Business & Economics

Ideas of India: The 1991 Project

Shruti speaks with Mercatus Center research associates Shreyas Narla and Prakhar Misra about their new initiative to tell the story of how, 30 years ago, India partially shed its command economy and embraced markets

Parliament building, New Delhi, India. Image Credit: Westend61/Getty Images

Ideas of India is a podcast in which Mercatus Senior Research Fellow Shruti Rajagopalan examines the academic ideas that can propel India forward. You can subscribe to the podcast on AppleSpotifyGoogleOvercastStitcher or the podcast app of your choice.

In this episode, Shruti talks with Shreyas Narla and Prakhar Misra about India’s 1991 economic reforms. They discuss the role of Prime Minister Rao and Finance Minister Manmohan Singh, India’s transition from socialism to a market economy, the continued relevance of the 1991 reforms today and much more. Narla and Misra are research associates in the field of Indian political economy at the Mercatus Center at George Mason University

SHRUTI RAJAGOPALAN: Welcome to Ideas of India, a podcast where we examine academic ideas that can propel India forward. My name is Shruti Rajagopalan, and today my guests are my close collaborators, Prakhar Misra and Shreyas Narla, both research associates at the Mercatus Center working on the Indian Political Economy program. The three of us have been working on a new Mercatus Center initiative called the 1991 Project commemorating the 30th anniversary of the economic reforms that partially liberalized the Indian economy. Through this project we hope to revive the discourse on growth-centered economic reforms in India by focusing on the ideas that drove them. In the coming months, we will publish essays, data visualizations, oral histories, podcasts and policy papers demystifying the Indian economy and the 1991 reforms.

I spoke with Prakhar and Shreyas about exactly what happened in July 1991, and how a team of technocrats, bureaucrats and politicians made it happen. Some of these ideas are detailed in Prakhar and Shreyas’s excellent essay, “The Economic Reforms of 1991: How India Went from Crisis to Consensus.” We also discussed the detailed timeline of events and ideas that led India out of crisis and helped shed its command-and-control economy to embrace markets—and why, after such a great start, the reforms process halted in India.

For a full transcript of this conversation, including helpful links of all the references, click the link in the show notes or visit Discourse Magazine DOT COM. This conversation will also be linked at, where you can also see all the content and subscribe to our newsletter for updates.

Hi, Shreyas. Hi, Prakhar. Welcome to the show.


PRAKHAR MISRA: Hi, Shruti, lovely to be here.

NARLA: Likewise.

What Exactly Happened in July 1991?

RAJAGOPALAN: This is such a weird conversation to have with both of you because we have been working on this project for a really long time. This is, of course, the 1991 Project. But I thought it is also an opportunity for us to just think a little bit about what we’ve been working on for the last few months and also what’s coming in the future—taking stock, what we have learned and so on.

Just so we can catch the listeners up to what we’ve been up to: When we normally talk about reforms in India, the CliffsNotes version of liberalization and the 1991 reforms is that in a matter of days India just shed its socialist past and it embraced markets in 1991. What follows, of course, is extraordinary. There’s this huge increase in growth rates, one of the longest spells of high growth for the next 25 years; about a quarter of a billion people get lifted out of poverty.

We know the folklore, but I think most people still don’t know exactly what happened in 1991. Prakhar, can you start us off with that?

MISRA: Sure—and very excited to be here and discuss this with you, even though we’ve worked on it quite a bit.

’91, the crisis resolution, really began with Manmohan Singh’s speech on 24th of July, when he gave two primary orders: One was to control and contain the fiscal deficit, and the second one was on the back of the devaluation that he had done two weeks ago. Over two phases, the Indian rupee was devalued by almost 20%. This was done in order to increase exports and improve foreign exchange reserves and things of that order.

His announcement in his speeches were really twofold. One was the containment of the fiscal deficit, which was done to two or three measures: disinvestment in public-sector enterprises where they offered about 20% government equity to mutual funds; reduction in fertilizer subsidy, which was a very unpopular move at that point in time, with a 40% increase in fertilizer prices (then he had to slash it back to 30% due to some internal opposition to it a little later); and abolishing of the sugar subsidy. This is controlling the deficit amount.

The second was the foreign exchange and what impact that had, so things like rise in petroleum prices by almost 20% on some counts. Often we forget that the devaluation had to be complemented with trade policy and the reforms there, capping tariffs at 150% at that point (which were as high as 355%), reducing excise and abolishing export subsidies.

The last part of his speech really was about deepening capital markets and regulating them. Flow rates of interest, removing restrictions on those interest rates and, of course, SEBI [the Securities and Exchange Board of India] and the regulations that followed a few years later.

This was really the ushering in of the era, and this was complemented by the trade policy reforms by P. Chidambaram and the licensing reform. To very quickly recap that ex-im [export-import] scrip licensing system, which really deepened markets in India: Earlier, licenses were replenished, but now, with this new system in place, exporters could get a duty scrip which they could trade amongst each other if they did not need that. So really, a market system was developing.

There were a bunch of other things, like export processing zones were being established, and state control was tremendously reduced by reducing the number of items under canalization and reducing the power on public-sector trading.

The core part of the reforms really was industrial licensing, where in one stroke licensing was abolished. It had grown into this monster from industrial policy resolution of 1956. Then you complicated it by adding locational restrictions and investments and things of that sort. Now there were just a list of 18 industries where licensing would be required, another list of maybe five or seven industries which were reserved for public-sector enterprises, and these too because of strategic purposes and social reasons. Atomic energy, defense: Those are the kind of industries that were there in this, and yet broad-banding was allowed; locational criteria were significantly watered down.

There were three other things that were announced in the new industrial policy. One was foreign investment in technology was welcomed, finally: about 51% foreign equity in high-priority industries, and no longer did you need the government’s nod on involving foreign experts in vetting our industries and their own technologies and things of that sort. They could hire foreign technicians; they could negotiate the terms of technology transfer based on their own commercial judgment, which was completely taken by the government earlier.

This gave a lot of freedom to the markets in order to become more efficient and more productive—which leads me to the public-sector enterprises, which were neither efficient nor productive. There was finally a recognition of that. This came on the back of the Arjun Sengupta committee report, and there are issues with that which we can discuss later, but the problems of productivity, project management, over-manning, lack of technological upgradation: These are the things that they were trying to sort out.

Largely, the broad point was, government is going to step out of public-sector enterprises by offering 20% of its equity to private-sector and mutual fund houses and things of that sort. Where public-sector enterprises will be there, there will be greater management autonomy which will be granted. There will also be performance-based metric systems to introduce competition in this area.

The last part of the new industrial policy was on MRTP [the Monopolies and Restrictive Trade Practices Act]: again, a law which really curtailed freedom. Primarily, it is not the first time that they were trying to reform it. There were amendments in ’82, ’84, ’85 increasing asset limits and things of that sort. But for the first time they came out and said no preentry scrutiny of investment decisions and no legal requirements for expanding your product line if there’s a greater market demand for it, which used to be the case earlier. Similarly, watered-down provisions on acquisitions and transfers of these things. We really broke out from a shell of a socialist regime into a more market-friendly society.

Changing the Licensing System

MISRA: The licensing system really started in the ’40s and the ’50s. It entrenched itself in the ’60s. By the time you came to the ’70s, there were three key attacks: One was on foreign collaboration, which was discouraged entirely. In fact, the total FDI [foreign direct investment] flows over the ’70s barely increased from maybe about 900-odd crores in 1972 to about 930 crores in 1980. Over a period of 10 years, we basically achieved very little investment—which was important to finance the plans, by the way, because India did not have money. Inflation had crossed 20%, so anyway things had become much more expensive as a consequence. But still, commodities such as consumer goods were just not permitted foreign collaborations.

The biggest blow came when FERA [the Foreign Exchange Regulation Act] was enacted, which basically forced foreign companies to dilute their holdings to 40%. Those more than that needed permission from RBI [Reserve Bank of India] to operate. Out of the 881 companies that applied, only about 150 were allowed. Out of the 150, there were 54 who found the terms unacceptable and therefore exited in ’77/78. Then there were nine more that exited in 1980, ’81: Coca-Cola and IBM were among these.

Licensing, and FERA in particular, really had a regressive effect on Indian development and investment in the country. I. G. Patel famously noted that policymakers had really not been futuristic in this domain and just couldn’t control the amount of investment that came in. Then the financing had to turn back towards domestic resources. A couple of years before FERA was enacted, there was the ordinance that nationalized 14 banks in India, which held about 85% of deposits, which was then passed as a parliament act. The objective, really, was to provide credit for agriculture and small industry, to enable entrepreneurship. Over a decade, we know that that really had not worked.

That was foreign FDI—that was the first line of attack. The second was the MRTP Act that was passed in 1969, and the MRTP Commission was set up. The basic fear was that there’s economic concentration of power and there will be monopolistic practices and unfair trade practices, and that needs to be controlled. In implementation, MRTP was really failing. In theory, it gave government a lot of power to surveil business houses and to break up companies and things of that sort, but in implementation, the number of firms registering with MRTP were far less. The Dutt Committee had identified 1,500 companies with assets over 40,000 million, but only 450-odd companies had registered after eight years of the MRTP’s passing.

The administrative capacity was completely inadequate. Most importantly, there was a nexus between politicians and industry that deepened the license permit raj. All of this is what affected because, by 1976, the approved investments for the top 10 houses was about 55% of the total investment that was applied. The Birlas received more investment approvals than 49 other large business houses put together. MRTP was really not working, and multiple reasons why—

RAJAGOPALAN: Or it was working; it was just serving the people it was supposed to serve as opposed to the ostensible people it was supposed to serve.

MISRA: That it certainly was. A big reason was in the design. Because the alternative that MRTP should have done was regulate large business houses instead of trying to regulate monopolies or every single company.

Business houses were controlling financial intermediaries; they had banks identified that were being controlled by business houses. They had already diversified their operations. The business houses themselves were working together: So Walchand, Kilachand and Mafatlal collectively owned the Scindia Steam group, for instance. There was already a lot of that happening among the business groups themselves, and we would have been better off to regulate them. That was a function of design. Private investment suffered—was massively problematic—over the 1970s. It’s only until the mid-’80s that you start seeing some amendments.

The third and the last strike against the development was the industrial licensing regime. Think about this: In 1975, to set up a new industry, you need permissions from the industry under the IDR [Industries Development and Regulation] Act, you need permissions from the Import Control Act, you need approvals under the MRTP Act, you need approvals under foreign collaborations, you need approvals under the Capital Issues Control Act and the Companies Act.

These are only the formal acts; this is what is there, and there are so many things that are behind this that these guys had to go through. All of these have different ministries, by the way. Ministry of Industry is controlling licensing; control of imports is exercised by Commerce; tariff and excise duties by Finance. It was just crazy. In addition to all of this, there were various controlling agencies for specified products, such as cement, paper, coal, steel, because they were operating independently. Getting a license was extremely problematic, and this system of controls really brought it down on us.

Combined with this, there was also a lot of inflation that led to a lot of new thinking in the government. The WPI [wholesale price index] in ’65/66, in fact, was almost 30% higher than ’60/61. It had increased by 16% the following year and then kept on increasing by 11%. ’70s, we had more than 20% inflation, the first oil price shock, the second oil price shock.

All of this forced a thinking resolution [1991 reforms]  around these processes that we had. Obviously, others would argue that a lot more needed to be done. I mean, I am in that boat: The period between June and August [1991] was really just a start, and a lot more happened—which we can discuss over the course of this podcast.

How Were the Reforms Maneuvered Politically in 1991?

RAJAGOPALAN: Thanks so much, Prakhar, for that overview. You’re absolutely right. There is this shift away from a very closed economy, and P. V. Narasimha Rao famously embraces trade. There’s a public recognition that free trade, or rather freer trade, is a good thing for India and it shouldn’t be punished. Similarly, entrepreneurs and businessmen shouldn’t be punished. Scale is a good thing—large firms, foreign investment, all of these—and of course, all the specifics that you provided.

I want to pick up on the last point which you talked about, which is, a lot more needs to be done. I think all three of us are in agreement there, but it is still quite extraordinary that any of this got done, right? It just feels like a time when things happened really, really quickly. The 30 years since July/August 1991, we haven’t seen the same pace of reforms, though they’ve come in fits and spurts.

What was going on politically at this time that allowed these reformers to actually push this agenda through—or was it difficult? Was it easy? Shreyas, can you tell us a little bit about this time politically?

NARLA: Thanks, Shruti, for that question. I think to truly appreciate what Prime Minister Rao’s government pulled off in 1991, I think it’s important to just take one step back and look at how central governments were formed until 1989. Indian National Congress individually and even with its alliances garnered a majority of the seats in the lower house since the first election, except for the three-year rule of the Janata Party, but that also came in the aftermath of the Emergency. If there was any notable change of order, it was only when there were deaths of prime ministers—whether it’s Nehru, Shastri or Indira Gandhi. In fact, the 8th Lok Sabha that was formed after the ’84 elections and after the assassination of Indira Gandhi brought Rajiv Gandhi into power riding on the majority of 414 seats in Lok Sabha: the highest majority any party has ever garnered in Indian history before and even after.

In 1989, when his regime ends, begins a series in a period in Indian political history that until 2014—so we’re talking about 25 years when not a single political party has a majority in the lower house to form the government. There are successful coalitions in the 2000s and 2004 onward, but until the Modi regime comes into power we don’t have a single party having that kind of majority. December 1989 to October 1999, it’s even worse, where we do not even have alliances being able to go past the 272 mark in the lower house. We have a series of minority governments that are somehow relying on outside support of allied parties or ones that vouch to support them in passing of certain bills.

The P. V. Narasimha Rao government that was formed in June 1991 comes riding on the failure of two previous minority governments that formed between ’89 to ’91: the V. P. Singh government that lasted about 343 days, and then the Chandra Shekhar government that technically lasted for five months but had to handle the two months as a caretaker government before the Rao government took over.

That was the political climate in which this government was operating. P. V. Narasimha Rao also, when he comes into power, doesn’t have the majority. He is essentially riding on about 232 seats, and he has some sort of outside support of the National Front and the Left in that sense, but he doesn’t have a majority. That’s the political climate in which the Rao government is operating, from the outside.

The second is within the Congress establishment as well. The 1991 general elections saw the assassination of Rajiv Gandhi, which left Congress completely leaderless, and that meant that there was already competition within the Congress to who should become the party president, then eventually the prime minister. Rao was already a representative of the old guard that was on its way out, and he’s already facing contenders in the new heavyweights of the party in Sharad Pawar, in Arjun Singh and in N. D. Tiwari. There are multiple accounts there: Sitapati’s book, R. D. Pradhan (who was the Union home secretary of Rajiv Gandhi) and even Dr. Pranab Mukherjee, former president, who write in their memoirs (and the biographies written) about how there was very intense contestation within the Congress Party about who will be the next leader.

When Rao comes in and he takes over, it’s not that it was an easy giveaway, even for him. Then he enters into a phase of dealing with this economic crisis on day one of his job as a prime minister. He builds together a team of technocrats—the most important being appointing Dr. Manmohan Singh as the finance minister—but even that doesn’t ease out what they go on ahead and do. Taking off from the different reforms that Prakhar talked about, the tussle which they had to deal with internally for pushing these reforms is just exceptional.

First was the devaluation which was carried out. Now, this was within the first week of taking office: Dr. Singh sends a handwritten note to Rao recommending a two-step devaluation, and our essay [The Economic Reforms of 1991: how India went from crisis to consensus] talks about the levels at which it was done. But this is done without cabinet approval because there is a history in 1966 when there was an earlier devaluation, and that didn’t sit well with that establishment at that point in time, which was a heavily socialist government under Indira Gandhi.

There’s that baggage with which they’re operating, so they go past an entire process that was there with getting cabinet approval. So when it happens, there’s pandemonium—within the Congress and outside the Congress. So much so that Rao does not want to go ahead with the second devaluation, which was scheduled the 3rd of July. But the things were at such fast pace that C. Rangarajan (who was the deputy governor of RBI) informs Singh that, “Sorry, you can’t take this back; it’s already been done.”

Immediately in the aftermath, you have opposition leaders, particularly Jyoti Basu, West Bengal’s chief minister, writing in letters offering publicly that there could have been an alternative approach than the approach taken by the government. There is that negotiation that is going on between Manmohan Singh and the letters exchanged with Basu about this. Jairam Ramesh talks about this in his book on the event. That was to the extent of how devaluation played out.

Then we had the episode of the no-confidence motion. This is three weeks into office, and Prime Minister Rao is facing a no-confidence motion. Now, there are multiple accounts about how he appealed to the Right by quoting hymns and chants from Sanskrit. He appealed to the old socialist guard by talking about how these policies are not really out of the blue, but they’re really a carry-on of the Nehruvian philosophy and the approach of the Rajiv Gandhi government, and how this is really something that is a natural progression to what existed before. To appeal to the National Front, he said, “Oh, but this was done during the V. P. Singh government and the Chandra Shekhar government.” He was really maneuvering around the political climate that would have never agreed to something as aggressive a reform as this, by appealing to all sides.

It’s an interesting situation because BJP [Bharatiya Janata Party] was bound to say no to this, because they were riding on the back of North Indian traders who were very averse to the idea of foreign competition. The Left would never agree to a market economy, theoretically and ideologically. The National Front, which by then had become the voice of oppressed groups, would have seen this as some kind of an abdication of the state’s responsibility and its role in upliftment or welfare work and all of that. But because it is obvious that BJP was going to vote no, going against and not showing confidence in the Rao government would have meant that Left was aligning with the BJP, which would also have not sat well with them.

The same was the case with National Front. And so the Left and the National Front stage a walkout, BJP’s noes are outnumbered and P. V. Rao’s government survives to live to tell the tale and perhaps do what it goes on to do in the next few days. If you really look at the dates of this period, Rao is organizing meetings within Congress, he is organizing meetings with political opposition leaders time and again, constantly briefing them, some parts letting them know what’s being done, allowing and passing on the buck to Manmohan Singh to defend it and sit back and watch this unfold.

On 15th [July], he survives. On 19th, he calls for a meeting for the approval of the industrial policy reforms. There is, again, obviously a tussle. The old socialist guard within Congress does not agree to this, for which Jairam Ramesh (one of the team members) creates a preamble presenting the industrial policy reforms—again, and that rhetoric about how it is a carry-on of the old philosophy, the Nehruvian philosophy, and derives its strength from the approach that the Rajiv Gandhi and Indira Gandhi governments were taking in the 1980s to appeal to the socialist guard.

The same set of policy reforms somehow got passed on 23rd July, just because there was a preamble added, and that made it palatable to the old socialist guard. Twenty-fourth is when the announcement was made.

The entire trajectory from the time he takes oath on 21st June 1991 to 24th July 1991, when Dr. Singh presents the budget, is rife with anecdotes and events about how he was catering to so many different interest groups that would have never welcomed these reforms. There was the political class, one within the party and one outside the party. Then there was the industry class, which was not OK with the idea of foreign competition coming in.

In fact, there’s interesting details in Sitapati’s book about how around the time of 20th, 21st July, there are diary entries in Prime Minister Rao’s diary about meeting K. K. Birla and Dhirubhai Ambani, who were obviously opposed to the idea of outside competition. There are also episodes about how the MRTP reforms could only be brought because Manmohan Singh appealed to the junior minister [P.R.] Kumaramangalam to talk to his senior boss, the Minister Vijay Bhaskar Reddy, on emotional grounds and levels and connections with Kumaramangalam’s father.

There were all these approaches at personal level, at ideological levels, at historical levels by connecting dots to just make all of these reforms, which were complete shifts from what India functioned then as a polity, and even as an economy, by really appealing to very, very different, very, very conflicting interest groups and just making it come through.

Sorry, that was a long answer, but I thought—it’s just this rich detail of different groups, and how much thought went into a span of just four weeks in maneuvering around these groups to somehow push through the reforms.

How Did the Blueprint for These Reforms Come About?

RAJAGOPALAN: This is a really fascinating piece of history. The day-by-day account is stuff that they make miniseries of on Netflix and other shows.

It seems like this was a roller-coaster with no brakes and everything was just going forward for three to four weeks. That is obviously true politically, but in terms of the reforms themselves, it seems like these reforms were long coming, right? They didn’t happen overnight. People didn’t write these blueprints for the reforms or the amendments to these laws, or even Manmohan Singh’s budget speech—none of this came overnight the way the policy changes did.

Can you talk a little bit, Prakhar, about what was going on that led to the blueprint of the reforms being absolutely ready when the appropriate political moment came, to push them through as quickly as Shreyas described?

MISRA: Thanks, Shruti. There was a lot of thinking that had actually gone, in the decade prior to ’91, in passing this and getting this through. A lot of that thinking really came from technocrats who were a part of the government. In the immediate years, you had Montek [Singh Alhuwalia] writing the now-famous M Document or Rakesh Mohan working on industrial licenses, and things of that sort. Just to take a step back in terms of how we reached where we reached, and what did we really disentangle in terms of the economic machinery.

There were a series of committees that were established when the reports started coming out; largely post-1975 is where you see this trend. I think 1974/75, our GDP was about—we saw a 9% growth, and then the very next year was just about 1%, but after that, it was 6.5% and 7.5%, or 5.5%.

Then ’79/80, we have a dual shock of OPEC increasing its prices and, second, our agricultural production reducing by almost 12%, so our growth kind of slashed. Within this period is when you see a lot of this new thinking come up, so Morarji Desai had become prime minister by then and he had [D.T.] Lakdawala in the planning commission and H. M. Patel as his finance minister. There was the Sachar Committee that was formed under Justice Rajinder Sachar to look at MRTP. There was a Committee on Controls and Subsidies under Vadilal Dagli. There were a bunch of reports that came out in the mid-1980s, and these committees had been working on it for a while—so the Sukhamoy Chakravarty committee report to review monetary policy, the Abid Hussain committee on trade policies, the Narasimham Committee on—to move from quantitative restrictions to financial controls.

These were really people who played a huge role in the transformation of the economic paradigm under which we were functioning.

Some of these things were immediately implemented, but some of these things took a little more time than we would assume. For instance, in 1978, we had the report of import-export policies under P. C. Alexander, and that was the first time that it was recognized that we have to liberalize our trade regime. Sachar Committee talked about things like bringing in public-sector enterprises under the fold of MRTP, which the government did not really agree to.

That said, there was a lot of loosening post-1975. For instance, control over indigenous copper and zinc was withdrawn in ’75; cement orders were called back. There was control and distribution over sales of cars and scooters that was withdrawn. A new textile policy was announced in ’78 which gave freedom. The key thing there was, capacity expansion was allowed—so broad-banding, as they say, where you don’t need permission anymore to produce diversified goods, provided they carry certain parameters.

For instance, if you are making a four-wheeled car, you can now also make a mini truck, which is on four wheels. Now you don’t need the additional permission of the government to decide to do that. This really helps in businesses to cater to the market, and that’s the recognition that I think, at a very meta level, that the government saw. They were also attaching other conditions to delicensing, like if the industry would be set up with indigenous technology, then there would be no licensing for the industry—or even with alternate energy equipment like wind, biomass, tidal energy.

And you see the difference. The breaking-point view, like the statistical view, for instance, like Jessica Seddon Wallack does. She identifies the robust years as ’74 and ’80, but you see others, like Arvind Panagariya, who talks about how it is only post-’85 (that’s post Rajiv Gandhi) that you really see a lot of change—and specifically post-’88/89.

These policies were taking time to percolate, and this period is also largely known as liberalization by stealth: It’s coined by Panagariya himself.

Why Did India Have a Balance of Payments Crisis?

RAJAGOPALAN: In this context, it seems like for about a decade, there are all these committee reports. There’s huge recognition within the bureaucracy and elite intellectuals that clearly this commanding heights of the economy and license-permit raj and all is not working. Then why does India have this massive crisis in 1991? What is the balance of payments crisis that actually forces India to usher in the next stage of reforms?

MISRA: Post-’85, (a) there was a lot of public spending and (b) there was increased spending over defense expenditures. The Bofors scandal happened then, and then V. P. Singh left the government because he saw some financial issues happening in the defense ministry. But not just that, there were also minority governments that were then formed over a period of three or four years, post-1989, with V. P. Singh coming to power (as Shreyas explained) and then Chandra Shekhar and then, finally, Rao.

During this time, the current account deficit of India—during the time of the 1980s—really increased, from minus 1.7 of GDP in 1980 and ’85 to about minus 2.9% in ’85, ’90. But that wasn’t the only problem. The real problem was we were spending more than we were earning. And by more, I mean way more. Our total external debt really increased from $20.6 billion in ’80/81 to about $64 billion in ’89/90, which was unsustainable. I mean, Manmohan Singh in his speech talks about the interest rates that we had to pay in ’91, and they were 4% of GDP and just about 40% of our revenue receipts. Forty percent of how much we’re earning, we just have to pay in interest, leave alone everything else.

RAJAGOPALAN: Short-term debt, right? Like this is all 30 to 90 days. It’s a revolving door of debt. You’re borrowing from one government to pay back loans to another foreign government. It looks a little bit like a pyramid scheme—and very unsustainable.

MISRA: Precisely. The short-term debt really increased to about 10% of the total debt. The debt in and of itself is probably not a very big problem, but the problem is that there are these other indicators that are not in place to handle such a debt for India. The confidence in the economy really, really is low.

Added to this, the trigger was the Gulf War that broke out in ’91. Iraq invaded Kuwait, and U.S. imposed oil sanctions on Iraq. What this did was increased oil prices everywhere. India’s import bill really shot up, from about $3.5 billion in 1989/90 to $6 billion in 1990/91. That took away a lot of foreign exchange reserves, which is something we were not really prepared for.

The other effect that the Gulf War had was on the trade relations with Iraq and Kuwait, which wasn’t too much but still sizeable in terms of $500 million, and certainly sizable from the situation that we were really in at that point in time.

The third thing—and I think this was the biggest crunch that was unexpected—was NRI [non resident Indians] started losing faith in the economy and withdrew their deposit money. And rightly so. I mean, none of our indicators were healthy enough for them to keep their faith in. So within three months from October 1990, about $200 million were withdrawn, and between April and June ’91, $950 million are withdrawn, so that you have about $1.2 billion not available anymore, suddenly.

RAJAGOPALAN: It sounds like a small amount, but the Indian economy was so small at the time that these are fairly large numbers when we think about it. Like today, the size of the Indian economy is so big that a billion here, a billion there wouldn’t really matter. In those times, it was a really, really big deal.

Now, we know that there’s this crisis brewing. We know that this forces a balance of payments crisis. Everything you talked about, Prakhar, eventually forces India to sell its gold, quite literally. India has to sell its gold to raise about 2$40-250 million to raise money very quickly for oil imports, because it only has foreign exchange for about two months or so, maybe even less.

Now, in this context, it’s clear there’s a crisis brewing. It’s clear that something needs to be done. It’s also clear that Rao and Singh are the right people to do it. We also know that when things are pushed very quickly in a crisis, things can also go terribly, terribly wrong. How did the Indian bureaucrats and technocrats and the political class get the reforms right when they did it in 1991? There is a fair bit of agreement, even though some people believe that the reforms didn’t go far enough. At the core economic fundamentals, everyone agrees that this needed to be done and it was a good idea. How does one create circumstances where when the political window of opportunity arises, the right reforms can be pushed through?

NARLA: You’re quite right, Shruti. In the sense that reflecting on—in fact, the podcast you had with Himanshu Jha spoke about the epistemic community that led to the creation of Right to Information Act. The ’91 reforms also needed a gradual growth of such creation of a community, of contributors within the system, especially, to be able to create the groundwork for something drastic like this to take place. Especially the short window of four weeks: If they had to push, pull off something like this, there had to be something done within, internally, already.

For one instance, you would think about the V. P. Singh government, while he was using all his political capital to push through the prevention of atrocities against SC-ST [scheduled castes-scheduled tribes] act and the Mandal Commission and firefighting the Hindutva movement on the rise, he was not completely blind to the mismanagement about the economy. He had himself, in fact, visited Kuala Lumpur earlier in his political career and had seen the transformation that Malaysia had seen. I think that played at the back of his head as to how did they manage to do that and what can be done in India in a similar way.

Around that time, he had inherited Montek Singh Ahluwalia as his additional secretary from the Rajiv Gandhi government in 1989. He had asked him to create or recommend ideas with this regard, and that led to the creation of the famous M Document, which became a blueprint for the reforms that were to come. There was a blueprint already being created in 1989.

While this was one case, there was the situation where there was Rakesh Mohan in the industries ministry as an economic adviser who came riding on his experience in the World Bank. He had worked in the Philippines division there and seen what liberalization had done in Philippines and the kind of intervention that World Bank had to do there. He was creating a blueprint for industrial reforms. He is in fact credited for creating and coauthoring a huge compendium of what really are all the rules and regulations that govern industrial licensing. There were these people within the establishment and bureaucratic levels who were creating documents and briefs that were reflecting on what the issue was and why we were functioning as the economy that we were and what needed to be changed.

When Rao and Singh do take over, there is the groundwork that has been done. Now, what Rao does is that he gives complete backing to Manmohan Singh to do what he wants to do in terms of creating a team, and so what does Manmohan Singh do? He creates a team and puts together within the finance ministry people with leanings that are slightly pro-market.

It’s not that it was that easy. The chief economic adviser that he inherited, Deepak Nayyar, was opposed to these ideas. The finance secretary, S. P. Shukla, was opposed to these ideas. It’s telling that within a month of them taking over, both of these gentlemen resigned. They’re immediately replaced by Ashok Desai, who’s brought on as the chief economic consultant.

Then you have K. P. Geethakrishnan taking over and then, immediately after him, Ahluwalia as well. It really happens so that at a given point in time within the finance ministry, within the industries ministry—and the choice of principal secretary in A. N. Verma. They have created for themselves a team of people with very obvious leanings towards liberalizing the economy.

What Changed in India to Make These Reforms Possible?

RAJAGOPALAN: About 15 years prior to that, or even during Nehru’s time, if one wanted a collection of 20 technocrats and economists who supported free trade, it was really hard to find one. P. T. Bauer famously called B. R. Shenoy the only free-market economist between London and Tokyo. This is the environment we’re in.

Now, how is it that the Rao-Singh team is able to inherit from past governments technocrats like Rakesh Mohan, Montek Singh and so on, and also bring on their own reform-minded people like Ashok Desai, K. P. Geethakrishnan? What has changed in India to make that possible at that time?

MISRA: Two or three things I feel that are important, as in every policy reform to happen. One of them is like divine intervention. [laughs] You do need luck. You need these people to come in together of the same mind at certain points in time in order to pull through.

I think the second thing was just the duration that some of these guys had spent in government earlier. So Manmohan Singh, having held positions of chief economic adviser, RBI governor, secretary of department of economic affairs, deputy chairman planning commission—he knew a bunch of these folks. He knew what it took to get this done, and there was a very innate knowledge about how to really go about these reforms.

Some part of it is that; some part of it is just the crisis, the political economy of that situation, pushes your back against the wall and you just have to fight it out. I agree that there are governments that end up not doing that as well. Economies like Zimbabwe or Argentina or Venezuela—I mean, they fail time and again in pushing this through.

I do think that there is a certain role to play of the events that were boiling at that point in time. In a paper by Rahul Mukherji, he talks about two metaphors, and one is that of tectonic plate shifts that happen gradually and then lead to an earthquake, and the other is that of a meteor striking the earth suddenly from the outside and exogenously. I believe that it is the former that really breeds such change. Because you’ve had such sustained interventions by so many technocrats, politicians, bureaucrats over long periods of time.

Also because, remember that Manmohan Singh wrote his dissertation in 1964 (or in ’62 but got published in ’64). He was called “1% Singh” when he came to the RBI because he famously said that he’s going to bring down inflation to less than 1%. There was already a commitment to these reforms, and he was very reform-minded in that sense. I think, to sum it up, three things: divine intervention—very important; the individuals and their experiences that they carry; and third, it’s just a lot of individuals who have given multiple policy prescriptions that have just seen their way through government for a long time.

NARLA: They had also previously worked in different capacities with each other. Y. V. Reddy was a former colleague of Dr. Singh in the finance ministry when they both were bureaucrats sometime in the ’70s or ’80s. There’s also the association between Ahluwalia and Dr. Singh. And so on and so forth. There are these preexisting relations that were there between these folks.

So when the team came together in 1991, there was that familiarity also with which they were going to work. I think that in fact, for the way the Indian bureaucracy works, that familiarity also makes it easier to get past, especially when they’re also like-minded.

RAJAGOPALAN: I would add one more thing, which is some of this—you mentioned Argentina and Venezuela and Zimbabwe, Prakhar. A lot of times when there are these kinds of balance of payments or currency crises, the IMF [International Monetary Fund] and World Bank show up with their conditionalities—and like a ton of bricks on sovereign governments—and tell them, “We’ll give you the loan and we’ll bail you out, but you need to do A, B, C, D, E,” right?

Typically, these are very difficult prescriptions and there’s no real buy-in from the government of that country, from the people, from the bureaucrat and the political elite, because basically you’re telling these governments to cut spending and tie their own hands and disappoint their own constituents and so on. I think one really important difference is, even though a lot of this really bleeds off the Washington Consensus, the Washington Consensus—parts of it became homegrown, as members like Jairam Ramesh, Montek Singh Ahluwalia, Rakesh Mohan were all somewhere part of that consensus during their stints abroad.

They managed to create a homegrown version of that. They managed to have buy-in locally. Of course, as even Prakhar said, they also need to know how to maneuver it. There’s an insider-outsider element, right? It’s one thing for the World Bank or the IMF to just show up and say, “You need to push this through, and we don’t care exactly how it’s done,” but these people knew how to move files within.

Dr. Singh, having held every single important technocratic position that any economist can hold in government—I don’t think anyone else has that record—I think that kind of tacit knowledge on how these things move and maneuver across different ministries, and how to get these things done—this is typically absent when it is shoved down the throat exogenously. It really does need to happen within.

Which is, again, not to say everything is perfectly fine since the reform happened, but there is something quite interesting about these reforms, from that point of view.

The 1966 Versus the 1991 Devaluation

MISRA: Completely agree. In fact, what you’re saying becomes crystal clear when we compare the ’66 and the ’91 episodes.

Even in 1966, we have a similar situation as in 1991, where our foreign exchange had reduced down and we just had two months’ worth of foreign exchange for imports and things of that sort. That was largely because of increase in defense expenditures on the back of the ’62 war and the ’65 war and the two droughts that we faced, one in ’65 and one later, in ’67.

Amidst this, a complicated foreign policy emerged, and America was really pulling us (there’s no other way to say this) into accepting certain terms and conditions that they wanted to push through. This came via multilateral agencies like World Bank, where George Woods was the president and Bernard Bell was the head of the mission for India.

You see, you read those conversations and you read those transcripts and you read the biographies of those people like B. K. Nehru and I. G. Patel, and even reporters like Kuldeep Nayyar, and you realize that there was zero buy-in to do the devaluation. In fact, RBI at some point did not have the numbers ready to give Bernard Bell, and that is what really ticked him off. That’s why he wanted to really come after us and accuse us that we’re hiding our balance of payments figures. One month before the devaluation it was publicly said that we will never devalue. One month after it was said that, yes, we devalued—but only in our interest. You could see that dillydallying happening from the government side.

In ’91 , the situation was quite different. I mean, people were largely agreeable to the devaluation. It was the secrecy of it that I think got to them, from the accounts that we really read.

The second aspect of it, obviously, is that these people had spent a lot of time in such agencies. Manmohan Singh, right before he became finance minister, was chairing the South Commission. Before that he was in UNCTAD [United Nations Conference on Trade and Development]. Montek [Singh Ahluwalia] was at the bank for some time, if I’m not wrong. Rakesh Mohan had spent some time outside at Princeton. Amar Nath Verma looking at the East Asian miracle.

They did have a sense of how these things work, and therefore the buy-in and therefore the positive effects of such devaluation. You’re absolutely correct: The pressures of such agencies don’t always work. We need the internal fidelity, in some sense, to these ideas before we can implement them with some success.

Reforms Post-1991

RAJAGOPALAN: Now it seems like in 1991, there was this great group of homegrown economists who were also elite technocrats who came in from abroad. Then there seems to be some exuberance that reforms are a good thing. Many of these individuals also continue into the Vajpayee regime. Eventually, of course, we know that with the UPA [United Progressive Alliance] government, the Singh-Chidambaram team comes back in a big way, where Manmohan Singh is now prime minister and P. Chidambaram initially is his finance minister and then also his home minister.

Now, can you walk us through the reforms that followed this 1991 moment over the next 30 years?

MISRA: Yes, there were quite a few. I think, in general, the attitude and the orientation was much more friendly towards private sector than it was before ’91. That said, obviously, a lot more had to be done and needed to be done. In terms of the kind of reforms that followed on the heels of ’91, the capital markets were really deepened. So the first thing was SEBI got some teeth and there was regulation to back it, which wasn’t the case even though SEBI was formed earlier in the ’80s itself. It was not until ’92 that it got some teeth.

Then there was the National Stock Exchange that was established in ’94. Again, it took only one year for NSE to surpass BSE [Bombay Stock Exchange], and really the competition between NSE and BSE got BSE to do much better. Consumers benefited. Brokerage fee dropped from 2.5% to 0.5%. There you have markets playing out there as well. The National Telecom Policy was started—and then TRAI [Telecom Regulatory Authority of India] was formed in 1997.

I think these were some of the reforms that were implemented during the Rao administration, where they tried to follow through post-’93 once the macroeconomic situation was stabilized.

After that, under Vajpayee, I think disinvestment was a major thing that they tried to implement. The Bharat Aluminium Company, Hindustan Zinc, VSNL—these were some of the big ones, and then you had these hotels from ITDC [India Tourism Development Corporation] that were then given out.

But there was a lot of opposition to these as well. If you read accounts of people like Arun Shourie—had a very good book, “Governance,” that I’d recommend to your listeners—who were at the forefront and was in the disinvestment industry, he talks of the kind of things that were staged. There were protests by local politicians when they were trying to sell the hotels. In fact, they had to deal with some private equity firm. They were sitting in the hotel to sign it, and suddenly people came throwing stones and ransacking the place.

It was a hard thing to do, but they did implement it to some degree. I have my qualms with disinvestment, which we can come to later.

The other big thing was FEMA [the Foreign Exchange Management Act] that was implemented—like parliament repealed FERA, and FEMA was more liberal in its foreign exchange management. The Tarapore Committee report had also come out a couple of years ago, which argued for capital account convertibility—which hasn’t happened yet, but at least the ideas have been circulating. Current account convertibility had happened by ’94 under IMF pressure, as you were talking about earlier.

FRBM [Fiscal Responsibility and Budget Management Act] was also there, but post-Vajpayee you don’t see a lot of reforms, as you rightly said. The big thing that UPA II [United Progressive Alliance, the Singh led government from 2009-2014] really did was FDI in retail, where they allowed foreign direct investment to come in in single-brand retail, and then later 51% in multibrand retail. There was a lot more that they could have done. I think largely it is also because of the kind of growth rates we were experiencing in that era, and second, I think it’s because of shifted priorities. You see a lot of the nuclear deal that is being pushed through.

You see Sarva Shiksha Abhiyan, which actually came under Vajpayee—but really catching on. You also see MGNREGA [Mahatma Gandhi National Rural Employment Guarantee Act] that was passed. So there were a lot of these policies that were coming through during that regime. Even the Modi government has the Insolvency and Bankruptcy Code, RERA [the Real Estate Regulation Act], GST [goods and services tax]—there are some of these that have come through, but you’re largely disappointed, right? Because the ’91 reforms were really not taken forward.

Just to end this with two quick examples: One is the Foreign Investment Promotion Board that was established, and it had to be repealed because it just wasn’t functioning. It was rejecting proposals and not articulating the reasons for the rejection, which basically meant that we were losing out on opportunity to foreign investment. Secondly, like I mentioned, disinvestment policy. In 1947, we had five operational public-sector enterprises. In 2007, we had 217. Today we have 320, so really disinvestment has not worked.

Just proliferation—and opposite of what was really announced in ’91. You don’t see the follow-up to these reforms. The question that I know we discuss a lot is, How much of it is to be blamed on the ’91 actors in terms of they didn’t go deep enough, and how much of the burden needs to be carried by subsequent governments? I guess that is something that will remain for us to discuss.

NARLA: While we also talk about the nature of reforms that have come since then, it’s also in the larger imagination of what is it that we want to secure through these reforms. It’s that—in essence, an idea of an economic freedom, in so many ways that it’s guaranteed within the Constitution, in the way we imagine it otherwise as a body, as a polity. I think that still remains lost in this conversation. In fact, when we talk about rights, we never think about economic freedoms as a concept in itself.

The way law is imagined, the way it’s taught, the way the courts deal with it—it’s something that is either frowned upon as some kind of exploitative, extractive behavior of a private citizen or private corporation, and the imagination is only limited to that. For instance, if you think about how the MRTP was replaced by the Competition Act, and the CCI [Competition Commission of India] was set up, CCI is doing the same job of penalizing economic offenses. We have a concept of an economic offense in the first place that has not left the room. We’re still thinking about criminalizing private transactions of all natures, whether at a broad market level or at the individual.

You have CCI belting out penalties ever since it’s come into power, and there are enough feedback and analysis created by law firms and from the market, from industry talking about how—let’s not even get to quantum of the penalties. The metric and the criteria on the basis of which these penalties are meted out is not clear. It’s so arbitrary. So that a state, once again interfering in the economic affairs of its citizens both as a collective and individually in a way that it can’t be checked, it can’t be called into account—and that is the kind of imagination that is still missing from the process of reform.

That’s one—I can think of something as basic as the barrage of dishonor-of-check cases that still exist in courts. When I was clerking on the Supreme Court, it was so silly sitting and looking at files after files of checks from ’80s and ’90s and 2000s. And reaching all the way to the apex court. Two hundred thirteenth Law Commission report talked about some 38 lakh dishonor-of-check cases pending in the courts of law. It’s obscene.

This conversation of decriminalizing that one small economic transaction itself has just not taken any political or any legislative force within the establishment. Yes, in 2020, there was some notification put out for comments, but nothing emphatically saying, “Well, you know what, let’s get rid of Section 138 from Negotiable Instruments Act. It makes no sense in a modern functioning, breathing economy for something like that to exist.”

Then you think about the tax regime: Customs Act 1962 is Customs Act 1962 in 2021 as well. The establishment that it created. You have GST. I think 1st July 2017, when the announcement was being made, I was part of that year’s cohort of LAMP [Legislative Assistant to a Member of Parliament] fellows, and we were witnessing that spectacle on television about this new regime that was going to come with rationalized indirect taxes on goods and services—but it’s anything but rational.

Look at the number of revision of tax slabs that have happened. All kinds of products, each one becoming a political debate of its own, from sanitary napkins to luxury items. It’s all in five to six slab rates that keep changing, keep changing with every council meeting that happens. Where is the so-called rationalized tax regime?

The framework, the larger institutional legal framework which can cement an active, emphatic effort at reforming the system, hasn’t really happened. That’s largely because that imagination in legislative lawmaking at a central level, as opposed to at the executive—changing the rules of the game depending on who comes into power.

RAJAGOPALAN: I absolutely agree with you. We’ve had these conversations many times, and sometimes we have the conversations among the three of us at the level of the laundry list of reforms. Sometimes it’s as simple as what was there in Manmohan Singh’s 1991 budget speech that is still not implemented. You could have a list that is as simple as that. Sometimes when you really get into it, it’s this extraordinary almost like dismantling of the entire state machinery and a reimagination – that actually trade and division of labor and specialization is really the route to prosperity, and not this dirigiste idea of state-led development.

In some sense, it’s just old wine in a new bottle, that what they were talking about in the 1950s and ’60s and ’70s that the state must lead development. Even, Prakhar, when you mentioned that this foreign investment board has become defunct, it almost begs the question, Why do we have someone approving these investments in the first place? Aside from some large cronyist agenda.

You can imagine why it was required in 1991, which is the first time India is open for business. It’s very difficult for foreign actors to navigate the myriad regulation required to do business in India. It was very helpful to have a point person in the prime minister’s office. You can imagine this as a short-term reform to then open things up. Now, 30 years later, you still have some babu somewhere whose job it is to approve who gets to enter the country and make an investment and make a profit or not, and so on and so forth.

Some of that is quite depressing. I don’t want to, however, end on very pessimistic notes. We have been on a really fun ride the last many months working on this project. Just to take stock, what is exciting about this project, and what have we learned?

Lessons Learned from the 1991 Project

MISRA: I’ve had this internal discomfort when I’ve been thinking about this, which is the secrecy with which these reforms were enacted. While we agree with the nature of the reforms and the people who did it, etc., it’s the same tools that then empower a fascist way of governing.

I’m in two minds, right? It’s quite bittersweet. I’m in two minds whether one should endorse that or one should oppose it. Which brings to the larger question of the design of institutional structures and state capacity and things of that order, that need to be questioned. This project has really got me to think about that. I’m quite a policy wonk in the sense of the word which is interested in academic ideas and quite widely influenced by them. I want to focus research on applied work. The ’91 moment really is a case in point where academic ideas come into application.

The larger question I ask myself, both in my research and at 2 a.m. when I don’t get sleep, is how is it that reform happens? What’s the process? What’s the procedure? Because my interests lie in state capacity and the questions around bureaucracy, but the administrative reforms commissions, for instance, have already laid out everything that needs to be done. But it doesn’t work; it doesn’t happen. Why is it that some countries—and this is a very cross-national view—some countries are able to reform their bureaucracies where others are not?

Those are the kinds of questions that are really intriguing, and therefore this project gave me a lot of insights. Some of which I can’t articulate because it’s very innate. That’s really something that I’ve taken away from the experiences of Dr. Singh and Prime Minister Rao, and the whole lot, and everything that they did.

NARLA: For me, any historical project is of just immense interest to me, because I think for anyone who wants to locate themselves in the present, I think it’s very important to understand why things are the way they are. And even though I think broadly and generally we have a disregard for any kind of professional study of history in our country as a discipline, or—for a matter of fact—any other liberal arts education, we do invoke a past when convenient to legitimize what we do today. We also have a fetish for converting any episode into this epic where there are heroes and villains, and the villains are the reasons why we’ll pick cudgels today.

When we launched the website two weeks ago, there were some responses that were obsessed with who should get the credit for the 1991 reforms and who should be declared the real hero. For me, in that context, the ’91 Project holds a lot of value because, at a very methodological level, we are really committed to documenting and telling multiple perspectives and narratives without leaving any room for generalizations.

The attempt is also not simply establishing one neat chronology of facts and hope the audience understands that chronology. It is also an opportunity to just understand the whole reform process as one of interaction and exchange between people with ideas, creating ideas, with arguments, while also navigating the political climate and what French philosophers called micropolitics—beyond the realm of the establishment, of being accessible to the real people. In that sense, ’91 Project—in fact, if you look at the source material, we have access to just a wide range, from biographies to memoirs to reports to documented debates within and outside the establishment, even anecdotes and oral histories.

One might question, saying, “Why would you want to look at something like that?” But like professor Chitralekha Zutshi, a professor at College of William & Mary, says that we are still obsessed, even within historical production, with these very strict rules of evidence and historical material that we rely on. But we also have to acknowledge that that kind of academic historical production will lose value in the larger run when it is not able to confront and bust popular history as well. To simply ignore popular history and popular misconceptions and certain stereotypes that come with lack of rigor in the popular domain.

I think ’91 Project, even in that sense, is fighting hard to bridge that gap between academic rigor and also being accessible. In one sense, if you really think about—in a country like ours, where much of history writing is essentially state sponsored and its popular dissemination is through textbooks, which changes depending on which regime is in power, ’91 is a community project. It’s a private effort. It’s a bunch of people coming together with the interest of telling a narrative from multiple perspectives.

On a personal front, my own experience and takeaways, I’m a child of post-liberalization. I have very limited and very little lived experience of what life was before ’91, at least from—speaking from my class and caste background.

Given the education and lens I acquired, there were certain things that were taken for granted, and the default is this undeterred faith in state and “state’s role in regulating our lives to uplift us or create welfare for everyone” approach. It was just really nice to have those views challenged and push me to think harder about that there may exist a situation where maybe the state is not the solution.

’91 Project, I hope, does that for the broader audience in terms of recognizing about so many of our cultivated biases.

What I love is that ’91 Project is this open repository of material that’s out there for people to access, read, process; and anyone who’s interested in retelling that story or reimagining that story in different languages —any scholar who’s willing to do that and do it and by creating the new vocabulary.

For me, this project is like a wholesome one and one that I really look forward to contribute more to.

MISRA: Just more so for people of our age post-’91. Shruti, your essay [“The 1991 Project: The Quest for Economic Freedom in India”]—adulteration—like we can’t even imagine that today. I’m sure it does happen, but at a much lesser scale. Or the state controlling and preventing you from, like, having orange juice in a certain form. I can’t imagine sitting in the afternoon and watching Doordarshan on an app. I do need Netflix.

It really puts into perspective what ’91 really enabled, and for everything that we’ve discussed, there’s a lot more that needs to be done—but there are things about it that need to be celebrated.

RAJAGOPALAN: Yes. For me, it’s a little bit strange—so you both have already alluded to the fact that I’m much older, and so some of this is lived experience. 1991 is a moment that’s very, very clear in my own mind. The history of what happened as an event, as a life event. What changed for me after that? I’ve talked about this a little bit in the essay.

The second is, I feel in some sense that I have been the most fortunate generation of Indians, in that, unlike my parents and my grandparents, I was the first generation while growing up that saw this incredible 25 years of high growth rates in India. Of course I’m in a very privileged position. I had access to a lot of the gains from the way the size of the pie grew in India in those times. But the fact of the matter is, there is a level increase in every single socioeconomic group over the next 20 years after liberalization. 250-300 million people being lifted out of poverty: This is no small feat.

The way poverty levels dropped and for the first time Indians felt like they could also be a prosperous nation: I kind of saw that change happen. It’s very difficult for me to describe, but I’m almost a little bit sentimental about it, in the sense that I feel very fortunate having experienced that, and all the good things that have happened in my life—I feel very, very lucky and fortunate that this 1991 event has brought that to bear, in some sense.

The other thing I’ve been thinking a lot about, and what is exciting about this project to me, is I think I’m revisiting the importance of ideas and the ecosystem that creates a pipeline of scholars and technocrats, bureaucrats, everyone.

Both of you have talked about how for Shreyas, who is very interested in history, this is almost like a public history project. For Prakhar, who’s very interested in policy and institutional change and rule change, this is almost a public reason and public policy project. But for me, I still feel like, the more I think about it, the path dependence of ideas—where they come from, how they influence people—that is so specific. The way we talk about how [Harold] Laski influenced everyone from Nehru to P. N. Haksar.

There’s an entire two or three generations of scholars, bureaucrats and people that Laski influenced. Now, it’s not that you have no competition of ideas; there are other people involved at the time: B. R. Shenoy is also at the LSE [London School of Economics], and he’s influenced by [Karl] Popper and  [FA] Hayek as opposed to Laski. And you see that so clearly in the second plan. All the economists are making some marginal, small comments on the second plan, and no one is really talking about how problematic it is, and B. R. Shenoy is the only person who comes forth and explains why the second plan is not likely to work.

It’s the same thing—like you see the reports of the 1980s, the influence that Padma Desai and Jagdish Bhagwati’s industrial planning book had on later generations. It’s really incredible, that once you put this work out in the academic space, slowly it percolates through—there are people they interact with at the Delhi school and later. Anne Krueger and Jagdish Bhagwati, when they’re writing about the East Asian trade miracle in the NBER [National Bureau of Economic Research] series, how important it is now for developing countries to have trade as the prescription for prosperity and not state-led development and import substitution, industrial policy as the prescription for policy.

You see all this percolate through over a period of time. You see that the reform-minded people—where they’re coming from, who they are talking to. In one sense, I’ve been looking back almost 150 years, starting with people like [Dadbhai] Naoriji and [Henry] Hyndman and all these, even, like, Fabian Society, the theosophists. And on the other hand, I am deeply thoughtful that the way we want to structure the 1991 Project, the next set of reformers for India—and this is probably going to be people like both of you, your generation, whoever comes after you in the next 15 years—what are they reading? Who are they listening to? Why do they think this is important? What do they think is the prescription for India to progress and for Indians to be prosperous and do better and genuinely be in control of their lives and their destiny?

Is the way to prosperity state-led industrial development? Is it social protection programs? Is it the kinds of mechanisms we are developing through randomized controlled trials on should we give people a free education with time-stamped entry so that they get a better education? Is it through some other mechanism?

What is it that is going to make Indians prosper? This question is still up for debate. For me, again, I feel like my life and my life’s work is a continuation of the Adam Smith project. Even today, we talk about randomized controlled trials and generalizability and all these things. There is nothing more generalizable we have seen in economics than division of labor and specialization leading to increases in productivity and economic growth. I don’t know a more generalizable result than that.

In that sense, is there really a revival of that thought process of the kind of institutions we need? Are lawyers today paying attention, are law students paying attention to what Shreyas has talked about in terms of we have all this old wine in new bottles, and you still have the arbitrary and discretionary state just coming after people?

Maybe it’s not as oppressive as FERA, but FEMA is pretty bad too; you’re still criminalizing people for violating some form of currency controls.

NARLA: The procedure for—sorry to interject, but just the idea and the imagination of evidence taking, of the powers given to police officers and investigation officers, search and seizure, of entering private property and the way they go about and conduct these evidentiary processes. It’s shocking—it’s still carrying forward, not even, like, from the socialist era: You’re really talking about the imperialist era, colonial procedures that are still on the books.

I mean, I think unless we have that imagination that can dismantle something on every granular level of how we have built the state and built and organized ourselves as a polity and as a governance structure, I think that’s the bigger conversation, as you said.

How the 1991 Project Will Continue

RAJAGOPALAN: We’re at the start of a project which is going to be a year-long project, but I really hope that we can communicate this: that ideas really matter, that a lot of these ideas aren’t done and dusted, they’re not settled. You can’t just say rah-rah markets or rah-rah state-led development. We need to have a deep thought process of what needs to be done to make India more prosperous, and I hope the 1991 Project can kick off that that conversation.

As Shreyas, you said, in multiple languages if possible, multiple methods—we’re going to do one part of it which is oral history—and voices. The women are just completely missing in the conversation. When we did the bios on the 1991 Project, the three of us were just shocked: There’s not a single woman.

And some of it is an accident of history, which is how many IAS [Indian Administrative Service] officers get into the pipeline who are female and therefore eventually make their way up to be your additional secretary or joint secretary of finance. But it’s also just who is writing these histories and are they including women and are they giving them credit, and so on and so forth. We have pieces on that.

We have some very exciting people, just top-rate world scholars, who are going to do lecture series, which I’m very excited about, to hear from economists, oral histories that we hope to document, interviews, podcasts, lots of macroeconomic, boring aggregate data that we need to parse through. All of this is part of it, but you’re right: What is at stake is sort of a larger conversation and a larger imagination.

Maybe you guys will be the conduit to convincing your generation on why any or all of these ideas are up for grabs.

MISRA: Completely agree. In fact, one of the biggest takeaways from this is that the processes’ punishment is also a punishment for the guy setting the processes. You could see why even the prime minister and the finance minister had to go their way around it.

I think we need to think hard about the kind of India we want to build as we go forward.

RAJAGOPALAN: Thank you so much for doing this podcast. Also, thank you so much for working on this project. This was such a pleasure.

NARLA: Thank you, Shruti, for the opportunity. Such a joy.

MISRA: Thanks, Shruti, really. Lots of learning.

RAJAGOPALAN: Thanks for listening to Ideas of India. If you enjoy this podcast, please help us grow by sharing with like-minded friends. You can connect with me on Twitter @srajagopalan. In the next episode of Ideas of India, I speak with Uday Bhatia about his forthcoming book, “Bullets Over Bombay: Satya and the Hindi Film Gangster.”


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