When India changed the entire trade policy in just eight hours
In an interview with TOI, Montek Singh Ahluwalia recalls how the government moved quickly to implement fundamental structural changes, with the PMO not questioning experts. Excerpt:
What do you think led to the historic decision of 1991 – the political will or the reality of the economic crisis?
The crisis is clearly an important factor. We are in a desperate situation, with our foreign exchange reserves more or less exhausted. The government has outlined a two-part agenda. One is to stabilize the economy, and the other is to implement structural reforms, to move to higher growth rates.
The stabilizing part is the usual: reducing the deficit and getting the International Monetary Fund (IMF) and World Bank to provide funds that could help the economy see the economy in a few years as stability decree in force.
However, the decision to reform is innovative. It cannot be explained by the crisis, or the need to reach out to the IMF or the World Bank, because the reforms have gone far beyond what those institutions are urging.
In any case, the crisis ended in 1993… (but) the fact that the reforms continued shows the government’s interest in reforms independent of the crisis.
What is your standout memory of 1991?
My favorite incident involved the speed with which we were able to introduce changes in trade policy in 1991. When Manmohan singh announced a second devaluation on June 3, he wants to abolish the cash offset support (which is given to exporters as an incentive) from June 4 onwards.
He asked me to speak briefly with Foreign Minister P Chidambaram theoretical basis for it. I did, but also said that we should try to convince Singh to agree to a quick announcement of our proposals for trade liberalization, including the Exim script to replace paper import permit.
We went to the finance minister’s office and he easily saw the fruits of our proposal, appreciated his officials who were not supportive and asked us to come back with a proposal in writing, “on file” as they say in government, so we can get approval from the Prime Minister.
We did it for a few hours and we all went to see Prime Minister Narasimha Rao around 7pm. After Chidambaram explained our proposal, the Prime Minister asked Manmohan Singh if he agreed. Singh said he signed the document, at that time Rao took the file and signed, that was it. There is no examination of the PMO’s proposal.
The entire process of abolishing import controls and moving to a market-based import allocation method, with a final shift to market-based exchange rates, was done within 8 hours. hour.
Do you think the desire for reform has increased among politicians?
If you judge “appetite” by the acceptability of slogans, one could say that it is now more likely to accept the view that economic dynamism will be led by the private sector and government must not get involved in areas where the private sector can do very well. But there are many areas where we see little progress.
Land market reform is proving extremely difficult. Labor market reforms are also moving slowly. I think the same goes for banking reform.
We are now at a stage where the reforms we need are much more complex and their benefits will become apparent in just a few years. For example, education is an area where it will take 10 years before the reforms introduced today show up in terms of the quality of the improved workforce.
Another problem is that most of our public discussions about reform focus on what the central government should do, but water, electricity distribution and health are important areas, all of which are important. of the state sector. If you examine what politicians are saying in state elections, you will find that it does not reflect perceptions of the need for reform.
Economic reforms have reduced poverty, but the Covid pandemic has eroded the gains. What do you think needs to be done now?
We must act on two fronts. One, do what we can during the pandemic to extend support to the poor, and the various measures taken for this are all on the right track. This must be accompanied by concerted efforts to ensure the fastest possible recovery.
Unless we get another setback in the form of a third wave, the economy should rebound this year and early next year we’ll be back to where we were in 2019-20. The most important thing to achieve this outcome is a successful vaccination strategy.
This in itself will not offset the negative impacts of the pandemic on the poor as the informal sector has been hit much harder, and to that extent, even as the economy turns around. At the 2019-20 level, the poor will still be inferior to them. in 2019-20.
All we can do is focus on ensuring healthy post-pandemic growth from 2022-23 onwards. If the economy only grows at a pre-pandemic wet rate of more than 4% or even 5%, there is little hope of alleviating poverty. We need to aim for at least 7% growth.
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