In 1992, a sprightly Sikh gentleman swiftly climbed the steps of the podium at a law conference in the central hall of the Ashok Hotel, New Delhi. For one hour, without a scrap of paper, he lucidly explained the complexities of India’s liberalization process. He painstakingly forewarned the ecstatic audience, that in order to sustain growth and drive up the investments — especially the foreign investors— it was necessary “to create an environment facilitating growth”. The erudite speaker fully in the grip of the subject, was Dr. Manmohan Singh, the then Finance Minister of India, who was swiftly maneuvering India out of its worst financial crisis.
Just the previous year, in 1991, India headed by Prime Minister Chandra Shekhar was on the edge of the precipice of an ignominious sovereign default. India’s international trade balance was in a hopeless deficit. Its external debt had doubled from $ 35 billion to $ 69 billion in 1991. India was running out of money, and time. It had less than $6 billion in foreign exchange reserves – just enough to meet around two weeks of the country’s imports. In May that year, the State Bank of India sold 20 tonnes of gold to the Union Bank of Switzerland to raise around $200 million.
On the domestic front the situation was equally bleak. The fiscal deficit stood at 8 per cent of Gross Domestic Product (GDP). Moody’s downgraded India’s bond ratings. The government could not pass the budget. This resulted in further downgrading of the ratings, making it impossible for India to seek short term loans, thus exacerbating the worsening economic crisis.
After the 1991 elections, the Indian National Congress and the UPA assumed office. The then Prime Minister Narasimha Rao requested I.G. Patel, the just retired Director of the London School of Economics to become India’s finance minister. The latter declined the offer. Instead, he recommended his most outstanding protégé, Dr. Manmohan Singh to pull the country out of the economic morass.
Dr. Manmohan Singh came to India as an uprooted child during the partition. Perhaps, the hardships faced by him gave him the impetus to stand first throughout his sterling academic career in economics. He got his bachelor’s and master’s degrees in 1952 and 1954. He went on to complete his Economics Tripos at the University of Cambridge under the tutelage of two of the foremost and hugely influential Keynesian economists, Joan Robinson and Nicholas Kaldor. Both Robinson and Kaldor were a fervent advocates of how governments should combine development with social equity and make capitalism work in the larger public interest. These two formative influences would dramatically reflect in Dr. Singh’s approach while spearheading the Indian economy into a full throttle growth engine.
Dr. Singh’s eternal quest for higher learning would take him back to the University of Oxford for his DPhil. His 1962 successful doctoral thesis would form the basis for his book “India’s Export Trends and Prospects for Self-Sustained Growth”.
Dr. Singh as Finance Minister (1991-1996), inherited a devastating balance of payments situation and a double digit inflation. He took two economically sound, but politically volatile decisions. The rupee was devalued twice in July 1991, first by around 9 per cent, followed by another devaluation of 11 per cent. With a devalued rupee, our exports became cheaper, a necessary course correction for our worsening trade imbalance. As an emergency measure to tide over our current account deficit, the Reserve Bank of India pledged its gold holdings with the Bank of England raising around $400 million to stave off the current account deficit.
What followed was a series of reforms of the Indian economy which he aptly called “reforms with a human face.” The prelude was the dismantling of the License Raj with the introduction of the Industrial Policy, 1991. Deep structural reforms were made with the implementation of tradeable exim scrips, ending the stranglehold of the Monopolies and Restrictive Trade Practices Act making it easier to restructure businesses by facilitating mergers and amalgamations, ending the monopoly of the state owned companies over imports, and automatic approval of foreign direct investment in many sectors. All these reforms required not just the political courage and economic foresight but the confidence that he could create an economic environment to enable Indian business and industry to thrive in the new international regime of globalised trade.
Yet, “his policies were not a root and branch rejection of the Nehru-Mahalnobis model, but offered a pragmatic approach to achieve the same objectives, including integrating equity and social justice with economic growth.” writes Nicholas Stern and Shantanu Singh in the 4th volume of this impressive 5 volume set aptly titled ‘Changing India’. Dr. Singh’s book reveals the trajectory of the economics pundit to successful policy maker.
He knew, like all Keynesian economists, the central role the government had to play in an economy. He would in the later years of his tenure warn, “I often heard it said that government has become irrelevant because India will grow at 9%. Unless the government acts swiftly, growth… will be perennially stuck at 5%”. This warning has gone unheeded and are now visible in India’s dismal economic markers.
2004 saw the Congress-led United Progressive Alliance (UPA) come back to power under the leadership of Sonia Gandhi who recommended the appointment of the most respected economist in the eastern hemisphere—Dr. Manmohan Singh— as India’s Prime Minister. He arrayed the foremost economists and administrators of the day into his team. Most importantly he inducted the brilliant Mr. P.C. Chidambaram, a Harvard MBA, as his finance minister. 2004 to 2014 were the 10 golden years of the Indian economy. India’s GDP grew at an average rate of 8.1% over in this remarkable decade. The real GDP growth touched a record 10.08% in 2006-07, the second highest ever in independent India’s economic history, behind the unmatched 10.2% achieved during Rajiv Gandhi’s tenure in 1988-89.
What make his achievement noteworthy in world history is that this runaway growth was achieved on a template of an accountable and inclusive democracy. Growth, unlike that of China, was not at the cost of democracy or built on an edifice of authoritarian repression. If there is a singular unparalleled achievement of Dr.Singh’s deeply impactful work as an economist Prime Minister, it was the lifting 271 million people out of multi-dimensional poverty. This did not come easy. Dr.Singh’s two terms saw the relentless and energetic enactment of several key legislations and implementation of projects.
The National Rural Health Mission (NRHM) in 2005, theUnique Identification Authority of India (UIDAI) in 2009, the Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MNREGA), the Right of Children to Free and Compulsory Education Act, 2009 (RTE), the Rajiv Awas Yojana (RAY) in 2011 providing housing to the poor and homeless in cities, the National Food Security Act, 2013, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, that sought equity for the farmer and those deprived of livelihoods on account of land acquisitions, and the Right to Information Act, 2005 are just a few of actions taken.
Dr. Singh’s forever guiding light, was his deep and abiding commitment to welfare economics. What many critics like Jagdish Bhagwati and Arvind Panagariya, who were living in the cozy comfort on the other side of the Atlantic refused to see, was that NREGA and other programs while alleviating poverty, was also creating an increased and sustained domestic demand which was so instrumental in fueling growth.
The Nobel Prize in economics has a fundamental existential problem. The prize goes to economic theorists. Even an exception, like Gunnar Myrdal, a former minister of Sweden and an influential policy maker, was rewarded the Nobel for his academic work. It never ever went to those economists working at a policy level. This is because the Nobel Committee believes that economics is an exact science and that financial models can be built like those in exact sciences like physics.
However, ground level economics — like the one dealt with by Dr.Singh — is far more complex and has to maneuver a national economy not on theories alone, but through a thicket of multifarious social, political and economic factors in constant flux. To course the economy to spell-binding growth rates, bringing about bold structural changes in the economy and simultaneously lifting millions of Indians out of poverty, is a mean and enviable achievement which is both beyond the compass and the wherewithal of any theoretical economist.
Exactly 30 years have passed since Dr. Singh helped India avert a major economic crisis and placed it on a high growth trajectory (2004-2014) to rival that of China. The time has come for the Nobel Committee to look at Dr. Singh’s work which has consistently secured path breaking economic achievements without sacrificing democracy or denting his faith in economics being able to achieve inclusive growth at the altar of accelerating the GDP. “All these years that I have been in office, whether as Finance Minister or Prime Minister” reminisces the understated Dr. Singh, “I have felt it as a sacred obligation to use the levers of power as a societal trust to be used for transforming the economy and polity, so that we can get rid of poverty, ignorance and disease which still afflict millions of people”.
In his last address to the nation of 1.2 billion men and women, after serving 10 years as a Prime Minister, he could with confidence say that the “emergence of India as a major powerhouse of the evolving global economy is an idea whose time has come.”
It will have to be seen whether the time has come for the Nobel Committee to recognize the 7 decades of the work of Dr. Singh in the academia, and thereafter, in the real world at real time, earning his spurs as one of the world’s most formidable economist.