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S. Venkitaramanan

In the place of diffidence and fear of failure, there is greater enthusiasm and confidence that India can do it. All this is root-based, not only on just a feel-good factor.

Opening the door to reforms... Dr Manmohan Singh

THE decade, which began on January 1, 1994, was truly a remarkable period in India's economic history. The year 1994 saw Dr Manmohan Singh's historic Budget announcement of convertibility on current account, made as part of his budget speech. This revolutionary decision alone served to remove many of the shackles on India's trade and enterprise. The freeing of foreign exchange restrictions, it can be stated without fear of contradiction, made possible the flowering of many new enterprises, especially in the IT sector. The year also saw tentative steps taken towards the abolition of the Foreign Exchange Regulation Act. It was truly the beginning of a new era, which began in 1991 and which has laid the foundations for the success story that India has been in recent years.

When Dr Manmohan Singh made the historic announcement, the country had just recovered from the throes of the economic crisis of 1991. The forex flows were beginning to gather steam. Dr Manmohan Singh, presenting his Budget for 1994-95, stated that India was having a reserve of nearly $13 billion in foreign currency assets, compared to $1 billion at the time of the crisis.

The level of reserves in 1994 is a far cry from today with $100 billion plus in our kitty. Exports are rising, although not as fast as we would wish. In 1994-95, our invisible earnings from services and remittances were as now the bulwark of our BoP. Our external debt, which started stabilising in 1994, has shown signs of a decline. Above all, our short-term debt is low.

The year 1994 also saw another significant reform. The Government of India entered into an understanding with the RBI by which it denied itself the right to `draw' on the RBI to fund its deficit. This memorandum of understanding, which put an end to unlimited monetisation of fiscal deficit, was historic. Monetisation has since then been less and less evident. The net RBI credit to Government has even shown `negative' increments in the recent period, thanks to deft management by the RBI, aided and abetted by bankers' aversion to lending to businesses, in general, as different from the Government.

The year 1994 also saw economic reform gathering speed. Efforts had been initiated in 1991 to decrease fiscal deficit. 1994-95, however, saw a fiscal deficit of nearly 6.7 per cent, compared to 7.7 per cent in the previous year. At present, while there are noises about the need for fiscal responsibility, more adhocism and populism continue to be fashionable.

Economic managers were mainly concerned in 1994 about sustainability of the external account, in view of the trauma of 1991. Dr Manmohan Singh explained how the rupee had not depreciated much and wanted to assure the world that the external confidence was intact. There is a clear, indeed palpable difference in public statements now, with contrary worries about rupee appreciating. It is symptomatic of the new mood that steps, albeit tentative, are being taken towards opening up the capital account.

The year 1994 started with a forecast of the rate of growth of GDP of 5.5 per cent from 4.3 per cent in the two previous years. More robust estimates of rates of growth are now holding the ground, rising to 7 to 8 per cent. The higher level of confidence is also borne out by the large investments being or proposed to be undertaken in the area of infrastructure, where Mr Jaswant Singh's mega mini-Budget promises to outstrip the main budget itself, in respect of infrastructure investments The foundation for all this is laid on the solid platform provided by the reforms initiated by Dr Manmohan Singh in the crucial years, 1991-1994.

Then as now, some threats continue to operate. The prospect of inflation looms. Ten years back, India encountered a double-edged rise in WPI. We are not yet at that level, but our inflation rate is rising to 5 per cent. This needs careful management. The forex reserves can help us, if used appropriately for imports of essential goods. Customs duty reduction can also assist. Food stocks are now at around 25 million tonnes, the same as in 1994-95, just 10-15 million tonnes above the buffer stock norm. This is significantly below the high levels of 60-65 million tonnes held a year ago. Increased agricultural production again seems to call for immediate attention.

There have been arguments about whether the original reformers or their successors deserve the credit for India's current success. The truth lies in between.

The originators of reform must be credited with opening the doors for India's entry into the new age. Even Mr Jaswant Singh has been fair in acknowledging the pioneering role of Dr Manmohan Singh in initiating the new way of economic management. But, credit is also due to the successors of Dr Manmohan Singh — Mr P. Chidambaram, Mr Yashwant Sinha and Mr Jaswant Singh himself — for not having diluted the spirit of the original reforms, whatever their different political affiliations may be. This tripartisan approach to economic change is a significant feature of the 1990s.

Overall, we have to concede that the scenario we face in India today is dramatically different from that a decade earlier. Above all, in place of diffidence and fear of failure, there is greater enthusiasm and confidence that India can do it. All this is root-based, not only on just a feel-good factor. The fundamentals have improved. The release of entrepreneurial energies was, however, made possible principally by the economic reforms of the 1990s, which gave substance to forecasts of India becoming a great economic super power.

Whether we will achieve our full potential depends on the continuing vision and courage of political leadership.

Politics, which finally shapes economic policies, will determine whether India will emerge triumphant in its encounter with the new opportunities that have offered themselves.

May the decade that starts this year propel us into prosperity, higher growth rates, with reduced inequality and greater incomes — an improvement of the overall human condition — which is what has been promised by the Millennium Goals of Human Development.

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