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Submitted by Subramanian on
Ms. Kouchhar, Thank you for your kind reply. However, your reply raises more questions than it answers. Now, this has turned into a question of “intent” versus “action.” What transpired after 1991 does not change what had brought the said reforms in 1991. That is to say, who the Finance Minister, Manmohan Singh, P. Chidambaram, Yashwant Sinha or Jaswant Singh, was after 1991 does not negate why the reforms took place when it did. The reforms were economical as it was political. Many political events triggered the BOP crisis. The 1991 Gulf War played a key role. India repatriated millions of workers from Gulf countries. This resulted in a sudden drop of remittances but was substantial enough to push India to the brink. Your original premise was that India’s reforms were “home-grown” and was central to your earlier post. Indeed, Rajiv Gandhi made numerous attempts in the 1980s to reform India’s “License Raj” without much success. So the question is whether India would have undertaken the reforms that it did in 1991 without BOP crisis. The answer is unequivocally “No.” Were the economic reforms based on consensus built in mid-1980s? No, India was reacting to the situation it found itself in 1991. Of course, we wouldn’t know if and when India would have undertaken reforms without the BOP crisis. It could have been 1995, 2005 or 2010. We can speculate. But India was forced to so in 1991 and it was not undertaken by its own design or its willingness. Now the question of political will. We have to keep in mind, the political conditions in 1991 were precarious than it has ever been since. Rajiv Gandhi was assassinated, Gulf War was unfolding, IPKF was in Sri Lanka, and Soviet Union crumbled. India had a positive trade balance with Russia and most of India’s debt was in Rupees. Now, 2012, India is under control; its economy is strong and has almost $400 billion in foreign reserve. How come India has been unable to undertake next (many next) rounds of reforms, such as allowing foreign carrier participation in India’s civil aviation or allowing multi-brand consumer retailers? As you said there is no political will as it was in 1980s. So why was it different in early 1990s? 1991, there was a consensus across the political spectrum that there were no options other than to drink the poison. We drank. Although, as it appears, very little! At micro-level, India paid dearly. Poor suffered the most as they always do in a crisis. It took almost a decade to reverse the social welfare lost during 1990-1995. With double digit inflation, under-nutrition rate went up, which was/is high as is. PS: I would humbly submit that Mr. Alhluwalia is the last person you (as the Chief Economist) should quote. He is what we call in India, a spent force. As you may recall, he recently put the Indian poverty line at Rs. 28. Put that in context of World Bank’s $1.25/day, India has very few poor people. Your predecessor (Shanta Devarajan)’s dream of Ending Poverty in South Asia in a generation may already have become a reality. Kind Regards, Subra