BackMay 1991: The summer of our discontent
The economy had ground to a halt, public finances were in tatters
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Four consignments of gold were quietly shipped out of India in the last 10 days of May 1991. The gold came from the vaults of the Reserve Bank of India. It was offered as collateral for a $405 million emergency loan that almost definitely saved India from an embarrassing default on its international obligations. Official foreign exchange reserves had by that time come down to a level that could barely buy two weeks of essential imports. Senior mandarins fanned the globe to raise money from friendly countries such as Japan. They were later to be described as our loan rangers.
There was chaos outside. The economy had ground to a halt. Consumer prices were galloping at a rate not seen since the peak of the Jayaprakash Narayan (JP) movement in 1974. Public finances were in tatters. The fiscal deficit was at a record 7.6% of gross domestic product (GDP). It had been in that range for four years in a row. The current account deficit was 4.3% of GDP at a time when capital was fleeing the country. India was on the edge of an abyss.
There was political chaos as well. There was an unstable coalition ruling the country. The twin Mandir and Mandal agitations had led to an outbreak of violence in the streets. Riots broke out in many parts of the country. Punjab was still on the boil. Pakistan had stepped up the infiltration of its terrorists into Kashmir. Rajiv Gandhi was assassinated that same month. A glum country desperately clung to the few rays of hope such as the achievements of a young Sachin Tendulkar.
May 1991 was the summer of our discontent. Few bother to remember it after the passage of 25 years. But that month is important because it reminds us of what could have been—and how far the country has moved ahead since then.
The immediate cause of the economic collapse was the sudden spike in oil prices following the Iraqi invasion of Kuwait in 1990. The deeper cause was a broken economic model that, after modest initial success till 1965, had made India an economic laggard. The old strategy had been kept going in the 1980s only though massive government borrowing plus a few mild reforms. The old political consensus had also frayed as a result of the strong challenges from the massive Hindu consolidation by the Ram Janmabhoomi movement as well as the political demands of the middle castes who were backing the recommendations of the Mandal commission.
The dramatic shift in economic policy after the radical reforms of July 1991 not only took India into a different economic trajectory but also changed its politics. Few realize that several recent academic studies have shown that political violence has drastically come down in India over the past 25 years—quite contrary to the fashionable narrative about how India is now a more dangerous country to live in than before. There is undoubtedly a lot of low-intensity conflict that hits the headlines, and every such instance is one too many, but India has thankfully seen very few large-scale riots over the past two decades. Gujarat in 2002 was one well-known exception.
The splendid economic growth since the 1991 reforms have created opportunities for advancement that have helped reduce social tensions. The economic achievements since 1991 have also given India the heft needed to project its power on the global stage. There is indeed still too much poverty, malnutrition, illiteracy, discrimination and violence in India, but the solution is a more dynamic economy combined with good governance, rather than nostalgic yearning for the years of economic failure. This is what the Chinese have understood with great clarity.
The summer of 1991 has faded from public memory, but it should be remembered as the dark moment in our post-1947 history when matters threatened to spin out of control.
How different is May 2016 from May 1991? Tell us at views@livemint.com
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