Giving credit to the Indian leadership at that time, Rangarajan, former RBI governor and Prime Minister economic advirory counncil chairman, gave credit to then Prime Minister Late P V Narasimha Rao for his strategy to couch reforms in a language that would appeal to the old guards of the congress party by using expression like ‘middle-path”.

Going into the genesis of reforms to answer some of the questions, he said 1991 reforms was a continuation of the process that had already began in the 1980s. But it was a break from the past as the enormity of the economic crisis was such that business as usual will not do. “We had to move fast to make fundamental changes in our economic policy”.

As India approached for IMF loan to avert a balance of payment crisis, Rangarajan said the multilateral institution was “very impressed” with the speed of reforms. The IMF recognized India’s intellectual powers in macro-economics were very high. There were several decisions, including dismantling industrial licensing, were not part of IMF programme. IMF was however in favour of promoting free trade and India too was keen to lift import restrictions at that time as they were not helping the economy. The steps taken on exchange rates were “very bold”.

Rangarajan’s assertion are contained in a book on India’s relations with the International Monetary Fund by a senior civil servant V Srinavas who has highlighted the growing power of China in IMF decision making in recent years.

An IAS officer and additional secretary, Srinivas was former advisor to India’s executive director in IMF. He said India’s relations with the IMF during 1991-2016 provided insight into India’s role as a founding member apart from making comprehensive study of how IMF has influenced in shaping the global economy.

Rangarajan said the great merit of the Indian reform programme of the 1990s was that it was done without disruptions. “We made a break with the past and followed it up with the gradualism.”

The economic performance clocking over 7 per cent growth on a sustainable basis has vindicated that economic reforms undertaken by India in 1991 were on the right track, Rangarajan said.

He also said the policy makers of 1950s and 1960s in India cannot be blamed for slow rate of growth at that point of time as there was no clear model available for accelerating growth in developing countries. Only by 1970s it became clear that the model of state intervention on an extensive scale was not delivering and required a nudge. Our policy makers in the 1970s refused to recognize this even as China made a big change.

The 1991 policy objective was simple – to improve efficiency of the system and thrust was to make the economy competitive.

Yashwant Sinha and Gurupadaswamy of Janata Dal were among those who were critical of India’s economic reforms in Parliament in the early 1990s. Sinha, who became Finance Minister in Vajpayee government subsequently and vigorously pursued reforms, accused Narasimha Rao for unshackling controls on industries saying Rao is “turning the clock back and undermining the very bed-rock of economic development, which we have built-up.”

Main architect of reforms, former Prime Minister Manmohan Singh, while responding to the accusation during budget discussion in 1991 said that his reform budget would destroy the sovereignty of the nation and prepared at the behest of IMF, said the only way to protect the economic sovereignty is to deal with the causes that has brought us to a virtual state of bankruptcy.

Repudiating to the charge that budget has been prepared at the behest of anybody outside India, the then finance minister said ‘the budget has been prepared by us, it is response to the situation that the people of India face and if we had not taken strong corrective measures to correct this fiscal distortion, I think we would be reneging in our responsibility as an effective government and I think that would be something which future generations of this country would never have forgiven us.”

Another renowned economist and former RBI governor I G Patel in a scathing criticism of fiscal policy that led to the balance of payment crisis said it was gravest economic crisis face by India since independence and it was because successive governments in the 1980s chose to abdicate their responsibility to the nation for the sake of the short-term partisan political gains and indeed out of cynicism. There were warning bells as early as 1986 that India was heading towards a debt trap.

As the Modi government presents its first budget in July after thumping victory in the general elections, Indian economy is at cross roads. There are major economic challenges like unemployment, farm distress, growing bad debts of banks and slowing economy. Bold initiatives are needed like in 1991.

Srinivas in his book said that the IMF has pointed out that the Indian financial sector is facing considerable challenges of high non-performing assets. India’s key banks appeared resilient but the stress tests showed a group of public sector banks highly vulnerable to further declines in asset quality and higher provisioning needs.

The 2016 Insolvency and Bankruptcy code introduced a modern framework to deliver progress in NPA resolution, Srinivas said adding the government has announced a recapitalization plan for public sector banks and has sought consolidation across several PSBs.

The fund has supported Indian policy initiatives on recapitalization and bankruptcy code but at the same time it felt there should be greater regulatory autonomy to Reserve Bank.

It is clear that there are some warning bells in the economy as was the case in the 1980s and one only hopes that corrective measures are taken by the Modi government in the budget to ensure that the economy is not driven to the wall as in 1991.(IPA Service)