Read To the Brink and Back: India’s 1991 Story Online
Authors: Jairam Ramesh
To the Brink and Back: India’s 1991 Story (13 page)
Now,
K.N. Raj had an awesome reputation both as an economist and an institution-builder, and—on his return from the London School of Economics, when he was only in his late twenties—he had singlehandedly written sections of the First Five-year Plan. In the early 1960s, he had headed a committee that had recommended major changes in policies regarding the planning and distribution of steel.
K.N. Raj was generally regarded as ‘left-of-centre’ and therefore, when I read the interview, that too in a magazine that was decidedly pro-Left, I thought it was hugely significant to bring it to the prime minister’s notice right away.
The prime minister asked for a couple of copies of the Raj interview, which I sent. I asked him what he had thought of it. He replied that if ‘Raj has given us a certificate it means a lot’.
Ten years later, I recounted this episode when
Manmohan Singh and I dined with
K.N. Raj and his family in Thiruvananthapuram. K.N. Raj recalled that once, in the late 1970s or early 1980s, Narasimha Rao had showed up at the
Centre for Development Studies—that Raj had established in Kerala’s capital—just to have a conversation. He also recalled that word had been sent to him after the interview had appeared that the prime minister had appreciated it.
My own impression is that while Narasimha Rao was being buffeted by criticism from all sides, he took solace in the Raj interview and the encomiums paid to the man he had selected as finance minister.
I also know how much the finance minister appreciated the public display of support by a legendary figure, at a time when he was under sustained attack in Parliament and outside by his friends—including S.K. Goyal,
Chandra Shekhar’s longstanding economic alter ego, who had once enthusiastically backed Manmohan Singh’s appointment as economic adviser to the prime minister in November 1990.
The
Industrial Policy Reforms Drama
s soon as I joined the PMO,
A.N. Verma called
Suresh Mathur,
55
Rakesh Mohan
56
and me for a discussion. He told us that this was a golden opportunity to get something done in the space of industrial policy reforms since the prime minister had deliberately kept the
industry portfolio to himself. I knew that both Mohan and
Verma had laboured hard to bring about changes in industrial policy when
V.P. Singh had been prime minister and Ajit Singh had been in the Ministry of Industry. But those attempts had been thwarted because of opposition from within the cabinet.
Thereafter,
Mathur, Mohan and I met a couple of times. The first draft was prepared by Mohan. By about 7 July 1991 we had finalized what we wanted to sell to the prime minister. I had kept the finance minister in the loop at every stage. In fact, at one point of time, when we were discussing reforms to the
anti-monopoly legislation (popularly known as the
Monopolies and Restrictive Trade Practices [MRTP] Act), I told him that the minister of state for law, justice and company affairs,
Rangarajan Kumaramangalam, or Ranga as we called him, was not terribly happy with what we were suggesting— namely, the plain and simple abolition of clearances for industry under an Act that had been made in 1969 when there was concern that licensing had, somewhat paradoxically, led to the concentration of economic power. I had been trying to convince Ranga of the need to be radical regarding MRTP and not just remain incremental. I knew that if he would not get convinced, there was little chance of his senior minister, the old warhorse,
Vijaya Bhaskara Reddy, coming on board for this crucial reform measure.
The finance minister then did something that stumped me momentarily. He called Ranga and me to his room and became very emotional. He told his young colleague how he had worked with his father—the redoubtable Communist leader
Mohan Kumaramangalam, who later joined
Indira Gandhi’s cabinet—and how pragmatic and open to new ideas his ‘good friend Mohan was’. For about ten minutes, Singh reminisced about Ranga’s father and told him to consider what he would have done at this crucial juncture of India’s history. Ranga came out of the finance minister’s chamber telling me, ‘
Yaar, Sardar ne kamaal kar diya
. (Singh has taken me by surprise!)’ Ranga added, ‘Let me work on my old man [
Vijaya Bhaskara Reddy] now.’
After Suresh Mathur,
Rakesh Mohan and I had finalized the package,
Verma asked me to prepare a note, which could be shown to the prime minister to get his broad, informal approval before it went to the cabinet. Accordingly, I prepared a five-page note summarizing what we were contemplating by way of industrial policy reforms. I added a couple of points on my own based on my earlier efforts of September 1986:
This note went to the prime minister, probably around 8 July 1991. As it turned out, the section that I had inserted, namely on
exit policy, got eliminated in the version approved by the prime minister because it was considered too politically volatile.
Verma told me that I should not be too exuberant and the inclusion of exit policy would only jeopardize the other initiatives. On 9 July, the prime minister addressed the
CPP on the eve of the
Parliament session and said that the economic revival of the country was the first item on his agenda. He added that his government would, in the next four days, announce a comprehensive and coordinated package of industrial reforms.
When I opened the
Hindustan Times
on 12 July, I was shocked, to put it mildly. My entire note had been carried with the banner headline ‘
Industrial Licensing to Go’.
INDUSTRIAL LICENSING TO GO
By Kalyani Shankar
New Delhi, July 11
SALIENT POINTS
• Foreign equity to go up from 40 per cent to 51 per cent and permission to be automatic
.
• A new package for tiny sector
.
•
MRTP asset limit to go up from Rs 100 crore to Rs 1,000 crore
.
• A special Empowered Board to negotiate with 40 to 50 giant international firms to approve direct foreign investment
.
• Phased manufacturing programme to go
.
• Locational limit only 30 km around metropolitan cities of Bombay, Delhi, Calcutta and Madras
.
• Liberal policy towards small sector and a promotional package for tiny sectors
.
Abolition of all industrial licences except for a short negative list, automatic permission for foreign direct investment upto 51 per cent and increase in foreign equity limit upto 51 per cent, a new package for the tiny sector with increase in investment limit to Rs 5 lakh are some of the bold and innovative measures contemplated in the new industrial policy.
The draft policy is being finalised under the direct supervision of Prime Minister
P.V. Narasimha Rao, who is also holding the Industry portfolio, Union Finance Minister
Dr Manmohan Singh, Ministers of State for Industry P.K. Thungan [
sic
] and Mr.
P.J. Kurien and other concerned Ministers are also involved in the policy making.
The policy, which is being given final touches, will be placed before Parliament next week.
Additional powers to the
MRTP Commission, increase in asset limit to Rs 1,000 crore for the MRTP companies from the present Rs 100 crore, automatic permission for foreign technology agreements for Appendix-1 industries upto a lump sum of Rs one crore are some of the other bold measures contemplated.
According to the draft policy, permission will be automatic for foreign direct investment upto 51 per cent equity in Appendix-1 industries. Capital goods imports will be automatically approved if they are financed by foreign equity or buy back arrangements. A special empowered board is also proposed to be constituted to negotiate with 40 to 50 large international firms and approve direct foreign investment in select areas. This is aimed at attracting substantial foreign investment which may also provide access to high technology and foreign markets and these projects will be considered in totality and cleared fast.
Also majority foreign equity holdings may be allowed for trading companies which are primarily engaged in export activities.
In Non-Appendix industries, automatic permission upto 51 per cent will be allowed subject to balancing of profits and dividends with net foreign exchange earnings.
As far as the
industrial licensing is concerned, the objective of the Government is to confine licensing to essentials. Industrial licenses are proposed to be abolished except for a short list of industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons.
The negative list includes the core sector, sugar, all types of automobiles, specified luxury goods, drugs and pharmaceuticals, tobacco products and petroleum products.
Industries reserved for the small sector, however, continue to be reserved.
Industrial licensing will be required only for projects of over Rs 200 crore in non-backward areas and Rs 500 crore in backward areas or projects with capital goods requirements of more than $25 million. In projects which require imported capital goods, automatic clearance will be permitted if the foreign exchange availability is ensured through foreign equity, foreign lines of credit or foreign borrowing.
In other cases, the capital goods imports will be cleared by the special industrial approvals committee.
Yet another significant policy measure contemplated is that there will be no location restrictions from Central Government except for the four metropolitan cities of Bombay, Delhi, Calcutta and Madras. In these metropolitan cities restrictions may apply to locations within 30 km of periphery.
Phased Manufacturing Programme (PMP) is also likely to be abolished in view of the exchange rate adjustment and new trade policy.
All existing registration schemes for industries like Directorate General of Technical Development, DLR and EIR may be abolished.
As far as the
MRTP and FERA relaxations, the Government proposed to shift the focus of MRTP from a PRIORI control on growth and expansion of industry to effective check on monopolistic and unfair trade practices.
It also proposed to repeal provisions relating to mergers, takeovers and amalgamations of MRTP companies in the Act. Additional powers to the MRTP Commission like giving it the powers of a civil court, provision of enabling power to compound offences, and additional powers for undertaking preliminary investigations into complaints from individual consumers. The Director General of Investigation is also proposed to be empowered to make applications to the
MRTP Commission relating to monopolistic trade practices.
The Government is also contemplating to raise the asset limit of the MRTP companies to Rs 1,000 crore from the present Rs 100 crore. In fact, the apex trade bodies like FICCI [The
Federation of Indian Chambers of Commerce and Industry], ASSOCHAM [The Associated Chambers of Commerce of India] and others have been demanding the increase of asset limit for a long time. The last time the asset limit enhanced was in 1985 when the
Rajiv Gandhi Government increased it from Rs 25 crore to Rs 100 crore.
For the tiny sector, priority would be given in credit supply. The district industries centre would be strengthened and restructured. For the small and tiny sector, Government also proposes to dismantle inspector raj, simplify procedures, remove bureaucratic controls and cut down paper work.
A new scheme of integrated infrastructural development for small-scale industries to facilitate location of industries in rural and backward areas and to promote stronger linkages between agriculture and industry is also proposed in the draft policy.
Another significant step is to provide access to the capital market. The Government may allow equity participation—both foreign and domestic—in the small-scale sector upto 24 per cent of the total shareholding.
In the small sector, regulatory provisions relating to management of private limited companies will also be liberalised. A new package for promotion of tiny units is the main thrust of the government’s new policy.
Regarding
public sector, the Government is yet to finalise its view. It is not yet known if the public sector will form part of the new industry policy paper. However, the thinking appears to be that there should be disinvestment in selective public sector undertakings. Whether the profit making PSUs alone should be disinvested in a selective manner or it should be a mix of profit and loss making public sector undertakings is also yet to be decided.