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A GREY EMINENCE
- Reforms and the larger questions of India's destiny

The story of Indian reforms has been written many times; the more often it is written, the more it will sound the same. It is that India plunged into a payments crisis in 1991, Narasimha Rao became prime minister because Rajiv Gandhi was assassinated in the middle of an election campaign, and he brought in Manmohan Singh as finance minister who changed the face of history by dismantling controls of the socialist age. This story is broadly correct, but it tends to concentrate the spotlight on Manmohan Singh and his select band of reformers at the finance ministry. Actually, everyone in the Indian government jealously guards his turf, and the finance minister could not have achieved much without the cooperation of many and without breaking the heads of some. More importantly, neither wisdom nor liberal values were a monopoly of the finance ministry; others, for instance in the ministries of commerce and industry, also liberalized the economy, and some of them did so out of conviction rather than compulsion. And in a government where precedents have iconic value, history matters. Reforms did not materialize out of thin air; they were preceded by experiments which coloured them.

The most important of those experiments were made in Rajiv Gandhi's government of 1984. Vishwanath Pratap Singh did begin to reform India's oppressive taxation system. Unfortunately, he also had the conviction that if everyone paid his taxes honestly, extortionate taxes would be unnecessary; and he proceeded to make the moneybags honest. There are many bureaucrats who simmer with vicious bitterness against industrialists ' who resent the fact that they have to live in relative poverty while industrialists can send their daughters to prep schools in Switzerland. A self-righteous finance minister readily attracts such sour civil servants, who gleefully hound industrialists on a wink from him. V.P. Singh fell prey to self-righteousness and unwittingly opened the door to power for the Bharatiya Janata Party. Chidambaram should take note, for revenue officials love his enthusiasm for collecting taxes, and rapacious ones amongst them consider him a godsend.

But there was another minister who began reforms then ' Ajit Singh. Nothing that he did before or since would suggest that he was a reformer. He came into politics as the anointed son of that dour farmers' leader, Charan Singh; and he has shrunk into being an opportunist leader of a small Jat party. But in 1984, he had just returned from America, and still had some youthful enthusiasm and idealism. As it happened, he had Amar Nath Verma as his secretary and Rakesh Mohan as his economic adviser. Together they raised the limit above which business houses had to get government permission from Rs 3 billion to Rs 10 billion ' which would even today be a high threshold.

Overnight, the obstruction and delays that licensing introduced disappeared, and big business houses rushed into new investments. This is how the great industrial boom of the 1980s started; this is why the 1980s showed a higher rate of growth of income as well as employment than even the 1990s, which we think of as the decade of reforms. Verma and Rakesh Mohan were its architects.

But investments will be misdirected unless market prices that guide them are right; and the greater the import restrictions, the more will domestic market prices misguide investors. The empire of the customs is erected on high import duties: the higher they are, the greater the customs revenue, and the more abundant the bribes. And the customs always find enough influential allies amongst industrialists who are too inefficient to face international competition or who simply want to make a fast buck. In the 1980s, there were also import controls; they afforded the industrialists another lucrative source. They would go to the government and ask it to ban the imports of a product that they said they wanted to make. Then they would go to the foreign company that was exporting the product to India and ask it to give them the technology; since it had lost the Indian market because of the ban on imports, it would lease out the technology to get back some of the profit. Their Indian partners would rake in profits in a market cut off from the world, and would show high growth. But at world prices, that growth was modest. Those import restrictions continued. That is why industrial growth did not lead to an export boom, the balance of payments worsened, and ended up finally in the crisis of 1991.

That, incidentally, was also the story of the 1990s. Although Manmohan Singh did much to reform taxation, he kept import duties high. That is why much industrial investment was misdirected, and why industry went through such a wringer when the boom collapsed in 1996. The long slowdown of 1997-2002 would not have been necessary if Manmohan Singh had reduced import duties in 1991.

Anyway, V.P. Singh's self-righteousness led him to the leadership of a new party and to the prime minister's post, whilst Amar Nath Verma fell out of favour and was made member secretary of the Planning Commission. Then, by a quirk of fate, Narasimha Rao became prime minister in 1991, and brought Verma into his office as Principal Secretary. That is when I came to know him well. It was his job to coordinate the reforms, and to bring recalcitrant ministries to heel. He used to do it with masterly indolence.

As chairman, he would lean back, let everyone attending the committee of secretaries talk their heads off and settle scores. Once everyone had exhausted himself, Amar Nath would quietly announce the conclusion ' which generally was the most feasible advance towards reforms possible at the moment. I had entered the government with a deep prejudice against bureaucrats. In the government, I came across Verma, and had to change my opinion. There was a point to the Indian government, there was a role civil servants had to play, and few played it with such competence and aplomb as Verma.

I left the government before I could do much damage, and Verma remained a grey eminence for me. But I came to know him more intimately after we both stepped down. What I did not know because of his reticence was that he was a deep patriot. For those of us who are victims of the government, patriotism means a lump in the throat when the national anthem is played. But for those who served the government their entire adult lives, India is a much more palpable entity, and concern for it more emotional and immediate. While Verma was principal secretary, Narasimha Rao cut India's moorings with non-alignment and socialism. When he stepped down, the Vajpayee government struck out in new directions. Some of the directions were full of hazard, some of folly. Verma had a clear view of what he considered national interest; on his initiative, some of us used to meet and discuss the larger questions of India's destiny.

It was a pity that the nation was deprived of his counsel just when he had most to give. It is an even greater tragedy for his friends that we have been deprived of his warm, wise, friendly presence.

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