekhar to act on it. Mr Chandra Shekhar was, however, as good as his word. Within a few days of my return to Madras, I got a call from Mr S.P. Shukla, then Finance Secretary, announcing my appointment as Governor, RBI.

Initiating change

I took over office in late December 1990. I had discussions with my colleagues, in particular, Dr C. Rangarajan and R. Janakiraman, both Deputy Governors, at the time. They explained the stage of negotiations with the IMF and the news that we may have to pledge some of RBI's gold, physically moving it out, to get aid released from IMF.

I went to New Delhi where I called on Dr Manmohan Singh, who was then Adviser to the Prime Minister, Mr Chandra Shekhar, and explained to him the option of pledging part of the gold in our reserves. Immediately, he took me into the then Prime Minister and said the Governor has an idea which he would like to explain. I stated my proposal in simple terms. He said he understood the logic, but would have problems with his colleagues and the Congress Party, which would make electoral capital against his Party. He suggested that I also discuss the proposal with Rajiv Gandhi.

The Prime Minister having been convinced, he set his official machinery in motion and communicated the decision to the Finance Minister. Meanwhile, I wrote out a letter to the Finance Minister. My logic in approaching the Prime Minister's Adviser, Dr Manmohan Singh, with the proposal first was that it was a politico-economic decision to be taken by the Prime Minister himself.

When I again met the late Rajiv Gandhi, he was quick to see the logic of the move: "What is RBI's gold for if it is not to serve in an emergency?" Although he was in full support, some of his followers did not quite see the logic.

Mr Chandra Shekhar, who said he would discuss the matter with Mr Yashwant Sinha, ensured that the necessary instructions were issued. I must pay tributes to Mr Chandra Shekhar's vision and courage, which enabled him to take the decision to pledge gold to get IMF assistance. The decision was followed up in detail by Dr C. Rangarajan and R. Janakiraman. The shipment was under cover of great security by chartered plane although an intrepid news-hound got scent of the move and splashed it over a newspaper the next morning. But the trauma of gold pledge by RBI served to highlight the seriousness of the crisis in which India found itself. In a way, it was a reminder that India was in need of reforms of a bold and fundamental kind. It was a fitting backdrop to the structural reforms which Dr Manmohan Singh initiated with his Budget.

Effective reformer

Mr Yashwant Sinha has emphasised his being the original and Swadeshi reformer. I beg to differ. The reforms, at least partly, resulted from the understanding with the IMF, which had already been approached by Government starting from when Mr V.P. Singh was Prime Minister for a brief while.

To that extent, the reforms were not Swadeshi. Nor were they original. There was the presence of Dr Manmohan Singh in the Prime Minister's office, that formed the foundation for the reforms which Mr Sinha initiated. That said, I must say that Mr Yashwant Sinha was a holistic thinker on economic matters. When, for instance, IMF's top management team insisted on an immediate devaluation, I remember how Mr Sinha said categorically that in the context of the political development of the time, such an assurance was unthinkable until popular mandate confirmed the Government's legitimacy. He put the IMF wise about India's political realities.

I must also point out that Mr Sinha respected the independence of the RBI in the various measures it took at the critical juncture to control inflation, raise interest rates and curb credit growth. He proved a true devotee of institutional reform.

That Mr Yashwant Sinha was a bold reformer is beyond question. He was also an effective reformer, although there may have been little that was Swadeshi about it.