P.V. Narasimha Rao: The Man Behind India’s Bold Economic Reforms

P V Narasimha Rao Biography

P V Narasimha Rao Biography

28 June was the 95th birth anniversary of India’s eighth prime minister P.V. Narasimha Rao. Those who are 25 years of age or below today will barely remember the man who triggered the opening of the Indian economy and changed our lives, for the better, as we see it today.

Few in today’s GenX would be aware that it was former Prime Minister Narasimha Rao who brought India back from the brink of bankruptcy and onto a growth path that sees us all take our social media, mobile, IT services and all the rest of stuff that makes our lives easier, for granted.

We can all thank Narasimha Rao and his trusted lieutenant Finance Minister Manmohan Singh for changing India’s economic face forever.

So how does Congress, India’s oldest political party, which raised and nurtured Rao and placed him at the highest altar of Prime Ministership, explain his inconsequentiality? Why did his own party disown one of their highest achieving stalwarts?

Understanding ‘PV’

P.V. Narasimha Rao, or PV, as his friends used to call him, was born on 28 June 1921 in the erstwhile princely state of Hyderabad (now Telangana). After completing his Masters in Law, he was soon drawn to the resistance movement against the Nizam and also the freedom struggle against British Rule.

He organized a guerrilla movement against the Nizam and operated from the jungles of the state. Like a lot of patriots of his time, he too was drawn by Mahatma Gandhi and Jawaharlal Nehru’s ideology, and joined the Congress party after India’s independence, for a life in politics.

Narasimha Rao, a soft-spoken man, was no ordinary politician. Over time, he gained respect as a scholar and thinker. He had a clear vision and yet was grounded in pragmatism of politics. His ability to speak in several regional languages endeared him to the masses.

His unflinching loyalty to the Nehru-Gandhi family saw him rise up within the party hierarchy and soon he was given charge of implementing Indira Gandhi’s ‘Garibi Hatao’ Land Reforms program in his area.

Over the years, he built his reputation for being loyal to the Gandhi family but also earned respect as an astute politician. He was known to be a good listener, one who would remain calm and patient and apply his mind to resolve complex political and economic issues.

By the late 1980s, Narasimha Rao had done his best and was ready to move into the shadows of retirement when former PM Rajiv Gandhi’s unfortunate assassination in 1991, brought him back onto the political centre stage of Congress politics.

Soon after, Congress party swept into power in 1991, and the party faced a dilemma in choosing its leader and Prime Minister. Once it was accepted that Sonia Gandhi was inexperienced in Indian politics and that she would not be acceptable as PM for legal and political reasons, Narasimha Rao was seen as the most suitable choice to be Prime Minister.

This was to be a turning point for both Narasimha Rao and India.

1991: The Year India Faced Bankruptcy

When Narasimha Rao became the Prime Minister of India, the nation had only $1 million in reserves, which was just enough to fund imports for 15 days! This was a result of decades of Nehruvian socialism, which later evolved into the Indira Gandhi brand of socialism between 1966 and 1977.

From 1947 to 1977, India was driven by a socialist model economy based on populist subsidies that stunted growth so that the growth rate remained between 2.5 and 3.5% for most of the period. This was an era of License Raj and skewed investments in public sector, wasteful expenditure on populist social welfare programs that had limited impact.

And all this while corruption continued to grow and bureaucracy got entrenched deeper into the system stifling India’s growth even further. It resulted in India being forced to borrow more from external sources. This led to higher inflation and increasing debt but did little to spur the national economy.

By the time Narasimha Rao took reins, India was on the doorstep of a major default on the repayment of $4.5 billion that it had borrowed from the International Monetary Fund (IMF). The nation was forced to physically transfer 47 tonnes of gold to IMF as mortgage.

Rao: The Visionary and the Pragmatist

One of the first steps he took was to invite the well-respected and soft-spoken economist Dr Manmohan Singh to join his Cabinet as Finance Minister.

The second important step he took was to devalue the Rupee, and finally, he announced a slew of measures that would usher in much needed reforms, all steps that went against everything that Congress party believed in and stood for.

Needless to say, he faced severe resistance from party veterans who were hesitant to move on an untested path but were prevailed upon by Narasimha Rao.

India’s economic success would depend upon Rao’s skill to do the balancing act between political hesitation and pragmatic economic reform.

India, at the time, was under pressure from IMF, World Bank and other institutions, to implement radical reforms and rapidly open up the economy. Any drastic measures would have seen a rise in unemployment of government and public sector workers, who were resistant to change and which could have led to political suicide for the Congress.

Years of political tightrope-walking had made Narasimha Rao an expert in carrying everyone along while still retaining focus on his objective. He chose to take the middle path of reform that would not see too much of upheaval in terms of unemployment and yet open up the economy by unleashing the inherent entrepreneurship of Indian businesspeople.

Under Narasimha Rao’s guidance, Finance Minister Manmohan Singh took measures to reduce income and corporate tax, remove ‘licensing raj’ and also withdrew the unpopular MRTP clearance, all of which had been stunting the country’s economic growth.

The result – a dramatic turnaround began to take shape. Inflation began to fall, fiscal deficit improved, domestic and foreign investments began to spur the economy and balance of payments position improved considerably. By the mid-1990s, India was witnessing a growth rate of 7.5% and began attracting a lot of interest from international investors.

The IT boom witnessed by the nation was a result of Rao’s initiative. He managed to complete his five year tenure and left behind a fundamentally strong nation, a platform on which subsequent governments could build upon.

So Why is Rao a Forgotten Hero Today?

It’s a Congress thing. The party traditionally promotes loyalty and subservience to the family and anyone digressing to an independent path is shunned.

Narasimha Rao was his own man and after taking over as Prime Minister, he did not feel the need to report to Sonia Gandhi, who was still in the process of being groomed to understand the complex underpinnings of Indian politics.

This was to be his undoing. Other loyalists of the family took umbrage to the fact that a non-Gandhi was actually building on his own persona and possibly his own political base within the party and this was too much to accept.

His conviction in the bribery case involving JMM leaders in return for support was reason enough for the daggers to come out. Although his conviction was subsequently overturned, he remained a pariah for the party and was forced into political oblivion after the party lost the 1996 General elections.

Final Word

Narasimha Rao’s contribution to India has to be seen through the lens of his time when he took office and the subsequent impact of his reforms, which laid the base for India to begin unleashing its true potential.

Whether he was just another politician and leader, or an unsung hero who earned his place in history, is for you to decide.