JAIMINI BHAGWATI

THE PROMISE OF INDIA

How Prime Ministers Nehru to Modi Shaped the Nation (1947 — 2019)

PENGUIN BOOKS
 Contents

Prologue: The Promise of India Endures

Introduction

I. Jawaharlal Nehru
Unparalleled Nation Builder, Caring Yet Distant Leader
II. Lal Bahadur Shastri
War and Peace during Short Tenure
III. Indira Gandhi
End of Innocence Yet Remarkable Achievements
IV. Morarji Desai
Sincere Yet Inflexible and Outmoded
Charan Singh
Short-sighted
V. Rajiv Gandhi
Forward-looking Yet Catastrophically Error-prone
VI. V.P. Singh
Downward Game Changer
Chandra Shekhar
Harmful Interlude
VII. P.V. Narasimha Rao
Economic Reforms—Better Late than Never
VIII. Deve Gowda and I.K. Gujral
Prime Ministers of Wobbly, Short-lived Coalitions
IX. Atal Bihari Vajpayee
Decisive, Balanced Yet Susceptible
X. Manmohan Singh
Long-lasting Achievements Yet PM in Name
XI. Narendra Modi
Result Oriented, Charismatic Orator and Controversial

Epilogue
Appendices and Tables
Footnotes
 Appendices and Tables
Notes
Select Bibliography
Acknowledgements
Follow Penguin
Copyright
 Advance Praise for the Book

‘Bhagwati’s book is refreshingly frank and fair. It is a magisterial effort,

informed by his unique roles in India’s government. It dissects India’s
governance issues both past and for the future with exceptional clarity. It is
a must-read for the young and seasoned alike’—Nandan Nilekani, chairman
and co-founder of Infosys and founding chairman of UIDAI (Aadhaar)

‘A thoughtful and nuanced consideration of India’s economic and foreign

policies since Independence by a highly respected economist and diplomat
with practical experience at the highest levels of government. By using the
prism of leaders, namely, Indian prime ministers, this book makes great and
significant issues accessible not only to the specialist and scholar but also to
the general reader’—Shivshankar Menon, former foreign secretary and
national security adviser

‘With his versatile background, Bhagwati provides a bridge between news

headlines and the reality of behind-the-scenes public policymaking under
each of the prime ministers since Independence. This timely book is a
fascinating insider’s account of the interplay of politics, economics,
diplomacy, administration and financial markets.
The Promise of India is unique in its sweep, providing insights not just on
the past and present, but also on future possibilities. It is a must-read for
leaders and laypersons, scholars and students of the social sciences’—Dr
Y.V. Reddy, former governor, Reserve Bank of India, and chairman,
Fourteenth Finance Commission

‘An extraordinarily extensive bird’s-eye survey of our post-Independence

evolution. The number of facts cited bears witness to Bhagwati’s range of
knowledge, as his literary quotations do to his range of interests, all brought
in with an admirable sense of values and lightness of touch. He must write
several more books to help us digest the full feast for which this is a most
enjoyable appetizer’—K.S. Bajpai, former ambassador

‘A fascinating history of post-Independence India told with originality

through studies of each prime minister individually by someone who has
had an unusually wide experience of working for the Government of
India’—Mark Tully, senior journalist and author of No Full-Stops in India

‘A unique compendium of political and economic history, insightfully

captured through the lens of one of India’s finest diplomats. To truly
understand India’s progress over the years, Bhagwati’s book is a must-
read’—Deepak Parekh, chairman, HDFC Limited
 Prologue
The Promise of India Endures

In the last few years, I have thought every now and then about writing on
why I love India and yet why I am infuriated by it. I have been fortunate to
have worked on both sides of Rajpath1 in New Delhi—in the Ministry of
External Affairs to the south of Rajpath and the Ministry of Finance to the
north. I decided that perhaps I do have something of interest to say about
the background to and consequences of the path taken by India at the
crucial crossroads since Independence.
The geographical region called India has endured through the ages but
was raided repeatedly, plundered, splintered, colonized, and eventually
brought together as one nation. Independent India has progressed
impressively on several fronts. The ironies of the country’s successes and
many abject failures have been delightfully satirized through the decades in
the facial expressions and dilemmas of the average man and his wife in
R.K. Laxman’s cartoons. It is the common people who have brought post-
Independence India back on track time and time again by participating
enthusiastically in large numbers in the elections.
After Independence, India started on the task of building a new country
out of the depths of its colonial past. From then on, there have been periods
of promise, and there have been several setbacks. With rising awareness,
the masses among the electorate are likely to seek greater accountability
from India’s political elites. This should help the country in its continuing
quest to achieve a fuller expression of its soul. Such an indefinable goal
may be too ambitious, yet it tugs at the heartstrings of Indians as they yearn
for a future which is consistent with the teachings of India’s ancient past.
After 1947, India has been shaped to a significant extent by decisions
taken by its prime ministers (PMs), and they have been responsible for
uplifting and even soaring successes as well as depressing failures. I use the
words ‘soaring’ and ‘depressing’ because those are precisely the emotions I
feel when I reminisce about crucial Indian decisions. The focus of this
book, then, is primarily on the role played by India’s PMs, and to some
extent, by cabinet ministers, senior officials and the judiciary. At a birthday
celebration for Dr Shankar Acharya2 at the India International Centre in
Delhi, Mark Tully, the former bureau chief of the BBC in India, challenged
me to condense the central contents of this book into one sentence. I gulped
for a moment, collected my thoughts and said that the book tracks the
extent to which India’s political leadership at the apex level had raised
optimism or cynicism among Indians. To place this assessment in
perspective, the India that each PM inherited and subsequently bequeathed
to the successor is outlined at the beginning and end of each chapter.
The book covers over seventy-one years of India’s foreign and economic
policies and practices. Each chapter, focusing on one or a couple of the
short-lived PMs, includes factual narratives to provide the context for
observations and conclusions. India, as a federation of states,3 has a written
constitution which gives exclusive jurisdiction to the Central government in
foreign affairs, national security and borrowings in foreign exchange. The
Central government shares responsibilities on economic issues with state
governments, but it sets the country’s overall agenda on tax and spending
issues. In the Indian cabinet system of government, the PM chairs various
cabinet committees, the more important of which are on economic, security
and political affairs.4 These committees take all crucial decisions on foreign
and economic policy issues.5 The Central government’s annual budgets
have to be approved by the PM and by the Lower House of Parliament—the
Lok Sabha.
Deriving its powers from the Indian Constitution, the Central government
headed by the PM, even compared to the combined weight of all state
governments, continues to have a predominant say in running the country.
Shivshankar Menon is of the view that there is a ‘determinant role of the
Prime Minister in India’.6 Menon is referring to foreign policy decisions but
this is equally true about India’s economic policies.
 The prime minister, as primus inter pares in the Central government, is
the key decision maker in all important appointments. The PM, as the head
of government and the chairman of the Appointments Committee of the
Cabinet (ACC), is the final arbiter in the selection of the chief election
commissioner (CEC), comptroller and auditor general (CAG), all Indian
ambassadors and high commissioners around the world, and all secretary-
level officers of the Central government including the chairman of the
Atomic Energy Commission, the heads of the Indian Space Research
Organisation (ISRO) and Defence Research Development Organisation
(DRDO). The heads of the three wings of the armed forces are also selected
by the ACC, as are the heads of financial-sector regulatory agencies such as
the Reserve Bank of India (RBI), the Securities and Exchange Board of
India (SEBI), and the deputy chairman of the erstwhile Planning
Commission.7 The PM recommends the appointment of Supreme Court and
high court judges to the President based on the suggestions of the Supreme
Court’s collegium.8
Each major government decision taken by India’s PMs must have been
preceded by careful weighing of pros and cons from the perspective of the
nation, the party in power and the personalties involved. It is difficult long
after the fact to take into account the circumstances and comprehend the
full range of economic and other constraints. Consequently, it is impossible
to even mention, let alone discuss, all the details that influenced decisions
taken by India’s PMs in a single book. Nevertheless, I have attempted to
piece together significant events and decisions, and their consequences for
the country.
At the beginning of the twentieth century, Argentina was seen as a
country of the future. It has abundant natural resources, and the expectation
was that Argentina would catch up and even outstrip the larger European
countries in standards of living. However, unrepresentative, military-led
governments and the cynicism of its elite resulted in Argentina performing
way below its potential. In a somewhat similar manner, although India
started out extremely well, it has had its share of missed opportunities.
Hence, a recurring theme in this book is the slow pace of development for
the poorest sections of the Indian people. A large proportion of the
disadvantaged in India are engaged in subsistence agriculture or work in
low-paying menial jobs in urban areas, and live in cramped and unhygienic
conditions. An oft-repeated refrain on how to improve the lot of these two
groups of Indians is that they must be provided better education and
opportunities to improve their skills. The central and state governments in
India provide free to highly subsidized education in government schools,
and there are vocational training centres around the country. However,
progress in real terms has been too slow.
Taking a step back to reflect, perhaps the processes which result in
sustainable development are 80 per cent heart and only 20 per cent brain. In
other words, those who teach and train in primary schools or skill
development centres have to be sincere about their work which can often be
tedious and is usually low paid. No amount of tinkering with technical
solutions will suffice if those who are responsible for teaching and training
lack motivation. If average Indians feel optimistic about their future, they
are likely to fulfil their own accountabilities diligently and honestly. It
follows that a defining quality in the political leadership of India, and hence
that of PMs, has to include the ability to motivate teachers, trainers and
those working at lower levels of administration. In a functioning
democracy, the well-being of citizens is also dependent on what they
collectively want, namely, whether they want to build a caring, participative
and meritocratic nation. It is important, therefore, in evaluating the track
records of India’s PMs to assess whether the PMs have built an awareness
of the country’s history and shared future destiny among the people.
In the run-up to Independence and after 1947, several among the leaders
of the freedom movement and the newly formed government were educated
in England. Members of the political executive and Indian Civil Service
(ICS) officials were fluent in English, and there was no controversy in
running the affairs of the Central government in English. Over the years, as
homespun leaders have emerged and headed state governments, English has
been replaced by regional languages. This was inevitable and is a welcome
development since Sanskrit and India’s regional languages have a rich
history of profound writings and literature. Somewhat less welcome is the
chauvinistic chest thumping about a distant glorious past expressed self-
consciously in the vernacular that is often closely correlated to a lack of
familiarity with and understanding of documented history. There is an
inchoate criticism against the powerful and well connected in so-called
Lutyens’s Delhi, which is also directed at those who are affluent, live in the
megacities around the country, and speak among themselves mostly in
English. This conveniently fails to acknowledge that those who flaunt the
vernacular could also fail basic tests of honesty and decency and be wealthy
beyond measure. Those who speak in English are referred to as belonging
to a foreign ethos called ‘India’, while the homespun are from the real,
indigenous ‘Bharat’. Although this is a motivated and inaccurate
distinction, Indians who speak mostly in English need to know at least one
Indian language well. Otherwise they would remain poorer for having cut
themselves off from the rich founts of knowledge and culture which abound
in Indian writings and folklore.
In the book, PMs are assessed on whether they consciously or
unconsciously promoted an elitist India. Alternatively, were they more
homespun and pushed for an all-inclusive Bharat, or ideally, did they
straddle both India and Bharat with equal comfort and moved into and out
of each reality with ease.
Nehru was the longest-serving PM with an uninterrupted tenure of close
to seventeen years, followed by Indira Gandhi—sixteen years, Manmohan
Singh—ten years, Atal Bihari Vajpayee—six years, Rajiv Gandhi and
Narasimha Rao—about five years each. The PMs who were in office for
five years or more are covered in greater detail. The short-lived coalition
governments of Morarji Desai, Charan Singh, V.P. Singh, Chandra Shekhar,
Deve Gowda and Inder Kumar Gujral were marked by shifting loyalties.
The alignments and realignments of the various political parties to form
these governments were driven by the ambition of the leaders of those years
to be the PM, even if it was abundantly obvious that it would be for a short
while. This mindset did little credit to them. The growing cynicism with
which the short-lived PMs achieved their narrow objectives was illustrative
of the gradual yet steady erosion in the accountability of Indian political
figures.
The personal characteristics, or the three ‘Cs’, of India’s PMs have been
enumerated to compare performances across different points of time. The
three Cs are Character, Competence and Charisma, in that order of
importance. The qualities of compassion and commitment are deemed to be
part of Character for the purposes of this book. No other quality in a leader
can make up for deficiencies in Character, and that is why it has pride of
place among the desirable Cs. Ideally, India’s PMs need all three Cs to
move India along to a better future. This evaluation is at the end of the
‘Legacy’ section for PMs with tenures of five years or more. The one
exception is Lal Bahadur Shastri.

Why write this book?

Even when Richa Burman suggested I write a book for Penguin, I was
hesitant although I had authored chapters in several books, a number of
research papers and a regular column in the Business Standard for nearly
fourteen years. Any number of books have been written about various
aspects of India by those who have worked in crucial positions in the
Central government, the private sector and as academics. Unfortunately,
despite all the information in the public domain, Indians tend to make
sweeping statements about past PMs. For example, India’s current
economic backwardness is often attributed to Nehru who passed away more
than half a century ago. A nuanced picture of independent India which
explains the multiple constraints which decision makers faced provides a
better sense of why and how domestic developments and international
events unfolded and impacted the country. Hopefully, this book will provide
a measure of understanding as to why Indian politics has come to be so self-
serving even as the country has made considerable progress towards higher
standards of living.
Senior leaders in Indian political parties speak the truth about others but
rarely about themselves. There is an exasperated look on the faces of Indian
politicians when asked about why certain obvious decisions were not taken
or distorted in implementation. The speeches and writings of those who
have held high political or official positions, contrary to their strident
claims, do not ‘speak truth to power’ without concern to where the pieces
fall.
Academics, think-tank experts and journalists have written extensively
about Indian PMs and their policies. Such writing has, for the most part,
been fairly objective but not sufficiently probing. This could be because it is
rare for writers among these three categories to have worked in senior
ministerial or official positions in close proximity to PMs.
All things considered, there has been a tendency towards maintaining a
conspiracy of silence about blatantly inappropriate PM-level decisions
which had hugely negative consequences for the country. Self-promoters
have highlighted achievements of PMs and whitewashed shortcomings, thus
distorting the record. To rephrase what Blanche DuBois says wistfully in A
Streetcar Named Desire, ‘deliberate distortion of facts is unforgivable’.9
Readers will find that there are no overarching explanations within which
PM-level policy decisions can be understood. India’s foreign and economic
policies have been messy in formulation and implementation, and the
choppy nature of the narrative and analysis in the book is because that is
how things were and are in India.
Indians are troubled by the glaring shortfalls between the ideals and
hopes of the founders of independent India and today’s ground realities.
Several factors, mostly domestic and at times external, have impeded
India’s progress towards a more meaningful ‘tryst with destiny’. Haphazard
urbanization and human misery are most apparent in the slums in Indian
cities.10 Jean Dreze and Amartya Sen have been constrained to remark that
‘India looks more and more like islands of California in a sea of sub-
Saharan Africa’.11 A few of today’s super rich, while flying in and out of
Dubai, London or New York, remark that it is impossible to live in India.
India takes pride in providing low-cost higher education, and this is a
worthwhile objective. In practice, this has meant that some among the best
educated seek higher living standards and settle in developed countries.
Much remains to be achieved in nation-building, and it is disheartening at
times to watch so many among the gifted give up on India. If we look
around, there are specific achievements to cherish. For instance, post-
Independence India has made significant advances in the fields of space and
nuclear energy. At the same time, there is this gnawing doubt that by now,
almost seventy-two years after Independence, we could have done more to
reduce the poverty that is so starkly evident all around us.
A starting premise in What Is History?12 is that all writings about the past
are impacted by the choices of what to include and what interpretation to
give to the so-called recorded facts. In Carr’s words, history ‘is a
continuous process of interaction between the historian and his facts, an
unending dialogue between the present and the past’. The film Zorba the
Greek13 was released in 1964, and when I saw it a few years later as a
callow teenager, it made a lasting impression on me. The title character was
played superbly by Anthony Quinn, and the British professor was played by
Alan Bates. Towards the end of the film, when the professor asks Zorba for
his opinion of him, Zorba responds, ‘You have everything but a man needs
a little madness or else he never dares cut the rope and be free.’ I wish more
of those who have written about decision making in the last seventy-two
years had cut the rope to free us of distortions and half-truths.
I remind myself in the autumn of my life that there cannot be any
despondency. As Nehru put it, ‘God we may deny but what hope is there if
we deny man.’ And, as Dylan Thomas wrote, ‘Do not go gentle into that
good night, Old age should burn and rave at close of day, Rage, rage against
the dying of the light.’ That is sound advice, and I intend to rage
constructively in this book about why India seems close to achieving the
breakthroughs vital to ever-widening circles of well-being in the country
but has not done so yet.
An ambition of this book is to help younger Indians, nowadays known as
millennials,14 to be discerning voters. Perhaps enthuse them to join a
political party or even start one.15 To this end, I have included the salient
elements of India’s economic and diplomatic history in the narrative.
 I apologize to all who feel that the enormous scope of the book makes it
omit and gloss over details, and is simplistic or erroneous in many of its
conclusions. My attempt has been to focus on inflection points to enable
readers to arrive at an uncluttered understanding of how and why India
happens to be where it is in the middle of 2019.
All omissions and shortcomings in this book are my own.

Table 1
Prime Ministers since Independence
Prime Minister Dates in Office Tenure
Shri Jawaharlal Nehru 15 August 1947 to 27 May 1964 16 years 9 months
Shri Lal Bahadur Shastri 9 June 1964 to 11 January 1966 1 year 7 months
Smt. Indira Gandhi 24 January 1966 to 24 March 1977 11 years 2 months
Shri Morarji Desai 24 March 1977 to 28 July 1979 2 years 4 months
Shri Charan Singh 28 July 1979 to 14 January 1980 5 months
Smt. Indira Gandhi 14 January 1980 to 31 October 1984 4 years 9 months
Shri Rajiv Gandhi 31 October 1984 to 2 December 1989 5 years 1 month
Shri Vishwanath Pratap Singh 2 December 1989 to 10 November 1990 11 months
Shri Chandra Shekhar 10 November 1990 to 21 June 1991 7 months
Shri P.V. Narasimha Rao 21 June 1991 to 16 May 1996 4 years 11 months
Shri Deve Gowda 1 June 1996 to 21 April 1997 10 months
Shri Inder Kumar Gujral 21 April 1997 to 19 March 1998 10 months
Shri Atal Bihari Vajpayee 19 March 1998 to 22 May 2004 6 years 2 months
Dr Manmohan Singh 22 May 2004 to 26 May 2014 10 years
Shri Narendra Damodardas Modi 26 May 2014 to date 5 years till May 2019
 Table 2
Foreign Ministers since Independence
 Table 3
Finance Ministers since Independence
No Finance Minister Tenure
1 Liaquat Ali Khan 1947
2 R.K. Shanmukham Chetty 1947–49
3 Dr John Mathai 1950–51
4 Dr C.D. Deshmukh 1951–57
5 T.T. Krishnamachari 1957–58
6 Jawaharlal Nehru, P.M. 1958–59
7 Morarji R. Desai 1959–64
8 T.T. Krishnamachari 1964–65
9 Sachin Choudhury 1966–67
10 Morarji R. Desai, Dy. P.M. 1967–69
11 Smt. Indira Gandhi, P.M. 1969–70
12 Y.B. Chavan 1971–74
13 C. Subramanian 1975–77
14 H.M. Patel 1977–78
15 Charan Singh, Dy. P.M. 1979
16 H.N. Bahuguna 1979
17 R. Venkataraman 1980–82
18 Pranab Mukherjee 1982–84
19 V.P. Singh 1984–86
20 Rajiv Gandhi, P.M. 1987
21 N.D. Tiwari 1987–88
22 S.B. Chavan 1988–89
23 Madhu Dandavate 1989–90
24 Yashwant Sinha 1990–91
25 Dr Manmohan Singh 1991–96
26 Jaswant Singh 1996
27 P. Chidambaram 1996–98
28 Yashwant Sinha 1998–2002
29 Jaswant Singh 2002–04
30 P. Chidambaram 2004–08
31 Pranab Mukherjee 2009–12
32 P. Chidambaram 2012–14
33 Arun Jaitley 2014–19
 Table 4
Strength of Ruling Party and Coalition Partners in Lok Sabha and Rajya
Sabha

Source: Lok Sabha website, Rajya Sabha Statistical Information 1952–2013.

^: these figures only include the seats of coalition partners that were explicitly stated in official
documents; Rajya Sabha seats of smaller parties are usually cited in official documents as ‘Others’—
 these small parties’ seats have not been counted here.
*: Charan Singh government never faced the Lok Sabha.
 Introduction

Each Indian prime minister inherited a set of advantages and constraints. In

the case of independent India’s first PM, Jawaharlal Nehru, a defining
advantage at home was an environment of sacrifice and honesty of purpose
engendered by the examples of Mahatma Gandhi and other leaders of the
freedom movement. Most of the leading freedom fighters were well
educated—several had trained as lawyers in the UK—and spoke and wrote
English fluently, and were admired for their integrity as individuals.
The following sections set out the economic, strategic and social context
in which Nehru assumed office.

Colonial Era and Indian Resurgence

The British came to India under the aegis of the East India Company in the
seventeenth century. They drained capital out of India for almost two
centuries after the victory of Robert Clive in the Battle of Plassey in 1756
till Indian independence, causing a steady decline in the relative size of the
Indian economy. In 1820 India had 20.1 per cent of the world’s population
and 16 per cent of its economic output. By 1950 India’s share of population
came down to 14.2 per cent, but the size of its economy fell more sharply to
4.2 per cent of world output.1
Over time the technical skills, and consequently the productivity of
Indians, eroded in comparison to those of workers in Western nations. Of
course, India as it was territorially constituted in 1947, did not exist in
1820. It can be argued that India, with different ethnicities, multiple scripts
and varying cultures, would never have banded together as one country
without unified colonial administration. Irrespective of such speculation, it
is a fact that the economic benefits of the Industrial Revolution did not
spread deep or wide enough in British-ruled India.
In the social sphere, the British exacerbated differences between Hindus
and Muslims through various policies including the Minto–Morley reforms.
The Indian Councils Act of 1909—or the reforms enacted by Secretary of
State John Morley and Viceroy Lord Minto—included provisions for
assured representation for Muslims. In personal correspondence, on 28 May
1906, Minto wrote to Morley: ‘I have been thinking a good deal lately of a
possible counterpoise to Congress aims. I think we may find a solution in
the Council of Princes . . .’ On 23 November 1906, Morley wrote back to
Minto: ‘I incline to think that the admission of a Native, whether to your
Council or to mine, or to both, would be the cheapest concession we could
make.’2 Clearly, the British looked for the ‘cheapest’ way for them to
accommodate the desire of ‘Natives’ to be represented in the governance of
British India. Britain has never had separate seats for local bodies or the
House of Commons based on religion, race or economic backwardness.
Consequently, the conclusion has to be that this was a way for the British to
counter the Congress objective of working towards self-rule and ultimately
full independence.
For probably the same reason of creating durable fissures in Indian
society and thus delaying independence, the Scheduled Castes (SCs) and
Tribes (STs) were also granted separate constituencies under the
Government of India Act of 1935 and were referred to by the British as
Depressed Classes. A Journal of Asian Studies paper by Francesca R.
Jensenius titled ‘Mired in Reservations: The Path-Dependent History of
Electoral Quotas in India’3 and her doctoral dissertation in the University of
California, Berkeley,4 traces reservations for religious minorities and Dalits
since the beginning of the twentieth century.5 The British provided for
separate constituencies for Dalits, ostensibly to help them overcome
disadvantages stemming from centuries of social and economic
discrimination. However, B.R. Ambedkar felt that reservation of seats for
Dalits (SCs) in joint electorates was not helpful since elected Dalit
candidates remained beholden to the majority communities. Nevertheless,
the Constituent Assembly approved reserved seats for Dalits (SCs) with
joint electorates. Reservation of seats for Muslims or other minorities was
not approved.6
Commenting on the adverse consequences of the separation of electoral
constituencies, Nehru wrote in The Discovery of India:7

There were vested interests enough in India created or preserved by the British
Government. Now an additional and powerful vested interest was created by separate
electorates . . . There came into existence [much later] separate Muslim trade unions and
students’ organisations and merchants’ chambers. [The separate electorates] . . . created
divisions and ill feeling where there had been none previously, and it actually weakened
the favoured group by increasing a tendency to depend on artificial props and not to think
in terms of self-reliance. The obvious policy in dealing with groups or minorities which
were backward educationally and economically was to help them in every way to grow
and make up these deficiencies, especially by a forward educational policy . . . The whole
argument centred in petty appointments in the subordinate public services, and instead of
raising standards all round merit was often sacrificed. These electorates, first introduced
among Muslims, spread to other minorities and groups till India became a mosaic of these
separate compartments.

The counter view is that reservations of electoral constituencies, and

subsequently jobs in the government and public sector, and seats in
educational institutions, were and are still needed. The argument that
centuries, if not millennia, of caste-based discrimination has made the lower
castes and marginalized communities unable to participate equally in open
competition is valid up to a point.
Reservations for SCs and STs was followed by additional reservations for
‘Other Backward Classes’ (OBCs), implemented in 1993. In recent years,
various groups have sought to be included in this category of OBCs or even
Scheduled Castes/Tribes. The National Democratic Alliance (NDA) headed
by Narendra Modi had introduced an additional 10 per cent reservations for
‘Economically Weaker Sections’ (EWSs) without reference to caste or
religion. Parliament had passed the required legislation, and the Indian
President signed the legislation amending Articles 15 and 16 of the
Constitution to provide for this quota for EWSs. With this latest addition,
the total for all reservations has risen to 59.5 per cent.
 According to a Supreme Court ruling, quotas cannot exceed a ceiling of
50 per cent since that would be inconsistent with equality for all Indian
citizens as articulated in the Constitution. As of May 2019, the Supreme
Court had not yet ruled on whether this latest legislation granting 10 per
cent reservation for EWSs is consistent with the Indian Constitution or not.
Irrespective of arguments for and against reservations and what could be
better ways to help those who are ‘backward’ because of their caste, social
and economic background, the fact is that this issue has become intensely
politicized. The approach of several segments among those who benefit and
those who do not is quite cynical. This book tracks the levels of cynicism
that influences the government’s policies, and Indian society in general, and
hence this brief discussion about this highly controversial issue.
Mahatma Gandhi took charge of the ‘Swaraj’ or self-rule campaign at the
start of the 1920s, and as it spread all over the country, it was combined
with social reform causes. To undermine this push for independence, the
British promoted doubts about the viability of India as one nation. The logic
was that given the multiplicity of languages, cultures and religions, and the
fact that it had never been one country with the cartographical contours of
British India, such a nation could not hold. Spokesmen for the British
government also conjectured whether democracy would be the appropriate
form of government.
Although several divisive colonial-era policies had adverse long-term
consequences, the British did set up educational institutions in South Asia
which fostered pioneering scientific work. For example, Satyendra Nath
Bose (of Bose–Einstein statistics fame) did most of his research in quantum
mechanics in the 1920s in Dacca. Meghnad Saha, an astrophysicist (known
for the Saha ionization equation), worked in Allahabad and Kolkata from
the 1930s till the 1950s. C.V. Raman taught in Kolkata and won the Nobel
Prize for physics in 1930 for his work on scattering of light.
British-built structures in India, funded fully by locally raised revenues,
were grand in design and execution to emphasize colonial might. In Delhi,
the President’s house (built for the British viceroy), the office complexes of
North and South blocks and the Parliament house were completed by 1929.
Independent India has built little to compare with precolonial India or
British-built structures in its large cities or cantonment towns.

Roots of India’s Stable Democracy

It was apparent to Bal Gangadhar Tilak, Gopal Krishna Gokhale, Mahatma

Gandhi, Nehru and other leaders of the Indian freedom movement that the
effort to dislodge the British had to include Indians developing a sense of
unity and dignity about themselves and their history. To provide a more
self-assured picture to internal and external audiences, stalwarts of the
freedom struggle spoke and wrote prolifically about India’s long history of
scientific, architectural, spiritual and cultural achievements. The divisive
elements in today’s India often forget just how difficult it was to forge this
sense of unity and self-respect among Indians across the country.
The suspicions and animosities born out of ages of internecine and
debilitating infighting across Indian sub-nationalities due to differences in
wealth, social and religious practices had contributed in large part to India’s
colonial bondage. Mahatma Gandhi’s humility and empathy enabled him to
perceive the inner peace, resilience and unifying elements in the mosaic of
India’s toiling and impoverished millions. Gandhi was able to enthuse the
masses and motivate better-placed Indians and also a host of exceptionally
gifted and driven leaders who could relate intellectually and emotionally to
his ideals.
Gandhi believed that India lives in its villages, and we can only speculate
as to why he felt Nehru from the urban elite should lead the Congress party
and become India’s first PM. Maybe because although there is wisdom and
continuity in India’s villages, there is also much that is backward, including
extreme forms of social discrimination and prejudice towards lower castes,
religious minorities and women. Gandhi was able to encourage the Indian
masses to band together against the injustices of British colonialism. It is
likely that Gandhi sensed that independent India needed a PM who would
continue with the task of leading the people to rise above partisan politics of
community, caste and religion. He judged that Nehru had the required
qualities of head, and most importantly, heart, to build a prosperous India at
peace with itself and the rest of the world. Since Nehru was Gandhi’s
choice, his position as first among equals was readily accepted by Sardar
Patel and other leaders of the freedom struggle.
Given the trying experience of long jail terms during British rule, India’s
first cabinet included leaders who were used to facing adversity with
dignity and self-discipline. However, most ministers had limited
administrative experience. Their individual success was determined by the
ability to build competent teams at a time when there were few Indian
professionals with technical or senior managerial experience. In 1937 the
Congress party formed governments in seven provinces under the
Government of India Act of 1935. The following year, the Congress, led at
that time by Subhas Chandra Bose, set up a National Planning Committee
with Nehru as its chairman. The need for socialist planning was emphasized
by several Congress leaders of that era, including Bose. Before
Independence, the non-agriculture part of the Indian economy consisted
mostly of textiles, jute products, coal, iron and steel. The Second World
War gave a boost to the production of chemicals and shipbuilding.

Continuing Dependence on a Partisan UK

In the run-up to the partition of India, senior UK officials felt that it would
be ideal if the two newly independent countries were to cooperate with the
UK. However, if that was not possible, ‘the majority of our [UK’s] strategic
requirements could be met, though with considerably greater difficulty by
an agreement with Pakistan alone’.8
At Independence, India had little autonomy in defence matters as most of
its military hardware was from the UK, and petroleum supplies were
obtained via UK companies. The top generals in the Indian Army were
British when confrontations took place with Pakistani raiders and irregulars
in Kashmir. Specifically, the Indian Army was headed by Field Marshal
Auchinleck, and the commander in chief was General Lockhart. General
K.M. Cariappa took over as the first Indian chief of army staff five months
after Independence on 15 January 1948. The air9 and naval10 wings were
headed by British officers who continued to be based in India for many
more years till March 1954 and April 1958 respectively.11
The importance of air power and oil as the fuel of choice had become
evident during the course of the Second World War. Consequently, by 1947
the discovery of huge oil deposits in the Gulf and West Asia had enhanced
the importance of these regions. The fact that these oil-rich regions were
made up of Muslim-majority countries had a bearing on the British and
later US tilt towards Pakistan on the Kashmir issue. Another reason for the
UK and the US siding with Pakistan was that it was smaller than India, and
they felt that it would seek third-power intervention in disputes with India
or others, and would be more amenable to providing military bases on its
territory. British officers who continued as heads of the armed forces of
India and Pakistan after Independence were often in touch with each other
through cables and phone calls without keeping the prime ministers of India
and Pakistan informed. India’s attitude towards West Asia and the Gulf
region too was influenced by concern about Arab sentiment which was
against the partition of Palestine. India received Israel’s formal request for
recognition in May 1948 and then took over two years to recognize Israel
by September 1950.
In a nutshell, Nehru started with a country which had never existed with
the geographical boundaries India came to have at Independence. British
India was torn apart into India and Pakistan—the latter included parts of
Punjab (West) and Bengal (East)—in the wake of communal violence in
1946 and 1947. About a million people were killed and many millions
displaced during Partition mostly in Punjab and Bengal. The thousands of
cases of forced conversions and rape inflamed passions on both sides. On
the Pakistani side, it was felt that the Indian government’s armed
interventions in Hyderabad and Junagadh were stage-managed and unfair.
There was bickering at the working levels of the two governments on how
the assets of British India would be shared. Among the populations at large,
the feelings of antipathy between India and Pakistan have festered and
persisted; this continues to be true particularly in northern India, where
refugees from West Pakistan had settled. The total number of refugees who
came to India from West and East Pakistan was around 15 million. Partition
was a cataclysmic event that continues to impact postcolonial India’s South
Asian and international interactions till today.
 PANDIT JAWAHARLAL NEHRU
Unparalleled Nation Builder, Caring Yet Distant Leader

On 21 June 1954, about ten years before he passed away, Jawaharlal Nehru1 penned his
last Will and Testament. The following are a few lines from that Will:

‘. . . A handful of my ashes be thrown into the Ganga at Allahabad to be carried to the

great ocean that washes India’s shore . . . The major portion of my ashes . . . be carried
high up into the air . . . And scattered from that height over the fields where the peasants
of India toil, so that they may mingle with the dust and soil of India and become an
indistinguishable part of India.’

On 2 September 1946, with Gandhi’s blessings and popular acclaim,

Jawaharlal Nehru became the vice-president of the Viceroy’s Executive
Council. He took over as PM on 15 August 1947, taking charge of the first-
ever pan-India government headquartered in Delhi, three months short of
reaching fifty-eight years of age. The retirement age in the Indian
government till 1998 was fifty-eight. Given the incessant travel to distant
locations in the Indian subcontinent by train, car and on foot, lengthy jail
terms and the tensions of being one of the leaders of the freedom
movement, Nehru must have felt older than the average fifty-eight-year-old
Indian in 1947.
Nehru had not held a job nor practised law for any length of time. He had
no experience of administering a small office, let alone overseeing the
management of India’s development while maintaining internal security in
the country and guarding against external threats. Nehru was elected thrice
to the Lok Sabha in 1952, 1957 and 1962, and each time he won from the
Phulpur constituency in Uttar Pradesh (UP).
The preservation of the unity and integrity of India was uppermost in
Nehru’s mind all through the years that he was PM. This was an issue he
repeatedly touched upon during every address he made on Independence
Day from the ramparts of the Red Fort. It sounds trite today, but even
eleven years after Independence on 15 August 1958, he felt the need to ask
the nation to ‘take up the challenge of all forces which might seek to
weaken the country’s unity and freedom’.2 Although English was the
dominant language in decision-making circles in India at that time, Nehru
did set a tradition of PMs speaking in Hindi on 15 August from the Red
Fort.
At Independence, the provinces and princely states of the colonial era
had yet to be integrated into one country. The difficulties that the newly
formed Indian government had to overcome to forge the country
territorially into one nation have been much discussed in many publications.
What is less remembered is that in August 1942, the British had put into
effect the Armed Forces Special Powers Ordinance to put down the Quit
India movement. This was the precursor to the Armed Forces (Special
Powers) Act (AFSPA) of 1948. This Act was repealed in 1957 but was re-
enacted in 1958. The Nagas had declared independence in 1951 and
boycotted the first general election in 1952. AFSPA’s origins lie in the
Central government’s determination to maintain territorial integrity by
keeping rebellious areas of the North-east within India.
In 1947 India did not have the structures, institutions and mechanisms
which are at the core of a democracy. Nehru and his colleagues started from
scratch to achieve consensus in the deliberations of the Constituent
Assembly to adopt a forward-looking Constitution. One important element
was the supremacy of the political executive over the armed forces. It was
clear from the start that the armed forces would report to the defence
minister, and through that office to the PM. The heads of the three services,
namely army, air force and navy, were made co-equals. And Nehru as PM
took over the residence of the former British commander in chief at Teen
Murti House.

Administration after Independence

After India was partitioned, there was continuing violence within India as it
was being put together, and there were external threats. Two of the several
stalwarts in Nehru’s cabinet were Sardar Vallabhbhai Patel and Dr B.R.
Ambedkar. Sardar Patel, who was born in 1875, was fourteen years older
than Nehru and was from a humbler economic background in rural Gujarat.
Patel was self-taught, and by the time he was thirty-six years old, had saved
enough to study law at Middle Temple Inn in London. He returned to
practise law in Ahmedabad and joined the freedom struggle in 1917.
At seventy-two years of age in 1947, Sardar Patel was India’s first
minister for home and the states. He was the pragmatic, strong-willed and
undisputed architect of the integration of India. As is well known, there
were several hiccups; for example, the incorporation of Junagadh and
Hyderabad and the battle for Kashmir. Additionally, integrating the
provinces with the princely states looked like an impossible task at
Independence.3 Post 1947, Patel’s relationship with Nehru was marked by
‘frankness and loyalty’.4
After Gandhi was assassinated on 30 January 1948, Sardar Patel was
criticized for not having provided adequate security to the Mahatma in the
heart of New Delhi. Three days after Gandhi’s death, Nehru wrote to Patel
on 3 February 1948: ‘My dear Vallabhbhai, with Bapu’s death, we have to
face a different and more difficult world. I have been greatly distressed by
the persistence of whispers about you and me, magnifying out of all
proportion any differences we may have . . . I think it is my duty, and I may
venture to say yours also, for us to face it together as friends and
colleagues, not merely superficially but in full loyalty to one another and
with confidence in one another.’ Sardar Patel responded two days later on 5
February, ‘I am deeply touched, indeed overwhelmed by . . . your letter. The
paramount interests of our country and our mutual love and regard,
transcending such differences of outlook and temperament as existed, have
held us together. I had the good fortune to have a last talk with Bapu for
over an hour just before his death. His opinion also binds us both.’5
Patel was frank in conveying on which issues he disagreed with Nehru.
Patel’s loyalty to Nehru was based on his clear-headed understanding that
for the government to function efficiently, Nehru’s decisions as the head of
government had to be respected. Although Patel suffered a major heart
attack in March 1948, just seven months after Independence, he was
indispensable till he passed away in December 1950.
The story of how Dr B.R. Ambedkar pulled himself up from his
discriminated and deprived social and economic background is not only
inspirational but magical. He went for his higher studies to the UK and the
US and earned doctoral degrees from reputed institutions. Dr Ambedkar’s
contributions as one of the principal authors of the Indian Constitution, and
as a social reformer, are folklore in India.
Among the other senior figures, C. Rajagopalachari became the minister
for home affairs after Patel passed away, and he held that office till October
1951. Thereafter, he left for Tamil Nadu, his home state, due to differences
with Nehru on relations between the Congress party and the communists
and sundry other issues. This divergence of views between the two leaders
may have been due to a south-north difference in perception about the left
parties. By the early 1950s, the communists had established an electoral
presence in Tamil Nadu and Kerala and were nowhere nearly as significant
in the northern states.
During Nehru’s years as PM, the Congress party had a comfortable
majority in the Lok Sabha and Rajya Sabha. Nehru was his own foreign
minister for the seventeen years that he was PM and was also the minister
for atomic energy.
One of the many immediate difficulties that the new Indian government
was confronted with was an extreme shortage of competent officers and
technical experts. On the civil administration front, an important question
was about what was to be done with the Indian Civil Service (ICS), which
used to be referred to as the ‘steel frame’ which had kept India together. In
1947 there were about 980 ICS officers and of these 468 were British. Most
of the well qualified among the British went back to the UK. Of the
remaining 512 ICS officers, 101 were Muslim and ninety-five of them
opted for Pakistan.
It is evident from the memoirs of ICS officers6 that the two overriding
concerns of the pre-1947 British administration were timely collection of
land revenue, taxes and prevention/prosecution of crime. However, despite
the much-vaunted abilities of the ICS and their politically appointed British
supervisors, they were spectators to the communal violence in Punjab and
Bengal between 1946 and 1948. Nehru had remarked in his 1936
autobiography that among ‘those who have served in the Indian Civil
Service or other imperial services there will be many, Indians or foreigners,
who will be necessary and welcome to the new order. But of one thing I am
quite sure: that no new [emphasis added] order can be built up in India so
long as the spirit of the Indian Civil Service pervades our administration
and our public services.’ In The Discovery of India, Nehru commented that
‘they [ICS] had no training to function democratically and could not gain
the goodwill and cooperation of the people . . . it was extraordinary how
unfit they were for the new tasks that faced them.’
Opinion was divided in the Constituent Assembly about allowing ICS
officers to continue in government after Independence. Sardar Patel was
vehemently in favour of honouring the agreement that the Congress party
had reached with the British government. The Indian Independence Act
passed by the British Parliament contained service protection clauses for the
ICS, and Sardar Patel argued in favour of retaining the ICS in the following
terms at the Constituent Assembly discussions.
‘I wish to place it on record in this House that if, during the last two or
three years, most of the members of the services had not behaved
patriotically and with loyalty, the Union would have collapsed . . . Is there
any Premier in any province who is prepared to work without the Services?
What did Gandhiji teach us? You are talking of Gandhian ideology and
Gandhian philosophy and Gandhian way of administration. Very good. But
you come out of jail and then say—these men put me in jail. Let me take
revenge. That is not the Gandhian way. It is going far away from that . . .’7
The inconsistency in Sardar Patel’s logic was that the ICS, which had felt
little empathy for the freedom struggle, was now to be entrusted with
development in independent India, and was deemed capable of supervising
and overruling specialists. These specialists were, for example, engineers of
the Central Public Works Department (CPWD was set up in 1854 and took
its present form in 1930), surveyors and architects of the Indian Army,
scientists from the regional laboratories and the Council for Scientific and
Industrial Research (CSIR was set up in 1942). This issue about generalists
and specialists had been debated since 1857 within the administrative
circles of British India. The British finally decided that overall, in other
words politically and financially important, decisions should be left to
generalist administrators. This worked well for the British in transferring
wealth back home. To an extent, ICS officers continuing in senior positions
in the central and state governments was inevitable and less harmful than
experimenting with newly recruited officers who had no experience of
working in government or regulatory positions. However, India persisting
with exactly the same administrative structures and practices left by the
British sapped efforts to build a new country focused on development.
Nehru and others in the Central and state governments needed to put
together teams of administrators and specialists who cared deeply about
development for all Indians.
Mark Tully, the long-time BBC bureau chief in India, is now living in
Delhi. On the unfortunate similarity between the pre-Independence ICS and
Indian Police (IP), and post-Independence Indian Administrative Service
(IAS) and the Indian Police Service (IPS) respectively, Tully has
commented8 that:

The world’s largest democracy is still governed and administered by the institutions of
the British Raj. The Indian Administrative Service, which dominates the administration,
is a carbon copy of the Raj’s ICS, and the Indian Police Service is a carbon copy of the
Indian Police. Macaulay’s Penal Code is still in force. The hired witnesses who used to
testify in favour of the Raj now testify before magistrates in favour of independent India’s
police . . . The poor [destitute] regard the police and courts as their oppressors.
Although Tully’s observations are somewhat sweeping, they hold a kernel
of truth. Many officers become indifferent to the plight of the marginalized
because of the inefficient, uncaring administrative and legal framework
within which they work, but there are substantial differences at the
individual level.
The British administration’s policies in India were tailored to maintain
law and order rather than push economic and social development. Post
Independence, it is the implementation of development programmes which
has been inadequate. Human development indicators such as literacy, infant
mortality, life expectancy and per capita income were very low in 1947.
Political leaders such as Nehru at the Centre in Delhi and chief ministers
(CMs) in the states were well aware of the formidable challenges ahead in
improving these indicators for the masses. However, implementation of
government policies was in the hands of administrators, and the ICS did not
have adequate understanding or empathy to push the everyday agenda of
safe drinking water and primary education.
The political service, which was entirely reserved for British nationals
before independence, was converted to the Indian Foreign Service (IFS).
From 1947 to 1950, selection to the IFS was done mostly through word-of-
mouth recommendations. In those early years, Nehru personally
interviewed new entrants to the Foreign Service. Consequently, Nehru knew
IFS officers personally and would often walk from his office on the first
floor of South Block (Rashtrapati Bhawan end) across (in the Vijay Chowk
direction) to the offices of secretaries in the foreign office.
In former Foreign Secretary M. Rasgotra’s9 opinion, too many ICS
officers were inducted into the Indian Foreign Service. About Nehru’s
ambassadorial appointments, he feels that Vijaya Lakshmi Pandit10 was a
success in the UK but not in the USSR or the US. Rasgotra’s sense is that
Nehru was an idealist but lacked experience in ‘realpolitik’. A counter to
that point of view could be that during the freedom struggle, many
compromises had to be made by the Congress with the British and Nehru
had participated in that give and take. Former Ambassador K.S. Bajpai
feels11 that the ICS was too influenced by the British world view. Coming
from him, this was a startling observation since his father Sir G.S. Bajpai
joined the United Provinces (Uttar Pradesh) cadre of the ICS in 1915.
A fair alternative would have been to give ICS officers the choice of
leaving in 1947 or serving for fifteen years till 1962, with generous
retirement benefits under both options. Fifteen years would have been
enough time for fresh recruits selected through Union Public Service
Commission (UPSC) examinations and lateral entrants with specialist skills
to bring themselves up to speed.
Most of the institutions basic to parliamentary democracy were set up
after Independence. For instance, the Election Commission (25 January
1950), the Supreme Court (28 January 1950) and the Reserve Bank of India
(RBI)12 (January 1949) were established at arm’s-length from government
and made functionally autonomous.
Nehru’s first visit to the Soviet Union in 1927, along with his father, wife
and sister, Vijaya Lakshmi Pandit, seems to have convinced him about the
benefits of centralized planning. On the Russian example, Nehru said in one
of his circular letters to CMs dated 15 August 1949 that ‘Russia gives us a
very complicated picture, much of which we like and much of which we
dislike [lack of democracy]’. In the same letter, Nehru mentions that ‘it is
careful planning that both Russia and Japan have to teach us’, and ‘the State
should help in this planning on a large scale, even though a great part of our
national economy be left to private enterprise’.
Accordingly, the Planning Commission was set up with the PM as
chairman on 15 March 1950 under a cabinet resolution. That is, it did not
have a statutory or constitutional status. Among the reasons for the
resignation of the then Finance Minister John Mathai after the presentation
of the budget in 1950 was the setting up of the Planning Commission.
Mathai felt that this commission would dilute the powers of the finance
ministry.
Deputy chairpersons of the Planning Commission were usually well-
known political figures and only occasionally economists. As the end
purpose of the Planning Commission was to make the allocation of funding
goal-oriented, it would have made sense to rely more on technocrats rather
than serving politicians. The definitive political input was provided by
Nehru anyway since he chaired the Planning Commission’s meetings.
However, after Nehru, the commission gradually lost its initial sheen, and
its voice was drowned out in the din of the shorter-term considerations of
the PM in office.
The first Finance Commission (FC), a constitutional body, was set up in
1952. The FC is not a standing body, and its members are changed and
terms of reference are set every five years. The FC’s primary task is to
allocate tax revenues between the central and state governments. Over the
decades, the FC became increasingly mindful and more sophisticated about
considerations such as population and per capita income.13
The National Development Council (NDC) was set up by Nehru in 1952,
under a decision taken by the Union cabinet. This council consisted of the
PM as chairman and the entire Central government cabinet and all CMs as
members. This was another demonstration of Nehru trying to reach out to
all shades of opinion within the Central government and all corners of the
country to formulate effective national development policies. In the seven
years between 1952 and 1959, the NDC held thirteen meetings, but over the
decades, the meetings have decreased in frequency, coming down to less
than one a year by 2014.14
Several other well-known institutions which have served India well in the
collation and analysis of economic data were set up during the Nehru years.
For example, the Indian Statistical Institute (ISI), National Council for
Applied Economic Research (NCAER), Indian Institute for Public
Administration (IIPA), Central Statistical Organisation (CSO) and National
Sample Survey. The University Grants Commission (UGC) was set up
under an Act of Parliament in 1957.
Turning to heavy industry, the 1955 and 1964 steel plants at Bhilai in
Jharkhand and at Bokaro in Chhattisgarh were set up in collaboration with
the USSR. The UK helped set up the Durgapur steel plant in West Bengal in
1955, and the Rourkela steel plant in Orissa was set up in 1959 with
assistance from Germany. The US was conspicuous by its absence from
collaborative efforts in heavy industry or infrastructure during the Nehru
years. It may be that the Bokaro plant was offered to the US first, but since
it was to be set up in the public sector the US side refused.
The British had left behind an extensive network of railway tracks. Table
1.1 in the Appendices details the increase in the length of tracks from 1947
till 2016. In summary, from a total of 55,000 kilometres of tracks, this
number increased over seventeen years, from Independence till Nehru
passed away in May 1964, to about 88,970 kilometres. That is an increase
of 62 per cent. By March 2016, the length of tracks had risen to 119,630
kilometres, which is an increase of just 35 per cent in the fifty-two years
since 1964.
As for electricity generation and irrigation, the Hirakud dam, close to
Sambalpur in Orissa, was inaugurated by Nehru in 1957. The plans for the
Bhakra dam were conceived prior to Independence, and this hydroelectric
project was completed in October 1963. In words that continue to resonate,
Nehru called Bhakra one of ‘the temples’ of modern India. Work on the
Nagarjuna dam on the Krishna river in Andhra Pradesh began in 1955 and
was completed by 1967. The Damodar river had a history of over a century
of causing severe flooding in West Bengal and Jharkhand, and the Damodar
Valley Corporation (DVC) was set up in 1948 and was modelled on the
Tennessee Valley Authority in the US. DVC constructed dams on the
Damodar river, and power generation began by 1953. These are a few
examples of the long-gestation projects which were either initiated or
completed during Nehru’s tenure as PM.

Economic Inheritance

Despite evidence to the contrary, an abiding incorrect perception about

Nehru’s economic policies is that he alone was the initiator of protectionism
in India and that he single-handedly set up a highly damaging socialist
model with centralized planning as the mainstay. A little history will help in
clearing this misunderstanding. Prior to Independence, the first Indian
Fiscal Commission appointed in 1921 recommended protection for select
industries.15 Subsequently, between 1923 and 1939, in an era of
administratively determined exchange rates, the Indian Tariff Board’s
deliberations led to higher import duties for a variety of items including
iron and steel, cotton textiles, sugar, paper and gold thread. For some of
these products, cheap raw material was first sourced from India. It was in
this environment of colonial economic exploitation that the Congress party
leaders became followers of the Swadeshi movement led by Gandhi. It was
considered a national duty to promote local production of cloth, textiles and
other products to generate employment and retain a greater share of the
value added within the country.
The image on page 10 is an advertisement from a shop in Lahore in the
1930s. After Independence, the Congress party continued to mistakenly
perceive import substitution as a patriotic duty that promoted local
employment.
In 1947, India was a country of about 350 million people, an
overwhelming majority of whom lived on subsistence agriculture, with
relatively little manufacturing or industrial development. Nehru was
convinced that the road out of poverty for India’s masses was by adopting a
government-driven, but not a totally government-owned, economic model.
In the Constituent Assembly debates, Nehru had affirmed that his
government would not nationalize existing Indian or foreign private-sector
firms. Even a cursory examination of Nehru’s writings indicates that he
wanted the state to take charge of what the private sector could not or did
not want to get into.
Several well-known economists of that era were doubtful about the
prospects of trade-led growth for developing countries. For instance, the
well-known Argentinian economist Raul Prebisch, first head of UNESCO
(United Nations Educational Scientific and Cultural Organization), felt that
terms of trade would be unfavourable for products from developing
countries. The Prebisch Singer hypothesis16 was that the prices of primary
commodities decline over time compared to manufactured items, and hence
the terms of trade deteriorate for developing countries that produce primary
commodities. Nehru’s scepticism about trade was based on this line of
thinking in the specialist circles of that time.
The major Indian business houses such as the Birlas and Tatas had
gradually come to be identified with the freedom struggle. Gandhi
consulted them often and accepted their support. A couple of years before
Independence, in 1944, several leading industrialists of that time, including
J.R.D. Tata, G.D. Birla, Lala Shri Ram, Purshottam Thakurdas, Ardeshir
Dalal, Kasturbhai Lalbhai and John Mathai came up with what came to be
known as the Bombay Plan.17 This plan conceived of raising economic
growth rates through government investment for long-gestation projects.
Effectively, the captains of private industry, who were the authors of the
Bombay Plan, indicated that they did not have the capital or the risk
appetite to make the required investments to push growth above pre-
Independence levels.
The Indian private sector also pushed the infant industry argument for
protective tariff and non-tariff import barriers. As scarcities persisted and
there was enough evidence of hoarding, the environment of permits,
licences, controls and foreign exchange restrictions of the Second World
War years was continued or tightened after 1947. The fact that the private
sector of that time looked to the government to take the lead in raising
investment levels indicates that Nehru had less elbow room than is currently
claimed, and had to necessarily plan for a large role for government in the
economy.
Several of the draconian pieces of economic legislation post
Independence had their origins in the Defence of India Act of 1915 which
was further tightened in its 1939 version. During the Second World War, in
the UK the government ran several of the utilities, including power, water
and public transport. Consequently, towards the end of the war, the thinking
in UK government circles, even among the Conservatives, including
Churchill, was that in post-war Britain, not just the private sector but also
‘state enterprises’, should play an important role in providing employment
and rebuilding the country. In a paper in the Journal of Comparative
Economics, Rakesh Mohan and Vandana Aggarwal have linked the origins
of industrial licensing in India to the controls imposed during the war
years.18
The Labour party came back to power in the UK in 1945, and this
government nationalized coal, iron and steel, railroads, utilities and
international telecommunications. The Bank of England (central bank) was
nationalized in 1946. The UK’s Labour party borrowed the term
‘commanding heights’ of the economy, which is attributed to Lenin by
Daniel Yergin and Joseph Stanislaw in their 1998 book.19 That is, Britain
moved sharply towards the left in the wake of the Second World War, and
this must have influenced the thinking of the British-educated Indian elite.

Licence–Permit Raj, Socialism and Planning

Nehru is often charged as the villain of the piece for instituting the so-called
‘licence–permit’ raj. This accusation is made by many among today’s
Indian elite with little patience to look up the circumstances and constraints
under which India was born. It bears repeating that Indians were deeply
scarred in the decade prior to Independence by economic distress,
communal killings and physical displacement caused by the Bengal famine,
the Second World War and Partition. India was at abysmally low levels of
public health, literacy and per capita income. The average life expectancy
was about thirty-two years, literacy was 12 per cent, and per capita income
was Rupees 247.5 in 1950–51.20 The subsequent two decades through the
1950s and the 1960s were marked by food scarcities and constant worries
about pockets of starvation. All things considered, it was to the fledgling
Indian government’s credit that there was no widespread famine anywhere
in India during Nehru’s years as PM.
To put matters in perspective, renowned economists often disagree
vehemently with each other about should have been done and when. As for
the rest of the world, they mock economists for their collective lack of
foresight, for example, about the 2008 financial-sector breakdown. This
was yet another instance of market failure which has resulted in a decline in
economic growth rates in developed Western countries from trend levels for
more than a decade now and counting.21
During the Nehru years, economic activity was mostly in the private
sector. Therefore, the assertion that Indian growth rates were low during the
first two decades after Independence because a high proportion of the
economy was government owned is factually incorrect. For instance,
agriculture was and for that matter even in May 2019 remains mostly
private. Only with the nationalization of banks in 1969 did the public sector
come to have a substantial share of the services sector. Railways was mostly
in the public sector from before Independence. In manufacturing, the
public-sector units engaged in the production of steel, power, cement and
fertilizers gained in size only from the late 1950s onwards. It is from the
late 1960s, after Nehru’s demise, that the share of the public sector in the
national economy rose to sizeable proportions.
 At Nehru’s request, a committee of economists presented their Report on
the Economic Situation in India to the cabinet22 on 22 August 1948. That is,
within a year of Independence, this committee took stock of the economy
and provided their recommendations. The report was classified ‘Secret’,
and such a classification can be questioned. However, some of the
recommendations involved market-sensitive information; for instance, that
interest rates should be raised (this was an era when interest rates were
driven by the government’s views). The relevant point to note is that Nehru
tried to consult Indian economists from around the country.
In the committee’s assessment, the most important ‘aspect of the
economic crisis’ that the country faced was ‘rising prices’. Among the
principal reasons for this were ‘continuous inflation of the currency during
the war period’, and ‘continued budget deficits at the Centre on both
revenue and capital accounts . . . aggravated by deficit budgets in most of
the Provinces during the current year’, and ‘unplanned removal of controls
on prices and distribution of essential goods’ (emphasis added). Among the
remedies suggested to boost government’s access to private savings was to
make small savings attractive by offering a ‘higher rate of interest than that
now given on negotiable bonds of equal duration . . . export controls should
be exercised’. In addition, the committee recommended that there should be
a freeze on salaries and wages, and a new system of ‘controls of prices and
distribution of cotton and cloth should be elaborated’. As for industry, the
suggestion was that ‘Government should lay down for each major industry
and establishments therein a programme of production and production
targets’. It is evident that this group of eminent economists of that time was
in favour of extensive government controls on interest rates, production and
prices.
With remarkable swiftness, just a day later, Nehru wrote to all premiers
(later called chief ministers) on 23 August 1948 detailing the
recommendations of this report and adding his own thoughts. It is a
reflection of Nehru’s inclusive thinking that he mentioned in this letter, ‘We
invited a number of prominent economists from all over the country . . . the
economists . . . represent different schools of thought.’ In other words,
Nehru did try to reach out to all shades of expert opinion around the
country. Based on the prevailing circumstances and the understanding of
well-known Indian economists of that time, the unequivocal advice was to
set up a government-run economy.
It is surprising that some among those who shout from the rooftops that
Nehru’s socialism set India back by decades ignore just how difficult it
must have been to have agreed policies actually implemented on the ground
all around the country. Under most circumstances a country’s economic
progress has more to do with honest implementation rather than perfect
economic policies. And, the state has to first provide physical security, safe
drinking water, primary healthcare and basic education. No government can
do this, irrespective of its political complexion, without honesty of purpose
—not just among the political executive but also at the level of field-
workers and the people at large.
Nehru’s understanding was that major inputs for industries needed to be
built or acquired by the public sector since the government needed to be in
charge of strategic industries. He was acutely conscious that in developed
countries a few mega private companies—by being in charge of large public
works and utility companies—exercised enormous influence on not just
government’s economic but also social and foreign policies. Nehru felt that
the better option for India was for public-sector firms to add to steel
production and build power stations, while encouraging the private sector to
produce inputs such as cement and aluminium.23 Consequently, Nehru
promoted central and state government-funded production of steel and
power with the financial and technical support of Western governments and
the Soviet Union.
On the surface, Nehru’s use of the word socialism and espousal of
policies in support of an economy which would be competitive appears to
be contradictory. He was convinced that economic autonomy was important
for India to retain its independence of action in the foreign policy space. He
probably felt that the freedom of the country would be circumscribed if
India did not set up its own heavy and defence industries. The Congress
party included leaders with views across the political spectrum from the left
to the right. It is likely that Nehru’s choice of a mixed-economy path was a
reflection of a middle-of-the-road compromise within the party.
Nehru sought acceptance of his economic plans by state governments by
communicating with CMs through fortnightly letters. One of his earliest
letters dated 19 December 1947 mentions that India’s ‘basic problem [is] of
poverty,24 which we had temporarily put in second place amidst the
preoccupations of communal disorder’. Nehru reiterated to CMs in 1953
that mere nationalization of existing companies did not serve any useful
purpose since no new assets are created, and this only resulted in transfer of
ownership. His sense was that the rigid set of beliefs developed in Europe
by Marx in the nineteenth century did not apply to India in the twentieth
century. Further, according to Nehru, communism develops large and
powerful bureaucracies, and there is an absence of democracy. It was clear
to Nehru that much faster economic growth was required, and he thought
that rigid socialism was not the way forward. What is less apparent, even
with the benefit of Nehru’s considerable volumes of writings and speeches,
is exactly how he intended to achieve faster growth along with poverty
reduction with his mixed-economy model. It is likely that it was not all that
clear to him either, and he and his ministerial colleagues were learning by
doing.
In a letter to CMs dated 24 December 1954 Nehru mentioned ‘that the
Lok Sabha, in considering the economic policy resolution, unanimously
passed an amendment laying down that the pattern of society to be aimed at
should be socialistic’. However, in the same letter, Nehru said that
‘socialistic’ did not mean that the ‘State should own everything, but it must
own or control all strategic points’. Next month, in January 1955, the
Congress party’s manifesto at its annual session at Avadi mentioned the
need for a ‘socialist pattern [of society]’. In a perceptive observation, C.D.
Deshmukh, finance minister from 1950 to 1956, has mentioned in his
autobiography25 that Nehru had a ‘theoretical commitment to socialism’,
while Patel was a ‘realist’ and aware of the ‘foibles of human nature’, and
hence aware of the ‘limitations’ of socialism.
 Although Nehru did not suggest complete exclusion of the private sector
from any industry, the repeated use of the word socialism in Congress party
circles must have rung warning bells for private investors within India and
in the developed West. It would have helped to attract foreign private
investment if Nehru had clarified more forcefully that his government’s
efforts were geared towards achieving equality of opportunity and not
equality of outcomes. John Kenneth Galbraith, ambassador of the US to
India from1961 to 1963, understood that India was not a socialist state and
downplayed the prevalence of public enterprises in India as a small part of
the overall economy to audiences in the US.
On the mix between public and private sectors and state support for the
poor, Walter Crocker, Australia’s high commissioner in Delhi in two stints,
1952–55 and 1958–62, understood the ground realities in India. Crocker
knew Nehru personally and was a frequent guest at Teen Murti House.
According to Crocker,26 a significant complication in efficient
implementation of government economic policies was that some ministers
were intellectually or even financially dishonest. Crocker empathizes with
Nehru’s view that with so many desperately poor and unemployed in India,
some form of state support was required. That is, although India needed to
grow faster to reduce poverty, Crocker agreed that focusing on growth alone
would not be sufficient.
At times, analysts tend to overemphasize Adam Smith’s ‘invisible
hand’—that self-interest is the most efficient way of promoting growth and
equality. An extension of that logic is that any form of government
intervention in economic decision making results in inefficiencies without
compensating benefits. Smith was also the author of The Theory of Moral
Sentiments. In that earlier work of Smith’s, an important facet of morality
was sympathy, and, as Jesse Norman puts it, ‘thanks to sympathy . . .
human beings have the capacity of self-conscious introspection’.27 And,
every now and then, there is a rethink on the balance between the
disembodied invisible hand and man’s capacity for sympathy for others.28
In short, the left-oriented economic policies including the setting up of a
large public sector, in ex ante terms, were not viewed with disdain as a sure
recipe for lower growth. Given their own exemplary commitment to the
country, Nehru and his generation of Indian leaders probably felt that they
could motivate and inspire a majority of government officials, public-sector
management and workers to behave ethically and with empathy for the less
fortunate.
The world of the 1940s and 1950s would not have forgotten so soon
about the damage done to hundreds of millions of lives in the interwar years
of the 1930s by the Great Depression in the US. A superb study titled The
Lords of Finance: 1929, The Great Depression, and the Bankers Who Broke
the World by Liaquat Ahamed29 details the suspicions that the US, the UK,
France and Germany had of each other’s central bank policies in those
economically difficult interwar years. Further excesses of Wall Street were
sought to be prevented by the enactment of the 1933 Glass–Steagall Act in
the US which segregated commercial from investment banking. The
prolonged suffering of destitute, out-of-work agricultural workers during
the depression years in the US is described with heart-wrenching feeling in
Nobel Prize-winning author John Steinbeck’s 1939 novel The Grapes of
Wrath.
It is small wonder, therefore, taking into account market, central bank
and government failures in the West in the 1930s, that a number of Indian
economists from the 1950s into the 1970s favoured planning. Nehru’s left-
leaning views were reinforced by a majority of development economists,
barring a few. Among well-known foreign economists who supported
planning and visited India and spent time at the Indian Statistical Institute
(ISI) in the 1950s were Nicholas Kaldor, Joan Robinson, Gunnar Myrdal,
Paul Rosenstein-Rodan, Oskar Lange, John Kenneth Galbraith, Tjalling
Koopmans, Jan Tinbergen and Ragnar Frisch. Myrdal is reported to have
commented that ‘grand-scale national planning’ is ‘unanimously endorsed
by governments and experts in the advanced countries’.30 They felt that
government planning was required to raise investment levels in poorer
countries, and funding shortfalls could be met through foreign aid.
Like many of his generation, Nehru was impressed with the Soviet
Union’s progress in heavy industries including sharply enhanced levels of
steel production. The high economic and political cost to average USSR
citizens was not yet fully apparent to the rest of the world. The fact that the
USSR was not involved in any large-scale colonization made it appear less
predatory to newly independent countries as compared to the UK, France
(North and West Africa), Belgium (Congo), and the US (overwhelming
influence in Latin America; grabbing of Guantanamo Bay from Cuba;
military bases in Japan, South Korea, Philippines, Vietnam and Guam).
Czarist Russia’s annexation of contiguous Central Asian territories and the
USSR’s absorption of its neighbouring areas or domination of the
Comecon31 countries was condoned, and not condemned in equal measure
as colonization. Perhaps because economic conditions, including the
availability of consumer goods and living conditions in the Russian
republic, were not that different from those in the other Soviet republics and
the satellite Comecon countries.
The third Finance Minister John Mathai resigned in June 1950 because of
differences with Nehru about allocation of funds and planning.32 In 1958–59
Mathai observed that ‘Pandit Nehru in his approach to problems laid more
emphasis on formulating a programme for future rather than providing
solutions for immediate difficulties. He was following the instincts of the
true politician rather than the man of affairs intent on fulfilling the job in
hand. He and I, for instance had many long arguments about setting up of
the Planning Commission at a time when conditions were so fluid that no
data of any permanent value could be collected and when general scarcity
of money and materials made it difficult to implement any new plans.’33
Contrary to John Mathai’s comments, along with constant firefighting on
domestic and international fronts, Nehru did try to have economic data
gathered more systematically. Professor Mahalanobis, who was in charge of
the ISI in Calcutta, was at the forefront of this effort.
The First Five Year Plan was ad hoc, and covered the period 1951–56.
The focus was on food sufficiency, cotton and jute, price controls, reduction
of rural unemployment, and increased availability of power and
transportation. It is ironic and disturbing that except for the reference to
jute, these could well be India’s objectives today. Rural employment could
have been given a boost by promoting the setting up of small to medium
enterprises (SMEs) by the private sector. And, this could have been
encouraged by facilitating access to not just domestic but also foreign
capital.
Domestic production of competitively priced consumer goods did not get
the attention it deserved in the First Plan. The comparative advantage of
low-cost Indian labour could not be immediately used since skill levels
were inadequate, and hence productivity was low. Facilitating the entry of
multinationals in the consumer space would not have diluted political
autonomy and would have expedited gaining of skills and promoted
exports. It seems that no concerted effort was made to attract foreign direct
investment (FDI) to produce consumer products locally.
Nehru exhorted CMs to tour their states to explain the First Five Year
Plan. In his idealism, Nehru saw this as a cooperative effort which would
boost unifying forces since the Plan would be seen as a partnership between
the centre and the states. In this First Plan period, quantitative restrictions
on imports were minimal. The average growth rate of net national product
(NNP) over the five years was 3.5 per cent despite the administrative and
financial burden of rehabilitating refugees from West and East Pakistan.
Milton Friedman visited India in the last quarter of 1955 at the invitation
of the Ministry of Finance. This was part of the effort to seek the views of
prominent Western economists. One of his suggestions34 for India was that
not enough was being thought through or budgeted for to improve human
resources. And while government inevitably has to fund education, health
and social development programmes designed to benefit the needy and
underprivileged, the actual delivery could be bid out to private parties.35
Similar suggestions have been made by many others too, over the last six
decades. A second point Friedman made was that growth comes from
promoting an environment in which ‘small and medium enterprises
(SMEs)’ thrive and not just the giants such as the Tatas. A third issue,
which is of contemporary relevance, referred to by Friedman as ‘the
Achilles heel of the Indian economy’ is the ‘artificial and unrealistic (high
Rupee) exchange rate’.36
 The central and state governments during the Nehru years were well
aware of the need to raise literacy and numeracy levels particularly in
villages and remote areas. And, the numbers of schoolteachers in
government schools have grown hugely over time. However, on average,
teachers were either not adequately motivated, or qualified enough, to
teach. The task was daunting since average literacy levels in rural and semi-
urban areas was probably even lower than the national average of about 12
per cent at independence.
A glaring omission in Nehru’s steady stream of letters to CMs is that
these missives did not emphasize how implementation of government’s
goals in spreading elementary education and primary health were key to
development. Nehru does refer to vocational training but not the underlying
requirement—sound primary education. In short, effective and consistent
implementation of these objectives was not monitored diligently enough.
Mao’s China was able to deliver basic reading and writing skills to its
impoverished millions through communist fiat by the early 1970s.
Comparatively, higher education received greater attention in India, and
Deshmukh became the first chairman of the University Grants Commission
(UGC) after he resigned from his position as finance minister in 1956.
As for Friedman’s suggestion about helping SMEs to grow, this sector
did not receive the attention it deserved in the 1950s. The emphasis at that
time was on heavy industry and mega-power projects mostly in the public
sector and occasionally on a project-specific basis large private investments.
An overvalued rupee has been a recurring problem in India. Between
1951 and 1966, Indian consumer price inflation was about 3 per cent. Given
higher Indian inflation compared to the US, and since in those early years
Indian productivity was lower than that in richer countries, the rupee should
have been devalued much before June 1966. Over the decades, the incorrect
understanding among many in the Indian political executive has been that a
strong national currency means the economy is doing well.
The boost given to the appetite for imports by an overvalued rupee was
sought to be dampened by a complex set of import restrictions. Subsidies
were provided for exports, and thus the trade sector came to be riddled with
inefficiencies from the late 1950s onwards. Such policies were not unique
to India in those years of US dollar shortages. For instance, Japan too had
imposed a set of import entitlements. However, Japan did not have an
overvalued currency at that time. An overvalued rupee created an incentive
to over invoice exports as the ‘effective export subsidy exceeded the black
market premium charged for illegal foreign exchange’.37 Distortions in
pricing, including for exchange rates, inevitably brought financial
corruption in their wake.
Taking a step back in time, even before Independence the Indian
government was concerned about conserving foreign exchange reserves.
Consequently, under the Import-Export Control Act 1947,38 domestic
suppliers of import substitutes were protected by high tariff barriers. The
private companies of that era used the same reasoning that some Indian
private firms offer even today. Namely, that they were not in a position to
compete against large Western companies as they did not have the required
capital to achieve economies of scale. And, that they needed time to build
expertise and size.
The Second Five Year Plan over the years 1956–61 was focussed on
setting up or completing on-going heavy industry projects. As expenditure
on imports of machinery ate into sterling balances, reducing the outflow of
foreign exchange became an overriding priority. A supplementary strategy
should have been boosting of exports and promotion of FDI. Instead of the
Indian economy opening up as compared to the period of wartime controls,
it started closing down from the late 1950s. B.R. Shenoy was the only
economist among those who worked on the Second Five Year Plan to
submit a dissent note. Shenoy was prescient in that he felt government
would not have the resources to fund the capital investments of the Second
Plan, and he was critical about import substitution.
By 1957–58, India’s foreign exchange reserves were dwindling fast, and
import and export licensing requirements resulted in India’s share of global
exports shrinking from 2.2 per cent in 1951 to 0.7 per cent in 1970 (see
Table 1.2 in the Appendices). And imports plus exports decreased from a
total of about 15–16 per cent of GDP in 1950–51 to about 8–9 per cent in
1968–69.
In the first fifteen years after 1947 India’s trading relationship with the
Soviet Union did not overwhelm that with the Western countries, even
though India paid for imports from the USSR in rupees since 1954. By
1961, Indian exports to the USSR amounted to just 5 per cent of total
exports, and this number rose to 16 per cent in 1966, two years after Nehru
had passed away.39 The average NNP40 annual growth rate over the Second
Plan 1956–61 years, despite the scarcity of hard currency, was 4 per cent,
which was higher than the average growth rate of 3.5 per cent during the
First Plan period.
On export pessimism, the following exchange in 1956 between I.G. Patel
and C.D. Deshmukh41 illustrates the lack of risk-taking ability even at the
level of the finance minister. At that time, I.G. Patel was a deputy economic
adviser in the Ministry of Finance, and according to Patel, ‘Sir Arthur
Lewis42 had suggested that since India had a comparative advantage in steel
production it should aim to increase production from one to 10 million tons,
much of it for export.’43 T.T. Krishnamachari had taken over as the industry
minister and was keen to raise steel production to 6 million tons. In Patel’s
first meeting with Deshmukh, the latter ridiculed the idea of raising steel
production, saying, ‘Those people [Ministry of Industry] do not know what
steel is and where it can be used. I have asked them to tell me how much of
each variety of steel they want produced and where [and] in what quantity
would each variety be consumed. It would take months to answer these
queries and in the meanwhile the whole thing will be forgotten.’ This
attitude of the finance minister who started his career as an ICS officer was
perhaps symptomatic of those who had joined the civil services prior to
Independence. In an environment in which availability of financing for
fresh investments was limited, ICS officers were perhaps used to raising
doubts about the merits of proposals till these were no longer viable.
The State Trading Corporation (STC) was set up at the start of the
Second Plan period in 1956 for trade in all so-called canalized items. At the
time it was set up, the STC was meant to facilitate India’s trade with the
Soviet Union and East Europe. Initially, it dealt with imports and exports of
bulk agricultural products such as wheat, pulses and edible oils. The STC
has been deservedly criticized for misusing its monopoly power and the
scarcities and price distortions caused by it. It focused on those imports
which were highly profitable in terms of resale value in India. However,
even by 1965, it accounted for only 5 per cent of India’s total two-way trade
in goods. Although this was a small fraction of total trade at that time, the
mindset created by canalization created the conditions for subjective and
corrupt decision making. The same avoidable mistake was repeated in
setting up the Mineral and Metals Trading Corporation (MMTC) in 1963
and the Metal Scrap Trade Corporation (MSTC) in 1964.
The Third Plan’s growth rate for the years 1961–66 was just 2.8 per cent.
The loss of morale post the 1962 war with China, Nehru passing away in
May 1964, the India–Pakistan war in 1965 and drought conditions in 1965–
66 were among the causal factors. India had to depend on import of
foodgrains from the US in the mid-1960s. It became increasingly evident
that the country should have started much earlier on collaborating with the
US to experiment with higher-yielding strains of wheat and rice.
The Table 1.3 below lists the GDP growth rates over the three Plan
periods. The average rate of NNP growth in pre-independent India from
1900–47 was about 0.8 per cent. In comparison, the first two Plan periods
recorded four to five times that rate of growth. Even the low growth in the
third Plan period of 2.8 per cent was more than three times the 1900–47
number.
 Table 1.3
Net National Product (NNP) and Per Capita Income
Growth Rates during the First Three Plans44
(Annual average – per cent)

Industry, Foreign Investment, Trade, Agriculture, Exchange Rate and

Taxation

The prevailing view in the Indian government, even prior to Independence,

was that industrial workers needed to be protected and that large corporates
should not be allowed to acquire monopoly powers. And food self-
sufficiency was necessary to ensure that scarce foreign exchange was used
to build heavy industry.
The Industrial Disputes Act which came into force four months before
Independence in April 1947 was meant to protect labour interests, but
ended up inhibiting the formation of large companies which benefit from
economies of scale. Under this Act, it became virtually impossible to
dismiss employees of a firm with more than fifty permanent workers. It was
and is still seen as worker friendly in some circles. However, over time this
legislation has had the unintended effect of inhibiting formal hiring of
workers.45
The following year the 1948 Industrial Policy Resolution placed arms
and ammunition, atomic energy and railways exclusively in the public
domain. However, existing private-sector coal, iron and steel and
shipbuilding companies were allowed to continue, with the condition that
further development of these areas would be in the public sector. In other
sectors, private companies could continue to bring in fresh investment and
expand.
In Nehru’s understanding the role of the public sector had to be expanded
to increase employment opportunities in the formal sector. To that end, the
1956 Industrial Policy Resolution was adopted, and Schedules A, B, and C
were drawn up. All industries included in Schedule A, for example, defence
equipment, atomic energy, iron and steel, heavy machinery, mineral oil and
coal were reserved exclusively for the government and the public sector.
For areas under Schedule B, for instance, aluminium, machine tools,
pharmaceutical products and chemical fertilizers, the government would
take the lead and the private sector could play a supporting role.
All economic activities which were not part of A or B were deemed to
fall under Schedule C, and these areas were left to the private sector.
However, even for investments deemed to be part of Schedule C, licences
were needed for new industries or for expansion of production. The
unrealistic thinking which led to these three Schedules plus inducements for
investments in economically backward areas was based on the misplaced
understanding that this would necessarily lead to a reduction in economic
disparities across regions. Concurrently, the feeling in Central government
circles was that cottage and small-scale industries should be supported to
boost employment opportunities in traditional occupations. It is likely that
this was perceived to be consistent with Gandhi’s support for village-level
economic activities. These SMEs did provide employment, but their cottage
industry, manual labour-intensive nature, could not be scaled up. Without
adequate mechanization and economies of scale, consumer products could
not be competitively priced for international markets.
The contributions of the various sectors to Indian GDP at ten-year
intervals from 1950 to 2018 are shown in Table 1.4 in the Appendices.
It is apparent from Table 1.4 that up to about 70 per cent of the Indian
economy was in the private sector during the Nehru years since agriculture
was in private hands and also a significant portion of the services sector. If
the span of industries for the private sector had not been restricted by the
Industrial Policy Resolution of 1956, the industry component of the
economy may have risen faster.
Irrespective of whether the private sector would have stepped up to the
plate, it is abundantly clear again with the benefit of hindsight that the 1948
and 1956 Industrial Policy Resolutions were counterproductive. While
investment in infrastructure and heavy industry had to come from
government, it did not follow that industrial licensing was necessary. And,
the emphasis should have been on promoting larger units of production to
achieve economies of scale, not just for industry but also for consumer
goods.
Although there was no explicit prohibition on attracting smaller foreign
firms or large multinational corporations (MNCs), there was no concerted
effort to conclude tie-ups with foreign private companies. In addition to the
restrictions imposed by licensing requirements, the then small size of
consumer markets in India was the reason for low levels of FDI. Another
factor which restricted FDI was that Indian companies did not want to share
access to India’s small consumer markets with foreign companies.
Jagdish N. Bhagwati and Padma Desai have analysed investment and
trade policies, during the Nehru era and the first few years that Indira
Gandhi was PM, in their seminal publication titled India: Planning for
Industrialization: Industrialization and Trade Policies since 1951.46 In the
concluding section of this book called ‘Lessons’, Bhagwati and Desai state
that ‘Indian planning for development suffered from excessive attention to
targets down to product level, and a wasteful physical approach to setting
and implementation thereof, along with a generally inefficient framework of
economic policies designed to regulate the growth of industrialization’. In
the same section, they add that ‘the inefficiencies in planning that we have
highlighted in this volume were probably inevitable: there is no escape from
learning by doing and it is pertinent to remember that few, if any, critics and
least of all laissez faire advocates, grasped the full dimensions of the
planning and developmental problems faced by India around 1950’
(emphasis added).
Arvind Panagariya has quoted extensively from this study in a piece he
wrote for the NCAER’s (National Council of Applied Economic Research)
Golden Jubilee volume.47 Panagariya mentions in this NCAER article that
‘in the 1950s, India enjoyed a relatively liberal trade and foreign investment
regime. The import regime began to tighten up only towards the end of the
1950s, while the foreign investment regime remained open until at least the
mid-1960s.’
Turning to agriculture, since before Independence the issues of land–
agrarian reform and improved functioning of panchayati samitis were very
much on the minds of Congress leaders. As PM, Nehru wondered how best
to abolish ‘jagirdaris and zamindaris’ such that land reform enhanced the
purchasing power of the tiller. At times in the 1950s, courts were
obstructionist and high courts set aside state-level laws as inconsistent with
the right to property enshrined in the Constitution. Despite the opposition
from the landed rich, land ceiling laws were passed in some states. For
instance, in UP, Chaudhary Charan Singh was able to get a landholding law
passed for the state in 1960. This law reduced the ceiling on landholdings
and also made it uniform throughout UP. Although similar laws were
enacted in several states, there were differences from state to state, and
implementation on the ground was patchy.
Even though the British colonial administration had focused little on
universal literacy and primary healthcare, attention was given to providing
loans to farmers. For instance, the Cooperative Credit Societies Act of 1904
was enacted for this purpose. Subsequently, the RBI Act of 1934 provided
for the setting up of an agricultural credit department. In 1951, RBI
conducted an All-India Rural Credit Survey, and one of Nehru’s objectives
in nationalizing the State Bank of India in 1955 was to promote lending to
farmers. Notwithstanding the availability of some credit to the agriculture
sector, it remained mired in practices which were too dependent on manual
labour. Even though agriculture is a state subject in the Indian Constitution,
the Central government could have pushed harder to increase land under
assured irrigation.
Scarcities in food items continued after Independence. By the start of the
1950s, one of the major concerns of the Central government was shortage
of foodgrains. The population increased steadily due to improvements in
healthcare, and domestic production of foodgrains could not keep pace with
it. Wheat had to be imported from the US and the USSR (the latter provided
the shipping too), and rice was imported from Burma and Siam. Concern
was repeatedly expressed by Nehru and others at government meetings
about the outflow of foreign exchange in making these purchases. Prices
were sought to be kept down by holding stocks, and self-sufficiency in
foodgrains remained an important objective through the first three decades
after Independence.
The possibility of pockets of starvation due to a lack of roads to remote
areas was also a constant concern. For instance, in 1957 the rains were well
short of the annual average, leading to firefighting measures around the
country to transport foodgrains to the worst-affected areas. Intermediaries
were accused of making unconscionable profits by hoarding commodities.
It was in this environment of recrimination that the Essential Commodities
Act of 1955 was made applicable all over India. This Act was meant to
prevent hoarding or profiteering in the sale of foodgrains, fertilizers, pulses
and edible oils, pharmaceutical and petroleum products. In practice, as
should have been anticipated, the law was misused by officials for rent-
seeking purposes.
At Independence the Indian economy’s linkages with that of the UK were
extensive, and a high proportion of India’s foreign trade was denominated
in pound sterling. India’s foreign exchange reserves were all in sterling, and
only a small fraction was fully convertible. It would have made sense from
a foreign exchange risk-management perspective to exchange the
convertible portion of India’s sterling balances to US dollar soon after
Independence. The US was clearly the pre-eminent economic power after
the Second World War, and the UK government’s finances were evidently
under stress. The pound sterling was devalued by about 30 per cent in
1949,48 and the value of India’s convertible sterling holdings was reduced
by the same proportion. The Ministry of Finance made the mistake of
pegging the rupee to the sterling at the rate of one rupee equal to one
shilling, sixpence at Independence. Although currency pegs49 were the norm
at that time, a precise—that is, inflexible—equivalence with the British
pound made downward adjustments to the value of the rupee to maintain
export competitiveness more difficult. The rupee could have, instead, been
adjusted downwards at periodic intervals to reflect the difference in
productivity between developed Western countries and India.
The Indian Income Tax Act was first adopted in 1922 and in the 1950s,
income tax rates were not based on efficiency of compliance. For instance,
tax rates (Table 1.5 in the Appendices) for the highest income slab were
around 80 or 70 per cent from the 1950s onwards till the mid-1970s, and
this had to lead to tax evasion.
Despite a recommendation from Nicholas Kaldor, professor of economics
at Cambridge, to reduce personal income tax, Nehru’s government decided
to retain high income taxes and also levied a wealth tax. High personal and
wealth tax rates were the result of the prevailing left-oriented sentiments in
the rank and file of the Congress who probably wanted to soak the rich,
most of whom had stayed aloof from the freedom struggle.
In the years from 1950 to 1964 there was a gradual increase in the share
of direct taxes as a fraction of GDP, and this number moved up from 2.2 per
cent to 3.1 per cent50 over this period. In comparison, the share of indirect
taxes in GDP rose faster from 3.8 per cent to 7.3 per cent.51 Defence
expenditure increased from about 1.4 per cent of GDP in the mid-1950s to
nearly 3 per cent by the mid-1960s, reflecting the anxieties about defence
preparedness post the 1962 and 1965 wars with China and Pakistan.

Foreign Assistance—Bilateral and Multilateral

Bilateral aid is invariably tied to donor country priorities. For Nehru,

alternatives to bilateral sources of funding were preferable, and the cost of
that capital was a secondary consideration since maintaining national
autonomy was more important. The feeling in India’s decision-making
circles was that bilateral aid was not a favour from developed countries
since India would had to ‘give’ in some way to receive such assistance.
Although C.D. Deshmukh’s autobiography The Course of My Life52 is
mostly personal, useful insights can be gleaned about the context and
content of India’s interactions with the Bretton Woods institutions. For
instance, a lot of behind-the-scenes efforts had to be made to ensure that
India’s quotas in the World Bank and the International Monetary Fund
(IMF) were adequate for it to nominate its own executive directors to the
boards. Over the decades, the volumes of private capital flows to emerging
economies have become much higher than loan amounts from the World
Bank and its soft lending window, the International Development
Association (IDA).53
The policies of import licensing and an overvalued rupee took their toll,
and India needed loans and grants from the World Bank54 and the US.
Multilateral assistance from the World Bank was less tied to conditionalities
than bilateral loans but needed extensive consultations, and, at times, it
takes years for disbursements of each loan tranche to be made. The total
nominal volume of cumulative lending by the World Bank to India from
1945 to 2015 amounts to US $52.7 billion IBRD loans and US $49.4 billion
IDA loans. This combined total is higher than for any other recipient
country.55 These are not large volumes in today’s terms. However, in the late
1950s hard currency loans from the World Bank were essential in meeting
the Second Plan’s import requirements of heavy machinery.
India’s first World Bank loan in 1949 was for the railways.56 During the
First Five Year Plan period India had adequate foreign exchange reserves,
and reliance on foreign financial assistance was marginal. However, the
picture changed dramatically by the late 1950s. An Aid India Consortium
which included the US and other Western countries plus the World Bank
was formed in 1958 to help India tide over its balance of payments
difficulties. The following World Bank note dated 10 July 196857 looks
back at events a decade earlier from 1958 onwards. This note is quoted at
considerable length as it details the difficulties India was facing in raising
hard currency financing and the coordinated response of Western countries.

World Bank Note dated 10 July 1968

The consortium for India first met in August 1958. It came together to deal with
something of an emergency. India was about midway in her Second Five-Year
Development Plan and was in imminent danger of running out of foreign exchange with
the main development projects only partly completed. The Plan had been started in a
flush of enthusiasm . . . But the cost of the new Plan proved to have been considerably
underestimated and the reserves [as sterling balances] began to melt away . . . By July
1958 the deficit in the balance of payments was running at $1.0 million a week and on
August 8, 1958 Indian foreign exchange reserves stood at $647 million, including $247
million in gold. It was feared that unless immediate remedial steps were taken, India’s
foreign exchange reserves would be wiped out by the end of 1958. Furthermore, it was
estimated that the uncovered foreign exchange gap for the last three years of the Second
Plan, even after taking into account curtailments effected in the Plan, would be $1,317
million. The estimate was that, this gap could be further reduced to about $930 million
through import cuts and increased exports together with additional drawings on the
reserves. There was not much more the Indian Government could do to reduce this gap
any further. There was no reason to expect a significant increase in the estimated export
proceeds and there was no room for further adjustments in the Plan that would reduce the
prospective import bill. Something had to be done quickly. Either foreign expenditures
had to be drastically cut, thus starving industry of raw materials and leaving resources
tied up in incomplete projects, with severe damage to the Plan and the economy, or large
new resources had to be made available from outside. As a major lender to India the
IBRD—which up to 1958 was contributing to the financing of the Second Plan at an
average rate of approximately $100 million a year—accepted the task of consulting with
countries interested in giving development assistance to India with a view to finding
among them enough additional aid to permit the central core of the Plan to be carried out.

At the instance of the IBRD, Canada, Japan, the UK and the US met and
agreed to provide financial aid to India, in addition to what they were
already doing. The note adds, ‘These were the non-communist countries . . .
in which India had placed most of her orders for projects under the Plan.
Canada had been providing aid on a grant basis to India under the Colombo
Plan. In the spring of 1958, the Federal Republic of Germany had
postponed its claims against India amounting to about $160 million which
were due during the remainder of the Second Plan. Japan had, in February
1958, extended its first credit to India to the tune of $50 million in Yen to
assist the Second Plan. The United Kingdom had been extending
development aid to India under the Export Guarantees Act while the United
States and the IBRD were India’s biggest source of development finance.’
B.K. Nehru, an ICS officer, was the Indian executive director at the
World Bank in 1949 and minister (economic) in the Indian Embassy in
Washington DC in 1954. In his understanding, total Western financial
assistance including that of the World Bank and the US was substantial in
the funding of the Second and Third Five Year Plans.58 For the Second Plan
years 1956–61 external assistance amounted to US $284 million and the
same number for the Third Plan period 1961–66 was US $825 million.59 It
is evident that India had painted itself into a corner by the end of the 1950s.
That is, India had ambitious investment plans for the Second and Third Five
Year Plans but did not have adequate financial resources to go through with
the intended investments.
The perception within Western governments was that India was gaming
the two sides in the Cold War era since the West felt compelled to provide
concessional financing bilaterally and via multilateral agencies to prevent
India from turning communist. Despite this sense of grievance at being
gamed, expressed in no uncertain terms by Walter Crocker60 and others, the
West felt that it had to assist India. A.M. Rosenthal61 wrote a caustic yet
illuminating piece in the New York Times of 7 January 1958 on India’s
financial predicament and the considerable economic support it received
from the West. According to Rosenthal, the attitude of ‘most informed
Americans’ towards financial assistance to India could be described as
follows:
‘India’s perpetual edginess, her strange acceptance of the respectability
of the Communists, make her a difficult country to get close to, and a
difficult country to help . . . But India as she stands remains a road block
against a Communist Asia, and if no aid is given the likelihood of that road
block being destroyed is large. It is a negative equation, but an important
one.’
This sentiment about why the US and hence the West needed to help
India was the dominant view in Western capitals at that time. Given
Rosenthal’s profile, the Indian Embassy in Washington DC, the Indian
executive director to the World Bank or the Permanent Mission of India to
the United Nations must have sent this article with comments to the
Ministry of External Affairs and the Ministry of Finance. India was never
on the verge of becoming a one-party communist state, and that rationale in
Rosenthal’s article was stretched. However, the charge of ‘edginess’ was
true, and Nehru and others in India (in particular V.K. Krishna Menon)
needed to take note. The bottom line was that despite prodigious efforts at
home and assistance provided by the Soviet bloc in adding to India’s heavy
industry capacities, India had to turn to the West and its multilateral
institutions in its hour of need.
During the McCarthy and John Foster Dulles years (1947–59), the US
had adopted the ‘if you are not with us you are against us’ attitude. The US
had made Pakistan its ally in its strategic manoeuvres against the USSR.
Nations rarely express gratitude in public. Notwithstanding the US defence
relationship with Pakistan and its sense of superiority, it would have been in
India’s interest if Nehru had expressed India’s appreciation for the loans and
grants received from the West.62 For instance, Nehru could have publicly
mentioned to his host President J.F. Kennedy when he visited the US in
November 1961 that Second Plan investments would have been cut down
but for the financial support received from the West.

Strengths and Fault Lines in External Relations

A country’s foreign policies are driven by its history, geography, relative

size of economy, strength and sophistication of its armed forces and
equipment, location and size of population.63 Indians were reminded of the
country’s historical strengths by the leaders of the freedom struggle. In
1947 India’s economy was small by comparison with most Western
countries and its manufacturing and technical capabilities were limited. In
comparison, India’s armed forces were well disciplined due to British
training. India’s stock around the world was relatively high despite the
small size of its economy, and in today’s terminology India had a large soft
power footprint. Here was a country that had successfully wrested freedom
from the clutches of a pre-eminent colonial power through non-violent non-
cooperation.
Nehru gave more than warranted weight to India’s physical size and large
population of 350 million in 1947. That is, he had an exaggerated sense
about a manifest role for India in international relations. In 1948, Nehru
happened to mention that ‘India had become the fourth or fifth most
influential country in the United Nations’.64 This was surely an exaggerated
claim since a year earlier, in 1947, India had to withdraw its candidature for
the United Nations Security Council (UNSC) when ‘Ukraine got more
votes than India in seven successive ballots on the same day’.65 Soft power
has to be backed by hard economic and military strength, both of which
India did not possess at the time.
In contrast to domestic economic policies, which were discussed widely
within India and with foreign experts, external affairs remained exclusively
the domain of Nehru and his close advisers. Written examinations for the
Indian Foreign Service started in 1950, and ICS officers who had opted for
the foreign office were the dominant providers of inputs for the entire
duration of Nehru’s years as PM. Among the non-ICS, Krishna Menon and
Gopalaswami Parthasarathy were important sounding boards.
Of the foreign ambassadors who were stationed in Delhi in the 1950s,
Australian High Commissioner Walter Crocker was a keen observer of
Nehru and his policies. Crocker mentions that in the Nehru era, ‘India was a
status society and not a money-nexus society’.66 This could be interpreted to
mean that status derived from learning, parentage and position was given
importance while wealth alone did not confer the same respect. In Crocker’s
words, Nehru was a true liberal, not a crypto-communist, since communists
were too doctrinaire. And that Nehru was impatient with caste, obscurantist
religion and poverty. It was on public record that Nehru was also a
committed democrat and spent hours in the Lok Sabha listening to the
relatively few opposition MPs criticizing him on his domestic and foreign
policies. Hence the posture of some in government circles in the US who
projected Nehru as a closet communist was not based on reality but on their
obsession about demonizing the USSR and any country that chose to have
close relations with it.
Many a time, domestic issues have implications for external security. For
instance, on 15 August 1960, Master Tara Singh a seventy-six-year-old
Akali leader began a fast unto death to demand a Punjabi ‘Suba’ (separate
state for Punjab). Punjab borders Pakistan, and in his Independence Day
speech from the Red Fort on the same day, Nehru exhorted everyone in the
country including the Sikhs and Hindus in Punjab ‘to not lose themselves in
petty squabbles over caste, region, religion or language’.67 The States
Reorganisation Commission had started work in 1953, and the Akali
demand for a separate state was subsequently tactically changed for one on
the basis of the Punjabi language. After the States Reorganisation Act of
1956 ceded the Punjabi-speaking parts of Patiala and East Punjab States
Union (PEPSU) to Punjab, Nehru was able to defuse the situation in this
sensitive border state.68 It was Nehru’s careful handling of the situation that
prevented Pakistan from meddling in the affairs of Punjab as it did post
1980.
After the Second World War, Europe and Japan were struggling
economically. Although the USSR could match the US in nuclear and
conventional weaponry, the economies of the Soviet Union and satellite
countries in East Europe were relatively small and unable to produce
quality consumer goods. China was nowhere in the picture economically.
The US economy amounted to about 30 per cent of world GDP, and the
sophistication of its military hardware and strategic reach around the globe
was unparalleled.
In the 1950s the US had little patience for Indian leaders who perceived
neocolonialism as a greater danger than socialism or communism. It was
inevitable, therefore, that there would be sharp differences of opinion
between the establishment in the US and Nehru on affairs around the globe.
Nevertheless, the US arming of Pakistan, and its ill-considered military
interventions in Korea and Vietnam, and the setting up of military bases
around the world need not have interfered with India promoting inward FDI
from the US and West European nations. In other words, despite the fact
that the US talked down to India, Nehru needed to focus more on national
economic interests rather than act as a standard-bearer for newly
independent and developing countries.
Sardar Patel could have oriented Nehru towards somewhat more practical
policies in foreign affairs. Unfortunately for India, he suffered a heart attack
in 1948 and passed away in 1950. In the first decade after Independence,
India’s defence forces and the economy had extensive supply of equipment
and technology dependencies on the UK. At that early stage, India needed
someone with administrative experience who could maintain these supply
relationships with UK-based firms on an even keel as the Indian
government diversified its sources of defence supplies and machinery. An
article titled ‘A Serious Menace to Security: British Intelligence, V.K.
Krishna Menon and the Indian High Commission in London, 1947–52’ by
Paul M. McGarr69 casts serious doubts about Menon’s capability to hold any
office with administrative or policymaking responsibilities. Given the
British establishment’s deep suspicions about Krishna Menon he was an
extremely poor choice as India’s first high commissioner to the UK.70
During the 1950s and early 1960s, Nehru had a blind spot when it came
to Krishna Menon. J.B. (Acharya) Kripalani, a veteran leader of the
freedom struggle, felt strongly that Menon should not continue as the
defence minister,71 and on 11 April 1961 he made a withering speech
against him in the Lok Sabha.72 Even though Kripalani’s usual constituency
for the Lok Sabha was Samastipur in Bihar, he stood against Menon from a
Bombay constituency. Nehru and the Congress party pulled out all stops,
and Menon won that election.
In Ambassador K.S. Bajpai’s view,73 the choice of Krishna Menon as
defence minister led to disastrous results in the war with China in 1962.
According to Bajpai, Nehru made things difficult for himself and tended to
be ‘theoretical and unworldly’. Bajpai was referring to Nehru’s world view
in which the US was not dealt with sensitively enough as the foremost
economic and military power of that time. It was an error of judgement on
Nehru’s part to disregard the widely acknowledged fact that despite
Menon’s brilliance, he aroused deep antagonism domestically, and in the
West, thus harming national interest.
An example of the mutual finger pointing of that era was that Western
democracies commented openly that India’s harsh treatment of Naga
separatists was inconsistent with its criticism of their actions in the Congo.
On India’s part it had reason to be suspicious that Belgium, a former
colonial power in the Congo supported by the US, was trying to retain its
hold over that country’s immense natural resources.74 Decolonization was
an important objective for Nehru which brought him into conflict with
Western powers. For instance, it must have coloured his mind against the
US that the 14 December 1960 UN Declaration on Granting of
Independence to Colonial Countries and Peoples was opposed by Western
nations and supported by the USSR.
Reading between the lines of the writings by various foreign observers
and officials who worked with him, Nehru spent more time than warranted
on visits abroad, in the foreign office and with visitors from abroad.75 Nehru
should have appointed a full-time foreign minister to enable him to spend
more time on domestic issues. Walter Crocker recounts an amusing incident
when Australian students had come to Delhi and requested him to seek a
meeting for them with Nehru. By the time the Australian High Commission
informed the students that such a meeting would not be possible, the
students responded that they had already met Nehru, having sought a
meeting directly through his office.

Atomic Energy and Strategic Implications

Nehru set up the Indian Atomic Energy Research Committee in 1946 with
nuclear physicist Homi Bhabha as chairman. Thereafter, the Atomic Energy
Act was proposed by Nehru to the Constituent Assembly. This piece of
legislation was similar to the corresponding Act in the UK, but the
provisions for secrecy were even tighter, and all aspects of atomic energy
were confined to government and reserved for the public sector. After the
Act was passed, the Atomic Energy Commission was set up in August 1948
with Bhabha in charge. A Department of Atomic Energy was formally
created in 1954, and Bhabha become the first secretary of this department
which reported to the PM.
In response to questions raised domestically about the need for extreme
secrecy, Nehru said that this was necessary for issues related to atomic
energy but not for fundamental research. Nehru clarified that since peaceful
uses of atomic energy cannot be distinguished from defence applications,
all aspects of the production of atomic energy would be kept secret. At
about the same time, the US proposed controls on fissile materials at the
United Nations. The US suggested the setting up of an international atomic
development authority, which would oversee the ownership and production
of all nuclear facilities which could be used to produce nuclear weapons.
Nehru’s sister, Vijaya Lakshmi Pandit, was the Indian delegate at those UN
deliberations, and she emphasized that India would retain autonomy over its
programmes in the fields of nuclear energy and related technologies.
In 1951, India signed a nuclear energy cooperation agreement with
France. In retrospect, it was only a matter of time before India’s plans to
strike out on its own in matters related to atomic energy would be in
conflict with US non-proliferation objectives.76 US concerns about non-
proliferation were first expressed in the early 1960s, probably with China in
mind. However, China was able to conduct its nuclear test in 1964, and that
led to the discriminatory Non-Proliferation Treaty (NPT) of 1 July 1968.
Nehru has to be credited for his longer-term understanding of national
interest that though the horrific aspects of nuclear bombs were evident in
Hiroshima and Nagasaki, India needed to build its own institutional
structures and expertise in this area. He was prescient in selecting Homi
Bhabha to lead the effort. Bhabha proved that he had the technical and
administrative abilities to lay the solid foundations on which the
Department of Atomic Energy, ancillary institutions and excellence in
research were built.

Kashmir Saga
Some of today’s Indian television channels compete with each other in
spreading factually inaccurate jingoism about Pakistan and its role in
Kashmir. Even in educated circles, Indians seem to be dimly aware about
the circumstances under which a portion of Kashmir was occupied by
Pakistan and how the matter came to be referred to the United Nations. At
the same time, there is little hesitation in blaming Nehru.
Around August 1946, a year before Independence, armed intruders from
West Punjab and the North-West Frontier Province (NWFP), both areas
now in Pakistan, began to infiltrate into Kashmir. However, it was more
than a year later on 1 October 1947, about six weeks after Indian and
Pakistani independence, that the Maharaja of Kashmir sought military
equipment from India to resist the advancing trained Pakistani ‘irregulars’.
Kashmir had not yet acceded to India or Pakistan at that time.77
The firm resolve of Sardar Patel, the home minister, and Baldev Singh,
defence minister, to help the Maharaja of Kashmir was frustrated by the
then British heads of the Indian armed forces as they insisted that no arms
could be spared. On 24 October 1947, the Kashmir state made frantic
appeals to the Indian government for arms in the face of an invasion of the
Jhelum valley by Pakistani militia. The specific dates of these developments
have a bearing on who was accountable for what and when in the tortured
history of Kashmir and India–Pakistan relations.
In October 1947, defence-related decisions, including on how best to
counter the dangers posed by the invasion of Kashmir by Pakistan, were not
taken by the Union cabinet headed by Nehru. The Defence Committee of
the Indian government, which was the highest decision-making body in
defence matters, was headed by the then Governor General Mountbatten.
And, Mountbatten and British generals were reluctant to send military
support to the Maharaja. Thus continuing British influence delayed Indian
military action to clear what is now called Pakistan Occupied Kashmir
(PoK) of the raiders. The international community, which was still reeling
from the consequences of the Second World War, supported the British
position that ostensibly did not want a full-scale war between India and
Pakistan on Kashmir.
 At meetings of the Defence Committee on 25 October 1947, Mountbatten
objected to India coming to the assistance of Kashmir till this princely state
had formally acceded to India. In the meantime, Pakistani forces were
approaching Baramulla and would have reached Srinagar in two days. The
only option left to resist the armed Pakistani invaders was to airlift an
Indian Army contingent to Srinagar. Mountbatten and the British chief of
the Indian Army continued with their objections, and in desperation the
Maharaja acceded to India on 26 October 1947. The Maharaja was
concerned about his personal physical safety if the invading marauders
were to reach Srinagar. The Maharaja also agreed that after accession,
Kashmir would have a National Conference government headed by its
founder Sheikh Abdullah. The instruments of accession were accepted by
Mountbatten, and an Indian battalion was airlifted to Srinagar on 27
October 1947. By the evening of that day, Indian forces were able to occupy
the heights at Pattan and thus control the road to Srinagar.78
By the end of October 1947, frustrated by its inability to capture
Srinagar, Pakistan was prepared to go to war with India. The British head of
the Pakistani Army reminded the civilian Pakistani leadership of the ‘stand-
down’ instructions for British officers. That is, in case of an open outbreak
of hostilities between the two countries, the British officers on both sides
were required to resign.
At around this time, the feedback sent by the British high commissioner
in Pakistan to London was that if India were to gain control of PoK that
would give India direct access to the North West Frontier Province
(NWFP). This would in turn give India the ability to create mischief for
Pakistan in the Pathan region and even create openings for the USSR. The
fact that British policy favoured Pakistan on the Kashmir issue was not lost
on Nehru and his cabinet from the time that Kashmir acceded to India.79
Although the Nawab of Junagadh had acceded to Pakistan, it was
determined through voting that most people in this Hindu-majority area
wanted to be part of India. Mountbatten’s suggestion was that in similar
fashion, the will of the Kashmiri people should be determined through a
plebiscite even though the Hindu Maharaja of majority-Muslim Kashmir
had acceded to India.
Pakistan disagreed with the suggestion that troops of both countries
should leave Kashmir before a plebiscite. Pakistan probably felt that Sheikh
Abdullah’s pro-India stance would tilt such a vote against them. Nehru was
comfortable with a plebiscite and said so publicly, in the Indian Parliament
and in a telegram to the prime minister of Pakistan. The conjecture was that
without the intimidating presence of Pakistani forces, it was highly likely
that Sheikh Abdullah and his supporters, who formed a majority in
Kashmir, would vote to remain in India. Sheikh Abdullah’s National
Conference party was close to the Congress, and Abdullah had a close,
friendly relationship with Nehru.
In the face of the stalemate on the issue of a plebiscite, Mountbatten
suggested that the stand-off in Kashmir should be referred to the UN. Nehru
initially resisted Mountbatten’s proposal. However, given India’s multiple
dependencies on the UK for spares for military equipment and a host of
civilian supplies, the British view prevailed. Once Nehru made a reference
to the UN, the consequences were predictably negative. The duplicitous
manoeuvring of Noel-Barker, the British representative at the UN, favoured
Pakistan.80
The extent of Indian dependence on the UK is evident from the fact that
most of the equipment in use with the Royal Indian Air Force (RIAF), and
the Indian Army at that time was of British and, in a few instances, US
origin. It is highly probable that if India was seen as intransigent on the
Kashmir issue by the UK, spares for military equipment and technical
assistance for repairs would not have been forthcoming. Specifically, the
Royal Indian Air Force (RIAF) had a total of six fighter squadrons with
twelve Tempest (British) fighters each, twenty Spitfire (British) aircraft,
seven Dakota (US) transport aircraft and four Harvard (US) trainer aircraft.
The army had 260,000 troops consisting of eleven infantry regiments,
fourteen cavalry units and eighteen artillery regiments and supporting
engineering, signals, supply and ordnance corps. The tanks were Second
World War Stuart (British) and Sherman (US) vintage and the army also
had some Daimler Ferret Scout (US) cars. The infantry was equipped with
.303 bolt-action rifles, Sten carbines and Bren machine guns (all British).81
Faced with domestic criticism, despite financial and military constraints,
Nehru did consider sending the Indian Army into Pakistan to stop their
continued assistance to irregular forces in PoK. He wrote to British PM
Clement Attlee that India may have no option but to take military action in
its ‘right of self defence’. Attlee advised Nehru that India would prejudice
its position at the UN if it ‘took unilateral action’. Nehru-baiters are of the
opinion that he should have ignored British objections and authorized the
Indian Army to clear PoK of Pakistani infiltrators. This suggested line of
action overlooks India’s military and overall dependence on the UK and the
West.
The ceasefire terms set out by the United Nations Commission for India
and Pakistan (UNCIP) resolution of 13 August 1948 called for the
withdrawal of Pakistani troops from all of Kashmir, and this was rejected
by Pakistan. John Foster Dulles, who was the US delegate to the UN,
informed his government in November 1948 that the ‘present UK approach
to the Kashmir problem appears extremely pro-government of Pakistan as
against the middle ground that we have sought to follow’.82 From this
dispatch, it appears that in 1948 Dulles did not perceive India as too
preachy or leaning towards the USSR. Subsequently, in the mid-1950s,
when Dulles was the secretary of state, the US moved closer to Pakistan as
India turned to the USSR for food aid and for support in setting up heavy
industry.
The on and off hostilities between India and Pakistan on Kashmir
continued till the end of December 1948 and ceasefire was finally declared
on 1 January 1949. This ceasefire line became the Line of Control (LoC)
after the Shimla Agreement was signed between India and Pakistan in 1971.
To sum up, a majority of the Kashmiri people felt that the governments
installed by Maharaja Hari Singh discriminated against Muslims in
government jobs and had done little to develop the state. Sheikh Abdullah,
with secular and left-leaning credentials, emerged as the most popular
leader in the Srinagar Valley and preferred India over Pakistan. However,
Abdullah wanted autonomy for Kashmir which did not sit comfortably with
many among the senior Congress leaders.83
One of the lessons for India of this de facto division of Kashmir was that
the UN could not be expected to be even-handed. In August 1952, more
than three years after the ceasefire, Nehru informed the Indian Parliament
that if Pakistan were to embark on an aggression in Kashmir again, there
would be ‘all-out war not in Kashmir only but elsewhere too’.84 This is
exactly what happened in 1965 when Lal Bahadur Shastri directed the
Indian Army to cross into West Pakistan to relieve the pressure of a
Pakistani attack into Kashmir.
One of the initial reforms of Sheikh Abdullah’s government in Kashmir
was to bring in a ceiling of 23 acres for landholdings under the Big Landed
Estates Abolition Act, 1950. Holdings of more than 23 acres were
confiscated and distributed among the landless. No compensation was paid,
and the Indian Constitution did not apply in that state at that time. By
contrast, the Indian Constitution had incorporated a fundamental right to
property.85 As the minority-Hindu community in Kashmir owned about 30
per cent of the land under cultivation, they lost substantially in the
redistribution of land. While this move by Abdullah was immensely popular
locally, it was seen as anti-Hindu by elements within the Congress and in
the rest of the country.
Syama Prasad Mukherjee, who was a member of the Constituent
Assembly, was the minister for industry and supply in Nehru’s cabinet post
Independence. He resigned in April 1950 to protest against the Delhi Pact86
between Nehru and Pakistani PM Liaquat Ali Khan and founded the Jana
Sangh in 1951. Mukherjee was opposed to this Pact because he felt that it
amounted to a policy of appeasement, and he held East Pakistan responsible
for the large number of Hindu refugees who felt compelled to migrate to
West Bengal at the time of Partition. Mukherjee was also against Article
370 in the Constitution which provides for the special status and autonomy
of Kashmir. Subsequently, Mukherjee went to Srinagar to agitate against the
ban on non-Kashmiri ownership of property in Kashmir. He was arrested
and passed away in detention in June 1953.87 Hindu opinion in Delhi,
including within Congress circles, was inflamed. It is under these
circumstances that the following development was used by Abdullah’s local
Kashmiri opponents to oust him.
On 3 May 1953, Abdullah met with the US Senator Adlai Stevenson who
was on a fact-finding mission in Kashmir. According to Indian media
reports, Abdullah was suspected of having hinted that he may be prepared
to accept US support for an independent Kashmir, and it is possible that the
US would have favoured such an arrangement. A strategically located
country the size of Kashmir would need foreign assistance and may have
been amenable to providing military bases or listening-post facilities to the
US.88
Sheikh Abdullah was dismissed as head of government of Kashmir in
August 1953 and was arrested soon thereafter for alleged anti-state
activities. It is not clear whether Abdullah’s alleged meetings with foreign
interlocutors were to establish an independent Kashmir or for colluding
with Pakistan. Irrespective of the provocation, Abdullah’s arrest
undermined Nehru’s reputation as a liberal democrat in the West.89
Ominously for the future of Kashmir, Abdullah was summarily replaced
as chief minister by Bakshi Ghulam Mohammed. Acquiescing in the
appointment of B.G. Mohammed was a more serious failure on the part of
Nehru than the arrest of Abdullah. Among the factors which have alienated
a significant proportion of Kashmiris from the rest of India has been this
legacy of Delhi’s support for unpopular administrations in Kashmir since
the 1950s.90
India does not appear to have ever sought surface connectivity with
Afghanistan in the many rounds of discussions on Kashmir with Pakistan
during Nehru’s years as PM. One of the consequences of Pakistan-occupied
Kashmir is that India’s land border with Afghanistan, and through it, albeit
via difficult mountainous terrain, to Central Asia was lost. India has a rich
history of connections with Central Asia. The first Mughal emperor Babur
came from the Fergana valley in Uzbekistan. Bairam Khan who served
Babur, Humayun and Akbar as a military commander and regent was
probably from modern-day Turkmenistan. The Patna-born poet Abdul
Qadir Bedil (of Central Asian descent) is venerated in Tajikistan and wrote
in Persian. He is buried across the street from Purana Quila (Old Fort) in
New Delhi. The huge reservoirs of oil and gas in Central Asian republics
had not been discovered yet. However, it is surprising that Indian
negotiators, without giving up the claim on PoK, did not seek a land
corridor through it. Perhaps such a linkage could have been sought by India,
as a quid pro quo as the upper riparian, at the time the Indus Waters Treaty
was signed in Karachi in September 1960 by Nehru and Pakistani general
turned president, Ayub Khan.
Given the armed conflict in Kashmir from 1946 to 1948, Nehru paid
close attention to relations with Pakistan. He supported many rounds of
discussions to resolve differences alternately in Pakistan and India. On
occasion, there was limited progress with backsliding in the very next round
of negotiations. The bottom line was and is that Pakistan wants not just PoK
but the rest of Kashmir to be part of Pakistan. To the extent that there were
no further armed confrontations with Pakistan after 1948, Nehru was able to
ring-fence the contentious Kashmir issue all through his remaining years as
PM till 1964.

Smaller Neighbours

Pakistan had not yet shrunk due to the breaking away of Bangladesh during
the Nehru era. Apart from China and undivided Pakistan, other neighbours
were considerably smaller in population and size. In relations with Bhutan
and Nepal, Nehru ensured that India was seen as a logical successor to
British India. For instance, India quickly signed a treaty with Bhutan in
August 1949 which permitted India to guide foreign and defence policies in
continuation of the relationship Bhutan had with British India. Of course,
Buddhist Bhutan’s concerns about being overwhelmed by the larger
Buddhist community in Tibetan China helped and continues to buttress
Bhutan’s ties with India.
In July 1950, India signed a Treaty of Peace and Friendship with Nepal
which allows free movement of people and goods between the two
countries. However, India’s relations with Nepal have been tinged with
differences since the 1950s. Nehru chose to give King Tribhuvan refuge in
the Indian Embassy in Kathmandu in 1951, ending a hundred years of
exploitative rule of the Ranas. Koirala took over in November 1951 as the
PM in Nepal and soon thereafter found fault with India for his domestic
political reasons. Surprisingly, the cynicism among the Nepali elite was
such that demonstrators were encouraged to throw stones at a delegation of
Indian MPs who were on a visit to Kathmandu as far back as June 1952.
Although Nepal looked for a scapegoat in India for its own problems,
Nehru was patient and supported development projects that would help both
countries. As late as 5 May 1964,91 Nehru inaugurated the Gandak92 barrage
project located close to Gorakhpur (Uttar Pradesh) along with the king of
Nepal. The project was meant to provide power and irrigation on both sides
of the border. Immediately after the inauguration ceremony, with scant
consideration for Nehru who was visibly unwell, the Nepalese king gave
him a note seeking changes in the terms of the Gandak project contract
between the two countries. This has been par for the course in India–Nepal
relations with after-the-fact second-guessing in Nepalese decision-making
circles on how to improve on bilaterally agreed Indian offers. A Hindu-
majority Nepal probably worries that it could be assimilated into a much
larger Hindu-majority India if it does not keep a prickly distance from its
larger neighbour.
Turning to Burma (now called Myanmar), it had become a part of British
India in 1866. Indian trading businesses established themselves there, and
Indian labour also moved to that part of the British empire well before
1947. After the British withdrew from Burma in January 1948, the Indian
government persuaded the newly independent Burmese to allow Indian
shopping establishments and manual labour to continue to operate in that
country. After the military coup in Burma in 1962, this Buddhist country
turned increasingly inwards and relations with India remained cordial but
distant.
Sri Lanka which was called Ceylon earlier obtained Dominion status
from the British in February 1948. The newly independent southern
neighbour is separated from India by about 20 kilometres of water and
posed no serious bilateral issues for India during the years that Nehru was
PM. However, Sri Lanka did go through its internal convulsions and was
racked by conspiracy theories after Prime Minister S.W.R.D. Bandaranaike
was assassinated at his residence on 25 September 1959.

Missed Opportunities

Nehru’s strong anti-colonialism sentiments were logical prior to

Independence. And, post Indian Independence, Western academics and
liberals—as distinct from their governments—understood India’s reluctance
to take sides in the US–USSR and US–China stand-offs. All things
considered, Nehru’s interactions with government leaders in the US could
have been warmer. For instance, one of Nehru’s meetings during his visit to
the US in 1949 at the invitation of President Truman was with Dean
Acheson (US secretary of state 1949–53). According to Acheson’s93
memory of that meeting, Nehru was in a ‘prickly mood’, and he sharply
criticized the colonial behaviour of France in Indo-China and the
Netherlands in Indonesia. This was counterproductive, as was Nehru’s
suggestion to US leaders that the Kuril Islands be returned to the Soviet
Union and Formosa to China.
Post his visit to India in 1952, US vice-president Nixon commented that
Nehru had lectured him on the presence of US troops in Japan. Nehru’s
concern about the US role during the Korean War and in Japan could have
been tempered, at least in bilateral discussions, by expressing disquiet about
Chinese action in Tibet. The US Secretary of State John Foster Dulles
visited India in 1954 and again in 1956. The conversations with Nehru were
mostly about the dangers of war and little was achieved on closer economic
cooperation between the world’s two largest democracies. Dulles suggested
to Nehru that India join the Bangkok-headquartered South East Asia Treaty
Organization (SEATO).94 Nehru refused to have anything to do with
military alliances including the Central Treaty Organization (CENTO)95
which was based initially in Baghdad and later in Ankara. Nehru was more
than justified in taking this view since the experience of the first fifty years
of the twentieth century had amply demonstrated that mutual defence pacts
did not prevent wars.
The political environment in the US was rabidly anti-communist in the
mid-1950s. Even Hollywood stars such as Charlie Chaplin and scriptwriter
Dalton Trumbo96 were hounded. Incidentally, Nehru met Charlie Chaplin in
Burgenstock and in a small village called Cossier, in Switzerland in June
1953.97 Gundevia recalls Nehru’s courtesy call on the Swiss President
Philipp Etter in Berne. In the course of their conversation, Etter happened to
mention to Nehru, ‘Such a long border with Communist China Mr. Prime
Minister, must be a matter of some anxiety to you.’ In Gundevia’s words,
‘that set Mr. Prime Minister off on a lovely tirade’, and Nehru, responding
to Etter, said that ‘China is no danger to anybody. China is a gigantic
country and they are going to be very busy settling down after the
Revolution . . .’ and Nehru went on and on till he was fifteen minutes late
for his next meeting.
Of course, Nehru did not need to be cowed by the US paranoia about
China (likely that a summary of the discussion between Nehru and Etter
found its way to US diplomats based in Berne) or be irritated by their
obtuse insensitivity in driving a comic genius like Chaplin out of the US.
However, keeping Indian economic interests in mind, Nehru could have
chosen to tread a bit more lightly on the absurd fears of US business and
political elites which resulted in the setting up of committees to investigate
anti-American activities in the 1950s.
Nehru was strenuously against US involvement in Vietnam post the
French withdrawal from South East Asia, particularly after their definitive
loss to the communist Viet Minh at Dien Bien Phu in 1954. It could be a
spurious correlation with Nehru’s criticism of US policies, but in the mid-
1950s the US turned down India’s request for F-104 fighter jets even on full
payment. The US logic was that the F-104s were too costly for India. At
around the same time, responding to an Indian request, the UK, possibly in
coordination with the US, said that India did not need submarines.98
 In contrast to India, Pakistan was an eager member of both SEATO and
CENTO and provided military base facilities to the US in Peshawar. Given
the history of Pakistan’s relations with India, it probably felt threatened by
its bigger neighbour. Pakistan’s close ties with Saudi Arabia and Iran, two
close allies of the US, would have also made it veer towards the US. This
Peshawar facility was used by the US to fly U-299 surveillance flights over
China and the USSR. Pakistan received a steady supply of armaments from
the US in return for its collaboration against communist states.100
After Pakistani Army chief Ayub Khan took over as President, the talk of
Pakistan partnering the US to contain communism was ratcheted up.
Consequently, in conversations between India and the US, more so during
the Republican administration of Eisenhower than that of Democratic
President J.F. Kennedy, the persistent US suggestion was that India needed
to be mindful of the smaller101 neighbour Pakistan’s interests. For example,
India needed to be generous about the sharing of Indus waters,102 be
sensitive to Pakistan’s security concerns and resolve the Kashmir issue.
Nehru’s obituary speech after the death of Stalin in 1953 was probably
too warm for the US. Although Nehru’s criticism of the UK and France on
their invasion of Egypt in October 1956 post the nationalization of the Suez
Canal was justified, it must have irked those two countries. Subsequently,
Western countries got their own back by comparing Nehru’s stance on the
Suez Canal with his silence on the putting down of the Hungarian uprising
by the Soviet Union in early November 1956.
In the past few years, Nehru has been criticized often for his
government’s ‘mistaken’ policies. One specific criticism is that he refused
an offer from the US for India to become a permanent member of the
United Nations Security Council. The fact is that on 27 September 1955
Nehru denied that any offer was ever made to India in response to a short-
notice question in the Lok Sabha. Nehru is on record as having said, ‘There
has been no offer, formal or informal, of this kind. Some vague references
have appeared in the press about it which have no foundation in fact. The
composition of the Security Council is prescribed by the UN Charter,
according to which certain specified nations have permanent seats. No
change or addition can be made to this without an amendment of the
Charter. There is, therefore, no question of a seat being offered and India
declining it. Our declared policy is to support the admission of all nations
qualified for UN membership.’ At the same time, Nehru demonstrated his
concern about not annoying China by adding that, ‘India has repeatedly
supported the People’s Republic of China being given its legitimate place in
the United Nations.’103 Namely, that India did not covet the UNSC seat
which should legitimately go to China.
A fuller understanding of Nehru’s China-related policies is not possible
without close examination of the security environment and potential loss of
territory in the areas which are now part of Arunachal Pradesh, Nagaland,
Manipur and Mizoram. India’s relationship with Sikkim too could have
evolved on a different trajectory if China had taken a decidedly anti-India
attitude from the mid-1950s onwards. Despite Nehru’s overtures of
friendship towards China, the relationship deteriorated to the point of a war
with that country in 1962. All things considered, Nehru was too sensitive
about Chinese concerns that India may be siding with the West.
Eisenhower visited India in December 1959. No other US President had
visited India till then. Nehru had visited the US in October–November 1949
and again in December 1956. A return visit by the US President was due
and it is also likely that that the US was mindful that Soviet assistance in
heavy industry was influencing Delhi. Negotiations between India and the
USSR on arms purchases had also probably started in the latter half of the
1950s. President Eisenhower came to Delhi after visiting Pakistan and
Afghanistan. Large crowds greeted him, and the discussions he had with
Nehru centred on China. As Bruce Riedel suggests,104 the US President was
well aware of the ground-level situation on the India-China border because
of the reports he received on the Central Intelligence Agency’s (CIA’s)
covert operations and the U-2 surveillance flights.
B.K. Nehru was the Indian ambassador to the US for seven years from
1961 to 1968. He was Nehru’s nephew and his autobiography has ample
references to Nehru’s meetings with JFK during the Indian PM’s last visit to
the US in November 1961.105 Nehru was accompanied by Indira Gandhi and
the visit began with a stay at Jacqueline Kennedy’s home in Newport,
Rhode Island. President Kennedy joined for informal meetings with Nehru
at Newport and it appears from the time and attention that JFK paid to
Nehru’s visit that he was serious about India outstripping communist China
as a successful democracy. Unfortunately for India, Nehru’s meetings with
Kennedy did not go well. According to those who were present at these
meetings, Nehru was distracted and responded to JFK in monosyllables.
John K. Galbraith was the US ambassador in Delhi in 1961 and had
direct access to JFK. Nehru, a cerebral head of government, Galbraith an
erudite ambassador and Kennedy, a Democrat who was inclined to temper
the pro-Pakistan line of earlier US administrations, was a good combination
to improve India–US relations. This triumvirate could have set India on the
path that China took ten years later in 1971.106
For the reasons spelled out in the section on China below, it should have
been clear to India by 1961 that China was an imminent military threat.
That is, it was high time to set India–US economic and defence ties on
mutually agreed platforms which would not be shaken much by changes in
political leadership in either country. However, Nehru was probably
uncomfortable about the CIA-supported April 1961 Bay of Pigs attempt to
dislodge Cuban President Fidel Castro and the growing involvement of the
US in Vietnam.
During the same visit to the US, Nehru happened to meet some of the
heads of the largest US companies. At this meeting, Nehru was told by one
of the businessmen, in a self-congratulatory manner, that Nehru was in the
presence of fifty billionaires. A billion dollars was a lot of money in the
early 1960s, but Nehru was appalled and did not react favourably.107
Nehru’s qualities of self-abnegation and indifference to wealth were
necessary for him to make the contributions he did to the Indian freedom
struggle. However, this mindset was a serious handicap in dealing with self-
important US business tycoons.
As a result of the April 1956 Industrial Policy Resolution, defence and
heavy industries were mostly the preserve of the public sector. In
comparison, most heavy and armaments industries in the US were in the
private sector. It was difficult for the public sector in India to do business
with the private sector in the US. It may have been possible to dilute the
pro-Pakistan tilt of the US if India had made significant volumes of arms
purchases to feed the ‘military-industrial complex’108 in the US after J.F.
Kennedy became President. All things considered, the time between
Nehru’s visit to the US 6-10 November 1961 and JFK’s assassination on 22
November 1963 could have been better used to place India–US relations on
firmer ground. Opportunities for closer economic ties were lost and as the
much poorer of the two, in per capita income terms, India was the bigger
loser.
The border war with China in 1962 ended in a humiliating defeat for
India, and Nehru’s reputation at home and abroad was in tatters. In panic
mode, Nehru wrote two letters to JFK on 19 November 1962.109 In the first
letter, Nehru thanked JFK for the small arms and ammunition already
received and sought ‘air transport and jet fighters to stem the tide of
Chinese aggression’. Nehru mentioned in this letter to JFK that he was
writing a similar letter to the British PM Harold Macmillan. In Nehru’s
second letter to JFK he emphasized that Chinese forces were threatening the
entire Brahmaputra valley and that he was concerned about aggression into
Kashmir. Nehru felt that the only way of checking the Chinese was to use
air power, and India needed twelve US squadrons of supersonic all-weather
aircraft. And that the US personnel would have to fly the fighters and man
the radar stations till Indian personnel could be trained. Nehru also sought
two squadrons of B-47 bombers and confirmed that these fighters and
bombers would be used only against China, not Pakistan. Just two days
after Nehru had sent these written requests to the US President, China
declared a unilateral ceasefire on 21 November 1962. We will never know
whether the US would have sent the fighters and bombers and air force
personnel if Chinese forces had moved southward into Assam. It is likely
that China’s decision to declare a unilateral ceasefire was influenced by
their assessment that the US and other Western countries were on the verge
of providing substantial military and technical assistance to democratic
India against communist China.
Engagement with UN and Europe

India’s experience with the UNSC on Kashmir was that the deliberations of
this body were driven mostly by the interests of the UNSC permanent
members. However, in the era in which the UN was set up, even the non-
veto-wielding members felt it was worth having such a forum. Nehru took
the UN seriously, and the cynicism today that the UN is a mere talk shop
had not yet set in.110 In September–October 1960 Nehru was in New York
for a month to attend meetings at the UN. Even without knowing just how
effete the UN would gradually become over the coming decades, a month
was way too much time for an Indian PM to be away from priorities at
home.
Nehru met General Secretary Khrushchev of the Soviet Communist Party
at the Russian consulate during this trip. M. Rasgotra was present at this
meeting and has mentioned in his autobiography111 that Khrushchev
remarked, ‘You, Mr Nehru, are the world’s hope for peace.’ Nehru must
have seen through this unctuous flattery, but the lack of equals within the
Indian government or in the Congress party who could speak frankly to
Nehru made timely course correction on foreign policy less likely.
Amid rising tensions with China, the first conference of non-aligned
countries took place in Belgrade in 1961. Unexceptionably, Nehru’s
understanding of non-alignment was for India to be free to make up its own
mind. Nehru’s prominent ‘non-aligned’ friends were Nasser of Egypt,
Sukarno of Indonesia, Nkrumah of Ghana and Tito of Yugoslavia. Fear of
neocolonialism was a binding factor. However, India lost credibility with
liberals in the West because these four countries were not democratic at
home. The irony was that developed Western democracies had no difficulty
in forging close strategic and economic linkages with dictatorships in Latin
America, Africa or Asia.
Despite the extraction of huge economic and manpower contributions
from the colonies, the two World Wars took a heavy toll on the UK’s
economy and youth. Somehow, till at least the late 1950s, the UK managed
to punch way above its weight in its relations with India. For one, there was
considerable nostalgia among the elite in the Central government since
many had studied in the UK. Unfortunately for India, the UK took a
shorter-term tactical approach to India–Pakistan relations. It was inevitable
that the UK would favour oil-rich Muslim-majority monarchies, oligarchies
and dictatorships, and by extension Pakistan. This was and is because the
UK had and continues to have wider and deeper economic and exports of
defence equipment interests in these countries as compared to India. It also
did not help India–UK relations that the UK has a long history of giving
asylum to political and high-net-worth economic refugees. For instance,
from 1956 onwards, Angami Zapu Phizo the Naga leader masterminded his
separatist activities out of London.
In Gundevia’s view, Nehru was swayed more than warranted by
arguments presented by the British government and particularly in matters
relating to arms purchases. For instance, Nehru allowed himself to be
convinced by Mountbatten to buy tanks from the UK as a counterweight to
Pakistan buying tanks from the US without sufficiently exploring other
options. India also bought a rundown Second World War aircraft carrier and
Midge fighter aircraft from the UK. Over time, as ties with the UK
inevitably weakened, India’s defence and commercial relations with France
and Germany started strengthening.
As of 1960, despite the anachronistic nature of its claim, Portugal wanted
to cling on to Goa. At that time Portugal was under the authoritarian rule of
Salazar. In two key Western bastions of democracy, namely the US and the
UK, the sentiment was, ironically, pro-Portugal. An obvious reason was that
since 1949 Portugal was a founding member of the US-dominated inter-
governmental military alliance called the North Atlantic Treaty
Organization (NATO). Portugal also provided an extremely useful, from a
cold-war perspective, airbase facility to the US at its Lajes airfield in the
Azores archipelago in the north Atlantic region.
The widespread Western support for Portugal can be gauged from
Crocker’s illogical assertion that Portugal’s claim to Goa was similar to
India’s stand on Kashmir. In December 1961 Nehru authorized Indian Army
action to take over Goa, this last European colony on the Indian
subcontinent.112 This was consistent with growing domestic sentiment
against continued Portuguese occupation of Goa and was popular with
Indian voters. The US, the UK, France and Turkey113 called for immediate
withdrawal of Indian troops and sponsored a United Nations Security
Council (UNSC) resolution to this effect. Adlai Stevenson was particularly
vitriolic against India. The USSR vetoed this UNSC resolution and was
perceived as standing by India in its hour of need.

Soviet Bloc

Stalin was said to have remarked derisively that India was not really
independent even after August 1947 since it still had British generals
heading its armed forces. Perhaps for that or other reasons, Stalin chose not
to meet with Vijaya Lakshmi Pandit, Nehru’s younger sister and India’s first
ambassador to the USSR, during her three-year term in Moscow from 1947
to 1949. However, Stalin did meet India’s second ambassador to the USSR
S. Radhakrishnan who was stationed in Moscow from 1949 to 1952.
Perhaps Radhakrishnan was seen as favourably disposed towards the Soviet
Union and in some circles in the UK he was derided as the Soviet
ambassador to the West. The fact is that Radhakrishnan did push for closer
India–USSR relations and for India to make critically needed foodgrain
purchases from Russia.114
Nehru first visited the Soviet Union in 1927 at the invitation of the
Communist Party of the Soviet Union (CPSU) on the tenth anniversary of
the October 1917 revolution. This was twenty years before Independence.
The Soviet leadership was prescient since they could not have known that
Nehru would necessarily be the PM as and when Indian gained
independence. Nehru’s writings and speeches must have marked him out in
Soviet decision-making circles as someone worth keeping in touch with.
After becoming the Indian PM, between the two superpowers Nehru
chose to visit the US first in 1949, and he visited the USSR six years later in
June 1955. Ergo Nehru did try to reach out to the West in his own didactic
way before he turned to Moscow. Nehru was met at the airport in Moscow
by the entire CPSU Politburo and extended unprecedented courtesies
throughout his visit.
Nehru was shown around and was duly impressed with the Soviet
Union’s industrial progress. On 21 June 1955 Nehru met with a phalanx of
senior Soviet leaders (Bulganin, Khrushchev, Kaganovich, Mikoyan,
Gromyko and Kuznetsov). At this and other meetings, Nehru exchanged
views on the international situation, developments in the Far East and what
would be discussed at the Four Power Conference which was to be held the
following month.115 Khrushchev remarked that the ‘Soviet Union was trying
to draw up the iron curtain but the requisite help was not forthcoming from
the other side’.116 Comparatively little was said about bilateral trade or FDI.
In fact, Mikoyan commented that the ‘Soviet Union did not look for foreign
markets’. It was a sign of the times that top government leaders mostly
discussed international affairs, and it is also likely that the Soviets did not
have much to say about India’s ongoing development efforts with a mixed-
economy model.
Nehru’s visit to the USSR in the summer of 1955 was followed by
Khrushchev’s trip to India in November 1955. The Soviet Union had
provided technical and financial assistance in the setting up of a steel
production unit in Bhilai, and Khrushchev visited this plant during his stay
in India. These visits to and from Russia and the cooperation must have got
the attention of the US. It was probably a confirmation for the West that
India was playing the two sides to extract the maximum possible assistance
from both sides. This line of Western reasoning mistakenly assumed that
opinions within the Indian government were uniformly against the US and
favoured the Soviet Union. Ministers such as Morarji Desai were well
disposed towards the US.
India’s immediate recognition of Fidel Castro’s government in Havana
after the kleptocratic government of the Cuban dictator Fulgencio Batista
was overthrown on 1 January 1959 must have been another source of
irritation for the US government. It must have been noticed in the US State
Department and particularly by the intensely anti-Castro Cuban émigrés in
Florida that the Cuban revolutionary hero Che Guevara visited Delhi in July
1959. Although Nehru did not approve of communist dictatorships, he and
many others in India viewed the leadership of countries such as Cuba,
which had thrown off the yoke of foreign domination, with admiration.

Prime Minister Jawaharlal Nehru in a happy mood after receiving a box of cigars as a gift from the
Cuban delegation led by Che Guevara on 1 July 1959. Photograph courtesy: Photo Division,
Government of India.

East and South East Asia

Japan got the better of Russia in their war of 1905 and acquired the image
of a resurgent Asian country. However, Japan’s brutality in Korea and
China before and during the Second World War years was viewed with
discomfort in India. So much so that the Congress party organized a boycott
of Japanese goods in 1939, and Nehru visited China in that year.
Subsequently, given that Japan was bludgeoned into submission by the US
through the use of nuclear weapons, there was sympathy again for that
country.117
The US and forty-seven other countries signed a Japanese Peace Treaty
in San Francisco in September 1951 to end the US occupation of Japan.
India chose not to be a party to this treaty and arrived at a separate bilateral
agreement with Japan in June 1952. Among the reasons for India’s refusal
to be a party to the San Francisco treaty was that Taiwan was not to be
returned to China and the jurisdiction of the Soviet Union over the Kuril
and Sakhalin islands was not recognized. During Nehru’s years in office,
Japan had not recovered from the destruction of the war years and remained
firmly under US tutelage.
After Indonesia obtained its independence from the Dutch in 1949,
Sukarno became its first President and remained in power till 1965
overlapping for most of that time with Nehru. Sukarno was one of the
leaders who attended the first non-aligned summit meeting in Belgrade in
1961. Earlier, India’s participation in the 1955 Afro-Asian Conference at
Bandung (Indonesia) was Nehru’s way of showing solidarity with newly
emerging and independent countries of these two continents. The rest of
South East Asia was still finding its feet during Nehru’s years as PM, and
he was somewhat critical of SEATO members such as Thailand and the
Philippines for opting to be firmly in the US camp, and that too, so soon
after regaining their independence from colonial powers. For instance, in a
conversation with Indian ambassadors to South East Asian countries in the
summer of 1963, Nehru remarked that there was not much in common
between India and Thailand. Upon being asked to clarify, Nehru
dismissively said that ‘the PM of Thailand is an important personality in the
Coca Cola company’.118 The ASEAN grouping of nations was formed post
Nehru in 1967.

Military Defeat against China Was Game Changing

The people-to-people and trade relations with China go back thousands of

years. The Silk Road, which enabled trade between China and the
Mediterranean nations, had a southern branch which entered India via
Lahore. This ‘road’ is credited with resulting in highly profitable trade for
India and China and also the spread of Buddhism from India to China and
beyond.
More recently, from the nineteenth century onwards, the British East
India Company and its successor British India actively promoted the sale of
opium grown in India to China.119 During the Second World War, leaders of
the Indian Congress party such as Nehru sided with China and were critical
of the harsh Japanese occupation of Shanghai and Nanjing. After Indian
Independence, it was one of the first countries to recognize the PRC and
break ties with Taiwan.
After the Second World War, the communists led by Mao Tsetung came
to power in China in October 1949. Soon thereafter, in June 1950 hostilities
broke out between North and South Korea with the military involvement of
the US in support of the South, and China–USSR on the side of the North.
It is estimated that up to 2 million civilians were killed in the two Koreas.
About 200,000 Chinese soldiers were killed, and the US lost 40,000 of its
armed forces personnel. Nehru voiced his concern that the world may slip
into a Third World War, and India’s medical missions to the Korean
peninsula were praised by the Western media and intellectuals. However,
India’s protestations that the combatants on both sides disengage ended up
annoying both the US and China.
China is currently (as of May 2019) in possession of the Aksai Chin area
in the west, which, as per the Macartney–MacDonald line,120 should have
been part of India. In the east, the Line of Actual Control (LAC) is roughly
consistent with the McMahon Line. The LAC is not a border since the two
countries have not yet agreed on the precise location of the border. A
corridor of about 20 kilometres width, effectively no man’s land, used to lie
between the Indian and Chinese armies along the LAC.121
More than three decades before Indian independence, a Shimla
Convention was held in July 1914 to agree on borders between British
India, Tibet and China. While this convention was signed by the Tibetan
and British representatives it was initialled by the Chinese delegate. It is
only post October 1950, after the PRC invaded and occupied Tibet that
China became a neighbour. After this takeover of Tibet, China has worked
ruthlessly towards eliminating any vestige of independent Tibet.
Nehru felt that the British had wronged China just as it had in colonizing
India and dominating other territories around the globe. It is apparent from
one of Nehru’s letters to chief ministers that he was convinced that no
practical purpose would be served by holding on to rights of access and
stationing of personnel that the British were able to impose on China in
1914. In any case, Nehru appears to have concluded that India did not have
the military capability to challenge China in Tibet.
In the context of China’s occupation of Tibet, Sardar Patel’s letter of 7
November 1950 to Nehru cautioning him about Chinese intentions remains
a much-discussed document till today.122 It is likely that the letter was
drafted by Sir G.S. Bajpai who was the secretary general in the Ministry of
Foreign Affairs at that time. Patel’s contention in this letter was that the
Chinese had managed to instil in the Indian ambassador to China, K.M.
Panikkar,123 a false sense of confidence in their professed desire to settle the
Tibetan problem by peaceful means. It does not appear that India’s
ambassadors in the capitals of the five permanent members of the UNSC
raised any red flags (no pun intended) about China. PMs do not have the
luxury of passing on the blame for their decisions to others. The
responsibility for the choice of ambassadors, and consequently the quality
of the information they transmitted back to Delhi, rested with Nehru.
The armed occupation of Tibet should have triggered an Indian rethink
about China’s intentions. Nehru would have known about the fighting
abilities of China’s army after the bloody nose the US got from the Chinese
in the battle of the Yalu-river during the Korean War. And, later in 1954,
during Nehru’s visit to China, Mao had shocked him by expressing
indifference to the potential death of millions of Chinese were his country
to be attacked by the US with nuclear weapons. Nehru’s overall strategy
was based on avoidance of war. However, this vision overlooked the
possibility that India may be forced to go to war to defend its borders.
Given the long record of conflicts between nation states on border issues,
there was no reason to expect that China necessarily shared India’s hope for
an Asian revival driven by cooperation between these two large countries.
The 1954 visit of Chinese premier Zhou Enlai to India, and the
acceptance of a trade and transit treaty with Tibet (effectively accepting it
as part of China) and the Panchsheel ideals of peaceful coexistence, are
consistent with the speculative thought that Nehru was buying time to settle
matters in India’s north-east. The ‘Agreement between the Republic of
India and the People’s Republic of China on Trade and Intercourse between
the Tibet region of China and India’ was signed in Peking (Beijing) on 29
April 1954. Under this agreement, the Indian mission in Lhasa was reduced
to a consulate general, and trade agencies were opened in Gyantse, Gangtok
and Yatung. Reciprocally, China opened a consulate in Bombay and trade
agencies in Kalimpong, New Delhi and Calcutta. The British-era practice of
Indian military escorts in Tibet was withdrawn. At around this time, India
suggested to the West that the People’s Republic of China should be
accepted as a member of the UN. The concessions with regard to Tibet and
the friendly gesture of advocating membership of the UN for PRC should
have been significant enough to extract a mutually satisfactory recognition
of India’s entire border with China.
The Dalai Lama was concerned about the loss of Tibetan autonomy, and
he visited India in 1956 and would have liked to stay on. By that time, there
was a seventeen-point agreement between Tibet and China, and the latter
was in physical control of most of Tibet including Lhasa. Of course, this
seventeen-point agreement had been agreed to by the Dalai Lama under
duress when he was just fifteen years of age. The agreement guaranteed the
right of Tibetans to follow their way of life and respect for Buddhist beliefs
and clergy. Zhou Enlai chose to visit India in 1956, and he committed China
to respecting the seventeen-point agreement. Nehru advised the Dalai Lama
to return to Lhasa, probably because he felt China would accuse India of
interfering in Tibet if His Holiness were to be granted refuge in India.
Delhi must have been aware that there were minor incidents between the
two armies along the border every year between 1955 and 1958. However,
the Parliament was not informed of these skirmishes. It is unlikely that
China could have built the Sinkiang–Tibet road via Aksai Chin without
anyone in India coming to know. It is likely that India kept a lid on this
information as it needed time to get more entrenched in the North-east.
In March 1959, nine years after China had occupied Tibet, a mass
uprising broke out in Lhasa against the brutalities of Chinese occupation,
desecration of Tibetan monasteries and persecution of Buddhist monks. In
the ensuing confusion the Dalai Lama fled to India. According to Bruce
Riedel,124 His Holiness was escorted by a CIA operative who remained in
radio contact, throughout the journey, with CIA headquarters in the US in
McLean, Virginia.
Gyalo Thondup, who was born in 1928, is seven years older than his
younger brother the Dalai Lama. Thondup’s fascinating autobiography
titled The Noodle Maker of Kalimpong is about Tibet’s troubled history
from the time he was a child.125 Thondup emphasizes in his account that
Tibetan monks and the population at large had extremely low levels of
literacy and awareness in the early twentieth century. According to him, the
Tibetan nobility and religious leadership did not understand the danger to
Tibet’s autonomy after the British passed on their rights in Tibet to India.
Official circles in India are sceptical about the veracity of some of the
details in Thondup’s book. The facts are that Thondup married a Chinese
lady with influential family connections and he met the top Chinese
leadership at frequent intervals on his visits to China and Taiwan over
seventy years.126
In his account of those times, Thondup refers to his meetings in India
with Nehru and director of the IB, B.N. Mullick.127 The details in
Thondup’s account raise intriguing questions without shedding any
conclusive light on the answers. For instance, Thondup mentions that the
CIA was involved in the training of Tibetan resistance fighters from the
mid-1950s till 1966 to use the Morse code, and in the use of arms in camps
located in East Pakistan and Mustang in Nepal. Small bands of trained
Tibetans would dart back into Tibet and confront Chinese patrols, and, on
occasion, were able to come back with official Chinese documents
containing valuable information. The obvious question is to what extent
were the Indian authorities aware of CIA activities in and around India. It is
likely that Indian intelligence and hence Nehru would have known about
this. It must have been apparent to Nehru that a handful of Tibetan
resistance fighters could not overcome the Chinese army. On the downside
for India, China would have perceived the involvement of the CIA, with or
without the tacit agreement of the Indian government, as interference in
Tibetan and hence China’s internal affairs.
As Chinese armed presence in Tibet gradually became a stranglehold, the
local population resented their loss of autonomy and particularly the
violation of the seventeen-point agreement. When the Dalai Lama finally
left for India in 1959, it was in the midst of an army crackdown on
protesters in Lhasa and on resistance fighters. Thondup asserts that the
Chinese were fooled into thinking the Dalai Lama was still in Lhasa when
he had already escaped disguised as a Tibetan army soldier. Even if this is
factually correct, it may have been possible for the Chinese to have
intercepted the Dalai Lama on his the long journey to Arunachal in India.
The team members of His Holiness were using Morse signals to
communicate with Tibetan émigrés in Darjeeling and those signals were
possibly intercepted by Chinese agencies. Perhaps China chose not to stop
His Holiness because there was a higher probability of Tibetan resistance
regrouping in Lhasa if it were to be centred on the person of the Dalai
Lama. According to Thondup, about a hundred thousand Tibetans were
killed by the Chinese army and many thousands fled Tibet to India as
refugees. This Tibetan suffering may have been less if Nehru had allowed
the Dalai Lama to stay on in India in 1956.
After the Dalai Lama was given refuge in India Nehru met him in
Mussoorie on 24 April 1959. Subsequently, His Holiness gave frank, anti-
China responses to questions at a press conference on 20 June 1959.128 The
Indian government immediately advised the Dalai Lama that he should not
carry out any political activities in India that may be seen as anti-China.
Zhou Enlai visited India again in April 1960. During this visit, he offered
a settlement of the border in the east including Arunachal in exchange for
Aksai Chin. Around this time, a White Paper on the boundary issue had
been released by the Indian government. This was counterproductive since
it unleashed uninformed nationalistic passions in India. Nehru was inclined
to accept the Chinese offer, but sentiment in India had turned against China
and an important opportunity was missed. As for defence preparedness,
despite the tensions with China, most of India’s troops were stationed on the
border with Pakistan.
Much has been said by domestic and foreign commentators about
Nehru’s so-called ‘forward policy’ at the India–China border. It consisted of
forty-two new Indian check posts in the no-man’s land between the two
countries, and this was decried by China as provocative. China may have
felt by the late 1950s that India would have known about the CIA’s U-2
spying missions out of the Kumaritola airbase (close to Dacca, now Dhaka)
in East Pakistan and the US supply of guns and communication equipment
to Tibetan rebels. According to Riedel,129 Indian interactions with US
intelligence prior to 1962 included a meeting between then director of IB,
Mullick, and CIA officials in Hawaii. These alleged contacts with US
agencies may have fed into China’s paranoia about Western machinations
against China.
Articles in Indian news magazines have suggested CIA involvement with
the construction of an airfield at Charbatia, 35 miles from Cuttack, in
Orissa. The suggestion is that in the early 1960s the CIA wanted to fly
spying missions out of this airfield, but after some dilly-dallying Nehru
finally turned down this US request.130 It is likely that this CIA move was
after the 1962 war when decision-making circles in India may have been
more receptive to the US using an airbase in Orissa to spy on China. It is
possible that Indian agencies would have gained technical expertise from
collaborating with US agencies. In any case, within nine years, by 1971,
Richard Nixon, the US President, and Henry Kissinger, his national security
adviser, were literally pleading with China for collaboration in an effort to
contain the Soviet Union.
Bilateral differences with India and internal developments fed into
China’s preparations since around 1959–60 for a war with its southern
neighbour. Mao’s Great Leap Forward at the end of the 1950s was an
economic and human disaster. By some estimates, as many as 20 million
people died of starvation. In 1959 the People’s Daily (presumably on Mao’s
directive) had carried the incredible suggestion that India intended to build
a greater empire in South East Asia. That is, well before the 1962 war,
Chairman Mao chose to air China’s absurd propaganda about India’s
expansionist intentions. Mao possibly needed an assured quick victory in
war to rally support for himself domestically. And, to put down a potential
competitor in Asia with democratic credentials which irritatingly for
China’s leadership received accolades in liberal circles in the West.
On 22 October 1962, two days after China had launched full-scale
attacks on 20 October 1962 against Indian positions on the eastern and
western borders, Nehru wrote to N.S. Khrushchev, chairman of the council
of ministers of the USSR.131 In this seven-page letter, Nehru explained at
length the exchanges between India and China and why India would have to
‘resist if the Chinese continued this new aggression in the Eastern sector’.
There is a certain make-believe tone to this letter since forty-eight hours
after China had started overrunning Indian positions with overwhelming
military force, Nehru sounds as if he is still not totally clear about Chinese
intentions.
It appears from this letter to Khrushchev that Nehru did not wish to
convey any sense of Indian helplessness and that it did not expect the Soviet
Union to side with India. The ground reality was that by this time India did
need help, and the Soviet Union could have been asked to defuse the
situation by using its influence with China although it was waning by this
time. In this letter Nehru expresses his surprise about a reference in an
official Soviet note ‘to those who are interested in intensifying world
tension, who wish to line their coats by military clash between India and
China’, to ‘forces of war’ and ‘imperialist circles’ and how they ‘dream in
their sleep of ways of disturbing the friendship of the Soviet Union with
India and with China’. It is obvious that the Soviet note was referring to the
United States trying to create problems in the relationships between India–
USSR and India–China. Clearly, Nehru is disappointed with the contents of
the Soviet note but chose not to say so explicitly. The overall sense of the
letter is that Nehru does not expect any specific help or even a statement in
favour of India from the USSR. So much for India consistently and
justifiably criticizing US military involvement around the world while
being careful not to step on Soviet sensitivities.
It would surprise non-specialists that Nehru and Zhou exchanged
letters132 about the border even as hostilities continued between the two
armies. Zhou wrote to Nehru on 24 October, suggesting PM-level talks
between him and Nehru. Zhou suggested that China and India withdraw to
the north and south respectively of the LAC. The Chinese were prepared to
respect the McMahon Line in the east but wanted the ‘traditional’ border in
the middle and the west. Nehru responded to Zhou on 27 October that it
was not clear where the LAC was and whether the two sides would
withdraw to prior to 8 September 1962 positions. Nehru’s reply mentioned
that ‘. . . nothing in my long political career has hurt and grieved me more
than the fact that the hopes and aspirations for peaceful and friendly
neighbourly relations . . . which we worked so hard since the establishment
of the PRC should have been shattered by the hostile and unfriendly twist
given to India–China relations during the past few years.’133
It was natural for Nehru to feel betrayed. In the following passage from
The Discovery of India, which Nehru had completed by 1946, he was
sentimentally hopeful about India’s future relations with China:
‘And now the wheel of fate has turned full circle and India and China
look towards each other again and past memories are in their minds; again
pilgrims of a new kind cross or fly over the mountains that separate them,
bringing their messages of cheer and goodwill and creating fresh bonds of a
friendship that will endure.’
Zhou wrote back on 4 November that China could not agree to the prior
to 8 September 1962 positions. On his birthday on 14 November, Nehru
responded that for India to accept China’s suggestions meant that in the
middle section China’s border would extend to the south of the Himalayan
crest, which was never the case in the past. Effectively, according to Nehru,
this would leave ‘the Indian frontier defenceless and at the mercy of any
fresh invasion by an aggressive and arrogant neighbor’.134
 On 19 November, Zhou summoned the Indian chargé d’affaires in
Beijing and harangued him about the military aid and advice India was
receiving from the US, and that imperialistic countries were intriguing to
separate India and China. On 20 November, India’s chargé d’affaires was
summoned again and told that China’s unilateral ceasefire would start from
22 November. The fact that the US had ordered the aircraft carrier
Enterprise into the Bay of Bengal may have alerted the Chinese to the
possibility that the US may mount air assaults against forward Chinese
positions.
A day after China had put into effect its announcement of a ceasefire,
Nehru wrote to all CMs and the prime minister of J&K state on 23
November 1962.135 This letter was an attempt to explain briefly (the letter is
just one page) that although India ‘cannot object to their [Chinese]
withdrawal . . . we cannot admit even indirectly to their claim to parts of
our territory’. The letter also states the obvious that India’s ‘war [in the
future] effort essentially means greater production in agriculture and
industry . . . concentration of certain basic aspects of our Third Five Year
Plan’. Nehru also mentions that ‘it is of utmost importance that we should
not let defeatist rumours to spread’.
This letter is disappointing in several ways. First, Nehru was not upfront
about his own limited understanding of China and its intentions, and the
numerous opportunities that were missed to reach a border settlement.
Although it never helps to be defeatist, a call from Nehru to bolster the
country’s defences and immediate replacement of the entire complacent top
brass in the armed forces, Ministry of Defence and the Ministry of External
Affairs would have been in order. The reference to the implementation of
the Third Five Year Plan (1961–66) made little sense when the
implementation of the Second Plan needed considerable bilateral and
multilateral financial assistance from the West. And, the total resources for
the Third Plan, even though this plan period had started in 1961, had yet to
be fully identified at the end of 1962. On 23 November 1962, the country
would have been better served if Nehru had sought the nation’s
understanding as the government re-evaluated all its options to strengthen
both the economy and its defence preparedness.
According to journalist Bertil Lintner,136 China took at least three years to
obtain detailed intelligence, from Tibetan-speaking informants on both
sides of the border who knew local dialects, about the terrain and logistical
details in Arunachal. Lintner mentions that Indian prisoners of war, on
return, said that at the border there were Chinese interpreters who spoke
Tamil, Bengali and other Indian languages. If Lintner’s information is
correct, China was preparing for war with India for several years before
1962. After China declared a ceasefire, the de facto border in the west
continued to include Aksai Chin in China, and in the east, Chinese forces
withdrew out of Arunachal to pre-war borders.
The following extract from declassified minutes of a meeting between
Nixon and Kissinger with Chinese premier Zhou Enlai almost a decade later
on 23 February 1972 in Beijing demonstrates that Nehru’s sentiments were
not at all reciprocated by Chinese leaders. In fact, several of the remarks are
factually incorrect, and the derisive tone of both the Americans and the
Chinese about India is vicious.
Even allowing for Nixon’s dislike for Indira Gandhi, his laughing at the
sheer effrontery of Zhou calling India a ‘bottomless hole’ is surprising.
Zhou’s deliberate lie (parroting Mao’s line of 1959) that Nehru advocated a
greater India encompassing ‘Malaysia, Ceylon . . . Tibet etc.’ was heavy
spin doctoring. Both sides must have assumed that the contents of their
conversation would never be made public.
In 1972 Zhou’s angst towards India was probably because China had
been upstaged. That is, China could not help its client state Pakistan by
preventing the creation of Bangladesh. In the early 1970s, China was still a
poor, ideologically driven country yet wanted other nations to look up to it.
Nehru’s extensive and fluent writings in English, gave him a global
audience and larger-than-life image even well after he had passed away.
This despite India’s poverty and relative lack of military strength, must
have rankled with Mao and Zhou. Nehru’s misreading of the minds of
China’s leaders was extremely costly for India and the consequences are
playing out till now.
Legacy
Nehru suffered a stroke in January 1964 during the Congress party’s annual
session in Bhubaneswar. Gundevia mentions in his book, Outside the
Archives, that despite Nehru’s difficulty in walking and slowness of speech,
he kept working long hours. A few months later, Nehru passed away on 27
May 1964. I was in seventh grade in school at that time. My father was a
junior minister in Nehru’s cabinet, and I accompanied him as we filed
solemnly past Nehru’s body which lay in state in Teen Murti House. We
also attended Nehru’s cremation which took place at a spot, now called
Shantivan, along the west bank of the Yamuna river close to Rajghat where
Mahatma Gandhi was cremated. It took our (Ambassador) car several hours
to reach the cremation grounds as we followed the slow-moving
ceremonially decorated cortège on which Nehru’s body was carried. My
overwhelming memory of that non-air-conditioned car journey and the
cremation ground is that I was extremely thirsty and there was a sea of
people on foot all around us. The air was thick with grief, and it was
spontaneous and palpable. Even so, the huge crowds were self-disciplined,
and I do not remember any pushing or shoving at Shantivan.
Nehru was a towering figure in Indian politics for over four decades. His
impact on the country overshadows that of all other PMs who have come
after him till now. Nehru’s successors did not have his level of wide reading
(except P.V. Narasimha Rao), his capacity to reflect and write, or his ability
to make moving speeches. For example, Nehru’s speech at Independence
and when Gandhi passed away, and The Discovery of India, written while
he was in prison, are simple and yet relevant even today, and should be
compulsory reading in high schools.
Nehru as the first head of India’s Central government had the burden of
reconciling a range of retrograde and poorly informed attitudes to forge
consensus on forward-looking social legislation and government policies.
The enormous domestic, foreign policy and security challenges that Nehru
addressed all look simple to face with the benefit of hindsight. Memories
have faded about the difficult environment in which India was put together
in its present form.
 First, a liberal and forward-looking Constitution was adopted based on
Nehru’s commitment and that of the freedom-fighting generation of leaders
to democracy, which institutionalized legal structures against religious
bigotry and feudal mindsets. Despite low levels of education and
widespread illiteracy, basic norms of debate in the national Parliament and
state assemblies were established. His contributions in setting up
transparent precedents of governance are still basically intact despite the
cynicism of several of his successors. Nehru had civil servants around him
who were glad to slave for him. However, the circle was too small, mostly
ICS officers, and hence somewhat inbred.
Nehru’s legacy includes the holding of regular free and fair elections.
This achievement alone, which involved the setting up of the Election
Commission and all the attendant procedures, separates India from its
neighbours to the east, west and north. In addition, parliamentary
committees and the checks and balances of a well-functioning democracy,
including a free press and independent judiciary, were institutionalized.
Nehru’s Congress won absolute majorities in the Lok Sabha in 1952, 1957
and 1962. R.K. Laxman’s cartoon below says it all about the ‘common’
man’s trust in Nehru.
During the Nehru years, educational and specialized institutions were
headed by experts rather than those who were close to the ruling party in
Delhi. Of course, this had a lot to do with the optimism of a newly
independent country. The foundations of India’s leading scientific and
technological institutions were laid during the 1950s. For example, the
Bhabha Atomic Research Centre (BARC), Indian Institutes of Technology
(IITs), All India Institute of Medical Sciences (AIIMS) and the Indian
Space Research Organization (ISRO). The emphasis was on identifying
academics or professionals with proven track records to head institutions of
excellence, including in the social sciences. No other Indian PM has come
close to Nehru’s success in building quality institutions which have served
the nation.
Nehru was able to enthuse Indian professionals with qualifications from
technologically advanced countries including the US, the UK and Canada to
return to India to participate in institution building. This sense among well-
trained professionals of giving back to India continued through the 1950s
and 1960s. From the 1970s onwards, academics, engineers and doctors
went to developed countries for higher studies but increasingly they stopped
coming back.
Nehru was fortunate to have highly gifted professionals and public
figures around him who were solely driven by the motivation of nation-
building. These included cabinet colleagues, chief ministers in various
states, scientists and a host of other gifted contemporaries without whom
several of India’s achievements would not have been possible. The
enthusiasm and idealism of the countless who worked in junior positions
immediately after India’s independence collectively constituted the pillars
on which Nehru was able to start building the edifice of a forward-looking
unified country.
Nehru is criticized for his so-called ‘socialist’ economic policies. The
fact is that Nehru’s mixed performance on the economic front was a huge
improvement on that of British India. For instance, inflation was muted
during the first ten years after Independence and severe food shortages were
averted. Despite an acute shortage of capital, there was significant industrial
growth. The following observation suggests that Nehru was not too
theoretical or far removed from the practical realities of governance. John
Mathai137 commented around 1958 that ‘Pandit Nehru like Mahatma Gandhi
before him, combined political idealism with a keen sense of political
expedience—not in any unworthy sense but in the realization that idealism
bore no fruit unless men’s eyes could be opened to it and their support
enlisted in its behalf.’138
Well before Independence Nehru was convinced that India would play an
important role in international affairs as a large country. At the same time,
Nehru felt that India should not get sucked into taking sides between the
West led by the US and the Soviet bloc of nations. However, the India
economy would have modernized faster and growth would have accelerated
earlier if he had not been so wary about forging closer economic linkages
with the West. Nehru knew principal decision makers in Britain personally
and was not sufficiently detached on matters involving the UK.
Developed democracies were piqued by Nehru’s grandstanding on the
world stage without commensurate economic or military weight.
Communist China’s leaders felt the same. And, Nehru blundered in the
lead-up to the 1962 war with China. Nehru’s default mode was to trust his
own ability to convince others, and this did not necessarily work with heads
of government of other countries.
Nehru did not intend that non-alignment would become a movement. It
was his way of carving out foreign policy space for India. Subsequently,
non-alignment came to be mistakenly seen in Western countries not so
much as a desire for autonomy than as a banding together of countries with
an anti-West agenda. This was more the doing of those who came after
Nehru. However, during his years as PM, Nehru could have promoted the
activities of not-for-profit Western bodies such as the Ford and Rockefeller
Foundations more actively. Such institutions could have served as valuable
partners in expediting universal primary education and efficiency in
agriculture.
Despite the examples of conflicts based on personal ambition and
religious and other seemingly irreconcilable differences around the world,
Nehru retained an optimism that peaceful accommodation could prevail.
This line of thinking was natural for Gandhi, Nehru, Patel and others
leaders who had organized non-violent non-cooperation and voluntarily
spent years in jail during the freedom struggle. This sense that truth would
prevail found expression in independent India’s idealistic motto ‘Sayameva
Jayate’ (Truth Will Triumph). Moral conviction was a source of strength
during the freedom struggle. It was on occasion a liability in India’s foreign
policy after Independence.
 An extremely distressing error that various commentators deliberately or
mistakenly make is to speak of Nehru and Indira Gandhi in the same breath.
For instance, use of the phrase Nehru–Gandhi dynasty, as if similar values
and principles governed decision making during the Nehru era and the
Indira Gandhi years. Nehru’s missteps were more in the realm of foreign
policy and were just that—mistakes. Starting with Indira Gandhi and
subsequently other PMs, decisions were often driven by personal, family or
partisan interests. The only way that Nehru and Indira Gandhi were related
was that he was a doting father and she a loving daughter. In everything to
do with modes of governance, building of institutions, transparency and
personal values they were as different as day and night.
After Nehru passed away in May 1964, Lal Bahadur Shastri was selected
by the Congress members of Parliament (MPs) as the next PM. No one
could have anticipated that Shastri would pass away in Tashkent in January
1966. Consequently, Nehru cannot be accused of foisting his daughter on
India as PM after him. However, Nehru did acquiesce in Indira Gandhi
becoming the Congress president in 1959 when there were several others
with more valuable contributions during the freedom struggle and longer
association with the party waiting in the wings.
After Patel’s passing, other senior leaders in the Congress such as
Rajagopalachari, Acharya Kripalani and Jayaprakash Narayan drifted away
or joined other parties. Nehru was the crowd favourite, and he led the
campaign in three general elections in 1952, 1957 and 1962. In each of
these elections, the Congress was able to win more than 70 per cent of the
seats in the Lok Sabha. Nehru was able to consistently lead the Congress to
overwhelming victories in elections, and there were no co-equals within the
party. This meant that despite the efforts Nehru made to consult widely, it
was his individual understanding that dominated decision making and that
was unhealthy.
Was Nehru a ‘huge banyan tree’ that did not allow anything to grow
beneath it? From various accounts, it does seem that Nehru appeared worn
out by 1959–60 by the pressures of office and particularly the road travel
for electioneering. Unfortunately, no one close to him persuaded him to
groom a successor. After 1957 he could have continued as Congress
president but without the day-to-day responsibilities of head of government.
The US instituted a two-term limit for Presidents after the three terms of
F.D. Roosevelt. Although parliamentary democracies around the world do
not have such term limits, it would have helped the cause of Indian
democracy had Nehru persuaded Parliament to pass legislation that limits
an Indian PM to two five-year terms or ten years in total if there are
midterm elections. Such a move by Nehru would have probably sailed
through and would have nipped in the bud the possibility of personality
cults developing around any subsequent Indian PM.
Given Nehru’s school and university education in England, he
unwittingly perpetuated an English-speaking elitism. On 15 August 1947,
as India awoke to freedom, Nehru made his brilliant and moving ‘tryst with
destiny’ speech in the central hall in Parliament. My abiding memory of
that speech is that I first saw it in a black-and-white grainy Films Division
documentary with a squeaky soundtrack and yet found the words truly
inspiring. The slow whirring of the old-style fans could be seen but not
heard. Nehru probably overlooked the reality that less than 5 per cent of
Indians would have understood his speech since it was delivered in English.
Nehru could have had his speech recorded in English in his own voice and
had it transmitted simultaneously over the air as he delivered it in Hindi.
The speech could also have been read out on All India Radio in all major
Indian languages.
The Indian elite in all walks of life, not just politics, was English
speaking during the Nehru era. To the extent that the vernacular-speaking
masses did not understand the English used by decision makers, there was
bound to be a pushback in a representative democracy. The exclusive use of
local languages for government forms and applications started in the south
and has now gradually spread all over the country. This pride in India’s
well-developed regional languages and culture is natural. However, as it
descends to chauvinism and rejection of English, average Indians risk
losing this useful medium of communication with the rest of the world.
Even as of mid-2019, no Indian language including Hindi has been
accepted widely enough throughout the country for English to be fully
displaced.
On Mahatma Gandhi’s return to India from South Africa, he dressed
exclusively in the most simple of Indian dresses—a single piece of white
cloth called ‘dhoti’. Sardar Patel too dropped his Western suit and chose the
dhoti and kurta after he left his law practice and joined the freedom
movement. The clothes of Gandhi, Patel and many others who were part of
the struggle for freedom were made out of hand-spun cloth called khadi.
Nehru chose the achkan (long buttoned coat) and churidar (calf-hugging
pyjamas) as his dress as the PM. This dress is typical of the nobility in the
north Indian state of Uttar Pradesh. It can be argued that the dress does not
make the man, and Nehru’s choice of dress had no relevance to his work as
PM. However, a simpler, less elitist dress such as a white kurta and pyjamas
would have certainly made him appear more approachable.
Although there was some erosion in the high levels of post-Independence
optimism, particularly after the defeat in the war with China in 1962, the
electorate continued to have faith in elected representatives. The average
voter’s faith in institutions, except perhaps the police, rose with the
replacement of the British with Indians at the highest levels of
administration and government.
India is the only democracy among all others around it which has had the
same Constitution since Independence. Gratuitous predictions suggesting
that India would break up have not come true. By contrast, several Asian
and African regions which became independent countries in the twentieth
century are now under military rule, totalitarian fiefdoms or one-party
communist dictatorships.
Memoirs of civil servants close to Nehru suggest that he could be quick
to anger yet democratic in his outlook and warm in personal interaction.
Nehru’s achievements and mistakes are better understood if he is
humanized rather than put on a pedestal. He had several of the usual human
weaknesses yet an immeasurable love for his country.
Nehru’s conduct and decisions indicate that he had two out of the 3 Cs—
Character and Charisma—in abundant measure. There can be no question
about his Character given the many sacrifices in his personal life and
unwavering commitment to the Indian people. It is in Competence that he
may be faulted in some measure on foreign policy and national security
matters. On economic policies, he followed what was the prevailing
wisdom of the time and considered appropriate by a majority of domestic
and internationally renowned economists. All said and done, it is likely that
without Nehru at the start, there may still have been a continuing ‘idea of
India’139 but not as an undivided, independent and democratic nation.
 LAL BAHADUR SHASTRI
War and Peace during Short Tenure

Blessed are the meek:

for they shall inherit the earth

(Third verse of the Sermon on the Mount)

Lal Bahadur Shastri1 rose within the Congress through the freedom struggle
and was the minister for railways and later minister for home affairs in
Nehru’s cabinet. K. Kamaraj was the Congress president when Nehru
passed away, and the so-called ‘Syndicate’ within the Congress included
Kamaraj and other Congress leaders such as Atulya Ghosh of West Bengal,
N. Sanjiva Reddy of Andhra Pradesh, S. Nijalingappa of Mysore
(Karnataka) and S.K. Patil from Bombay (Mumbai). Shastri was fifty-nine
years of age, and Morarji Desai was nearing seventy in 1964, and the latter
had more experience in government than Shastri. However, the Syndicate
preferred a conciliatory Shastri to Morarji who was perceived to be too
strong-willed and obdurate. Shastri took over as PM on 9 June 1964, less
than a month after Nehru passed away. Shastri, who was a mild-mannered,
gentle figure, nevertheless kept Desai out of his cabinet.
Shastri’s positive inheritance from Nehru included absolute majorities for
the Congress party in both houses of Parliament. Most MPs were well
informed and disposed to work collegially across party lines in the various
parliamentary committees. Nehru had encouraged civil servants to think
afresh and also given them sufficient elbow room to function independent
of political compulsions. By the time Shastri took over, more than ten
annual cohorts of government officers had been selected since
Independence through competitive examinations. Effectively, a measure of
predictability had soaked into the staffing and working of government
offices.
The Indian private sector had reconciled with the government’s resolve to
continue with planning and occupy the commanding heights of the
economy. Imports were allowed liberally during the Nehru years till 1958
when balance of payments difficulties led the government to introduce
restrictions. Investment licences were issued without serious allegations of
graft, and multinational corporations were still welcome. In overall terms,
the police, media, judiciary and the armed forces functioned reasonably
well, overseen by an elected political executive which enjoyed credibility.
On external relations, the 1962 defeat and Nehru’s letters to JFK seeking
urgent military assistance had dented India’s image. India was now
perceived as a country which could not defend itself against China. Lyndon
B. Johnson had taken over as President of the US after JFK was
assassinated in November 1963, and he judged countries by the similarity
of their foreign affairs positions with that of the US, particularly on
Vietnam. In contrast to India, Ayub Khan’s Pakistan was seen in
Washington as a close ally in the Cold War against the Soviet Union. Given
the post-1962 perception that India’s armed forces were weak, Pakistan felt
emboldened to make preparations for war over Kashmir.

Overall Direction and State of Economy

On 11 June 1964, in his inaugural speech, Shastri asserted that there would
be ‘no looking to right or left. Our way is straight and clear—the building
up of a secular mixed-economy, democracy at home with freedom and
prosperity, and the maintenance of world peace and friendship with select
nations.’2 Average GDP growth rates came down to 2.8 per cent between
1961 and 1966 compared to the target for the Third Plan of 6 per cent.3
Import restrictions due to the foreign exchange shortages from 1958
onwards were an inhibiting factor in fresh investments. By 1964 India’s
population was close to 500 million, starting with 350 million at
Independence. Growth in the agriculture sector was inadequate, and pockets
of food scarcity were more widespread. In the aftermath of the 1962
debacle and growing tensions with Pakistan, Shastri had to be mindful of
raising the allocation for defence. Defence expenditure was 1.87 per cent of
GDP in 1960, and this number rose to 3.8 in 1963 and was at 3.6 per cent in
1965.
An example of Shastri’s down-to-earth approach was his encouragement
of milk production. Shastri visited Anand at the end of October 1964 and
extended the government’s support to Verghese Kurien, who was then the
general manager of the Kaira district Cooperative Milk Producers Union
(Amul). As a consequence, the National Dairy Development Board
(NDDB) was set up at Anand in 1965. The rest, as they say, is history. In
1951 the total milk production in the country was a little over 15 million
tons. This number went up to 20 million tons by 1970. With ‘Operation
Flood’, milk production rose to 50 million tons by 1992 and 130 million
tons by 2012. In time, the various government-run milk-bottling
undertakings such as the Delhi Milk Scheme were absorbed into the
NDDB.
In the prevailing situation of food-grain shortages, Shastri appointed C.
Subramaniam as the agriculture minister. Subramaniam revamped the
Indian Council of Agricultural Research, and US agricultural specialists
were consulted to raise food-grain production with a greater sense of
urgency. Although information about the high yields of Norman Borlaug’s
wheat seeds in Mexico was widely known, the Planning Commission
resisted the use of these seeds in India.4 These high-yielding varieties were
finally planted in India in 1965–66, and the enormous success in raising
output started the Green Revolution.
 In order to involve the lay public, Shastri appealed to the Indian people to
give up one meal a week, preferably on Monday evening. It was a sign of
those less cynical times and the credibility of Shastri’s personality that
many around the country did give up a meal. This made little difference to
the availability of food in tangible terms. However, government’s credibility
went up as it was a simple call which was widely understood in a country
like India in which several religious occasions involve fasting.
The diversion of scarce resources to defence, continued policies of
industrial licensing and promotion of investment in small-scale cottage
industries meant stagnation in the growth of salaried employment. On the
depleting foreign exchange front, Shastri left import restrictions in place
and did not recognize the need for the rupee to be devalued even as the
balance of payments situation weakened. In any case, Shastri’s short-lived
government was beset by the immediate problems of food scarcity and war
with Pakistan and could not focus on economic policy issues.

1965 War and Tashkent Agreement

Pakistan had signed a Military Assistance Programme agreement with the

United States in 1955. Under this agreement, Pakistan was eligible to
receive tanks, fighter planes, transport aircraft and other defence equipment
from the US. By 1965, the Pakistani Army had acquired US-built Patton
tanks, self-propelled howitzers and jeep-mounted recoilless anti-aircraft
guns. Pakistani soldiers were armed with 7.62 self-loading rifles (SLRs)
while the Second World War .303 rifles of their Indian counterparts were
still being gradually replaced by Belgian 7.62 SLRs. Pakistan’s air force
boasted of F-86 sabre jets, while India had older British Hawker Hunters,
French Mystères, Russian MiG-21s and Gnats built in Bangalore. Both air
forces had British Canberra bombers. Pakistan had also received a few F-
104 supersonic fighters from the US and the C-130 Hercules transport
aircraft. In summary, the Indian armed forces were larger in numbers but
most of their equipment was of older vintage.
 After J.F. Kennedy was replaced by Johnson, the somewhat conciliatory
US attitude towards India post the 1962 war with China faded away.
Further, given the favoured status of Pakistan as a Western ally, Shastri
faced pressures from the US and the UK for India to make concessions to
Pakistan on Kashmir. The memories of this bullying and partisan behaviour
in the mid-1960s during India’s vulnerable years fuelled suspicions about
these two permanent members of the UNSC in Indian ruling circles for
decades. In March 1963, Pakistan and China ceded territories to each other
in PoK. The areas ceded to China were of strategic significance and
heralded the beginning of a Pakistan–China all-weather friendship.
Consequently, Shastri had to face a Pakistan which had the military and
tactical support of both the US and China.
In his first Independence Day speech on 15 August 1964, Shastri
responded positively to Pakistani President Ayub Khan’s call, in a radio talk
two days earlier on 13 August, for tearing the veil of ‘passion and
prejudice’ in India–Pakistan relations. The tradition of the PM speaking
from the Red Fort in Hindi was maintained. It is interesting in retrospect
that on the same day it was reported5 that Lieutenant General S.H.F.J.
Manekshaw and Lieutenant General Harbaksh Singh had been appointed as
the GOC-in-C of the Eastern and Western Commands respectively.
About nine months into Shastri’s tenure as PM, in March 1965, Sheikh
Abdullah (he was released from prison in April 1964, a month before Nehru
passed away) travelled to Mecca via London. On his way back, Abdullah
stopped in Algiers and met Zhou Enlai. Given India’s wariness about
Pakistan and suspicions about China post the 1962 conflict, Abdullah was
ill-advised to meet Zhou. Shastri had Abdullah put under house arrest on his
return to Delhi. This was yet another complication for Shastri in Kashmir.
At about this time, Sant Fateh Singh started on a fast unto death
demanding a separate state for Punjab with Chandigarh as its capital. Given
the incipient signs of a possible confrontation with Pakistan, Shastri did not
want disturbances and possibly street demonstrations in the border state of
Punjab. Accordingly, Shastri wisely gave an assurance to Sant Fateh Singh,
who had gone on fast in the past, that in due course Punjab would get a
separate state.6
In Pakistan, President Ayub Khan and his egomaniacal foreign minister,
Z.A. Bhutto, fancied their chances of capturing the Srinagar valley with
their better equipment. In April 1965, less than a year after Shastri had
assumed charge as PM, Pakistani forces crossed the border in the Rann of
Kutch in a diversionary tactic. It was an intelligence failure that India had
not anticipated this feint, and Indian troops had to fall back in Kutch.
The precise India–Pakistan border in the Rann of Kutch area in Gujarat
state was not clearly delineated and agreed to by both sides at the time of
Partition. In January 1965, Pakistani troops established a post in the
Kanjarkot area. By mid-February, Pakistan’s troops established themselves
in this area which had been unoccupied by either side till then. India
protested and moved in troops in March–April. There were small-scale
battles, in which the Pakistani Army was able to penetrate Indian lines and
in early April captured Briar Bet. Due to international pressure, a ceasefire
was declared on 30 April. Surprisingly, given the UK’s pro-Pakistan line,
Shastri asked British PM Harold Wilson to mediate with Pakistan. By June,
the British PM persuaded the United Nations to set up a tribunal. (A couple
of years later, in February 1968, the UN India-Pakistan Western Boundary
Case Tribunal awarded about 90 per cent of the 9100 square kilometres
claimed by Pakistan to India.)
In the first week of August 1965, Pakistan launched Operation Gibraltar
into the Indian side of Kashmir. Pakistani soldiers, along with irregulars,
wriggled their way in and were meant to incite the local population to revolt
against Indian rule. Operation Gibraltar was a failure because Kashmiris
informed local authorities about the infiltrators, and the Indian Army and
police picked up most of them.
A measure of China’s hostile attitude towards India at that point of time
can be gauged from the following extract from a 1965 Chinese note to
India:
‘So long as the Indian Government oppresses the Kashmiri people, China
will not cease to support the Kashmiri people in their struggle for self-
determination. So long as the Government of India persists in its unbridled
aggression towards Pakistan, China will not cease supporting Pakistan in
her just struggle against aggression. This stand of ours will never change,
however many helpers you may have such as the US, the Modern
Revisionists and the US controlled United Nations.’7
It is amazing ‘revisionism’, or flexibility if you like, in China’s thinking
that just six years later, in 1971, Mao and Zhou welcomed Nixon and
Kissinger in Beijing. Communist China’s leadership did not need to justify
the move to engage with the capitalist US to its people. Totalitarian states
can change foreign and domestic policies without concern about being
voted out of office.
Despite the considerable uncertainties that decision makers in Delhi
faced, Shastri finally upped the ante, and, referring to Pakistan’s intention to
forcibly annex Kashmir, announced ‘force would be met by force’. The
Indian Army retaliated and captured the strategic Haji Pir pass in PoK and
also pushed towards Lahore in West Pakistan starting around 15 August
1965. This was an option that Nehru had consciously chosen not to use in
1948, but he had informed Parliament that India may be forced to do so in
the future if Pakistan reinitiated hostilities over Kashmir.
Tank and air battles ensued with heavy losses of troops and equipment on
both sides. India and Pakistan soon fought themselves to a standstill and
agreed to a ceasefire in a little over a month on 23 September 1965. At the
cessation of hostilities, India was in possession of the strategic Haji Pir pass
and adjoining areas which are located in PoK. Shortly after this war was
over, the first contingent of the Border Security Force (BSF) was raised on
1 December 1965 to ensure the security of India’s borders. The BSF is
currently deployed on the border with Pakistan in Rajasthan and points
along India’s border with other neighbouring countries including
Bangladesh.
India had burnt its fingers in the past by taking up the Kashmir issue at
the UN, and the US and the UK were suspect. Consequently, the Soviet
Union was accepted as the host for the peace discussions between Shastri
and Ayub Khan in the Uzbek capital, Tashkent. It is likely that the US and
the Soviet Union were closely in touch before, during and after this India–
Pakistan war in support of their own objectives.8 The US did not allow its
ally Pakistan to suffer any lasting damage or loss of self-image. The Soviet
Union saw an opportunity to gain influence, not just with India but also
with Pakistan. It is another matter that Pakistan, due to its dependence on
the US, could not play the Soviet game, and the USSR swung towards India
in the late 1960s and also during the war between India and Pakistan in
1971.
The Tashkent Agreement between India and Pakistan, which was signed
on 10 January 1966, provided for the return of the Haji Pir pass and for both
sides to return to their pre-war positions. India had claimed since 1948 that
Pakistan had illegally occupied a part of Kashmir, and it would have been
logical to argue that the Haji Pir pass in PoK should remain with India.
The following day, 11 January 1966, the nineteen-month term of Lal
Bahadur Shastri came to an end with his sudden death due to a heart attack
in Tashkent.

Legacy

Nehru’s halo diminished after the beating India took in the 1962 war with
China, and he looked visibly older. The question ‘After Nehru Who’ started
appearing in the media. Clearly, there was no one in the Congress party who
could measure up to him. However, predictions about instability in India
after Nehru’s passing away in 1964 were proved wrong, and the Congress
party unanimously selected Lal Bahadur Shastri as his successor. Despite
Shastri’s low profile during the Nehru years, he was able to capture the
imagination of many with his simple slogan of ‘Jai Jawan Jai Kisan’
(Victory to the Soldier and the Farmer). If Shastri had continued for another
term after the general elections of 1967, the higher standards of honesty of
thought and action of the freedom-fighter generation may have persisted in
India for another decade.
The first MiG fighter aircraft and other arms purchases from the Soviet
Union started from around the late 1950s. It was abundantly clear through
the course of the 1965 war with Pakistan that India had fallen far behind in
the quality of its defence equipment. Given that the US and the UK had
favoured Pakistan both before and after the 1965 conflict, this war was a
turning point for India as it stepped up its purchases of Soviet armaments.
This closer defence relationship with the Soviet Union also led to
comparatively higher dependency on that country.
Unfortunately, Shastri was not at the helm long enough to even begin to
address the causal reasons for slower economic growth in the 1960s
compared to the 1950s. The opportunity costs of the Shastri government’s
inadequate attention to correcting the overvalued rupee exchange rate can
be summed up aptly by the metaphor ‘a stitch in time saves nine’. Finance
Minister T.T. Krishnamachari and P.C. Bhattacharya, the RBI governor9 at
that time, could and should have coordinated their efforts to convince
Shastri to effect a much-needed devaluation of the rupee. The confidence in
government continued to be high, particularly with Indian armed forces
being able to hold their own against the better-equipped Pakistani forces.
On India versus Bharat, Shastri leaned very much towards Bharat. His
usual dress was dhoti and kurta, the clothes of millions of his countrymen,
and was usually made of hand-spun khadi. Shastri was fluent in Hindi and
often chose to speak in this vernacular rather than English.
As for the 3 Cs, Shastri was a man of exceptional Character, which
included compassion and commitment. He did not have the same level of
Charisma as Nehru but that was too high a standard to meet. As for
Competence, his tenure was not long enough for a fair assessment to be
made. Shastri did handle the difficulties created by the war with Pakistan
and the shortage of food-grains effectively. The talks leading to the
Tashkent Agreement could have been managed better, and despite pressures
from the US and the USSR, India could have insisted on conditions to be
met on a continuing basis for the handing back of the Haji Pir pass to
Pakistan. The simplicity of Shastri’s life and of many around him helped to
keep the electorate’s optimism levels about elected representatives at
around the same level as when Nehru had passed away.
 INDIRA GANDHI
End of Innocence Yet Remarkable Achievements

Were the King to eat a single apple without paying for it, his staff will uproot the whole
apple tree.1

(From ‘Gulistan’ by Persian poet–author Musharraf ud-Din Sa’di, 1213–1295, born in

Shiraz and who, according to legend, travelled to many parts of West Asia, Central Asia
and India.)

After Indira Gandhi (IG)2 was separated from her husband Feroze Gandhi in
the late 1940s, she moved in with her prime minister father Jawaharlal
Nehru. Thereafter, she was the official hostess at Nehru’s Teen Murti3
House residence and accompanied him on trips abroad. She was appointed
the Congress president in 1959 and was perceived as one of the prime
movers in having the communist Kerala government dismissed and
Governor’s rule imposed.4
The interactions at high political levels at home and internationally gave
Indira Gandhi a ringside view of governmental decision making. In June
1964, she accepted the junior position of minister for information and
broadcasting in Lal Bahadur Shastri’s government and held this portfolio
till January 1966. According to Katherine Frank,5 ‘Nehru had never made
any financial provision [for] his daughter’s future. Apart from her father’s
possessions and the family home, Indira inherited only her father’s royalties
and these fluctuated and were never lucrative. Nor did she have a home in
Delhi . . . A place in Shastri’s cabinet provided her with both a salary and a
roof over her head . . . she was assigned 1 Safdarjung Road where she
would spend the next twenty years except for a three-year period in the late
seventies.’ Subsequently, when Sardar Swaran Singh was appointed as the
foreign minister, Indira Gandhi vented her feelings publicly against Shastri
to Inder Malhotra. She felt that, given her international exposure, she was
the natural choice for the post.6
Shastri passed away on 11 January 1966, and the Congress president K.
Kamaraj along with other senior Congress leaders again decided that they
would not support Morarji Desai’s candidature for PM. With general
elections a little over a year away, given IG’s name recognition and in the
Syndicate’s view greater pliability,7 the decision went in her favour. Unlike
when Shastri had become PM, on this occasion Morarji Desai sought a
contest. At the Congress parliamentary party election for head of
government, Indira Gandhi won convincingly by 355 votes to Desai’s 169.
This was a genuine election. In later years, elections for Congress party
positions or for that of the leader in Parliament were stage-managed.8 Indira
Gandhi was just forty-nine years old when she was sworn in as PM by
President Radhakrishnan on 26 January 1966, compared to Nehru and
Shastri who were fifty-eight and fifty-nine years old respectively when they
had taken over as PM.
IG’s inheritance as PM was a Congress party which had majorities in
both houses of Parliament. However, popular support was eroding by 1966
due to food scarcities caused by droughts in 1964 and 1965. Consumer
price inflation was in double digits at 11 and 13 per cent in 1966 and 1967.
The open-hearted optimism of the 1950s had eroded by the mid-1960s, with
food shortages and defeat in the war with China in 1962.
Despite the comfortable margin of victory against Morarji Desai, there
was significant dissent since 169 MPs had voted for him to be PM. Indira
Gandhi could not expect the unqualified support within the party that Nehru
had received. As for Shastri, although he did not have Nehru’s stature, he
had been a cabinet minister earlier, and with his senior status in the party, he
did not have to keep looking over his shoulder while in office. IG had the
support of the Syndicate, and these members of the Congress old guard
expected her to be mindful of their views, particularly on economic issues.

Devaluation, Sharp Turn to the Left in Economic Policies and Rising

Corruption

The US had suspended all aid to India and Pakistan at the time of the 1965
war. After IG took over as prime minister, she faced opposing pulls within
the Congress party from the younger left and older right-oriented groups.
Despite rumblings of discontent in the party’s left, given the dependence on
food-grain imports from the US and shortage of hard currency reserves, IG
visited the US towards the end of March 1966. This was her first foreign
visit and that too within two months of assuming office. IG’s meetings with
US President Lyndon Johnson went very well at a personal level. For
instance, during IG’s stay in Washington, President Johnson attended a
reception at the Indian Ambassador B.K. Nehru’s residence and stayed on
for dinner to have more time for discussions with her in an informal setting.
However, there are limitations to what can be achieved through personal
diplomacy. Johnson was looking for India to soften its stance on Vietnam,
and this did not happen. During this trip, the US administration, World
Bank and IMF advised India in a coordinated manner that the rupee was
substantially overvalued and that a correction was overdue.
On objective grounds, overvaluation of the rupee since the late 1950s
was one of the causal factors which resulted in a chronic deficit in India’s
trade in goods balance. Hence, the more knowledgeable among Indian
ministers and senior civil servants such as C. Subramaniam and L.K. Jha
confirmed to IG that the rupee did need to be devalued. A couple of months
after returning from the US, IG took the plunge, and on 5 June 1966 the
rupee was devalued from Rupees 4.76 to Rupees 7.5 to a dollar. That is, the
value of the US dollar in rupee terms increased by 57.6 per cent. Industrial
licensing and trade regime controls were marginally relaxed along with the
devaluation.
Domestic political circles and the lay public were inadequately informed
about exchange rates, and for partisan reasons the rupee devaluation was
portrayed as a self-inflicted disaster by opposition political parties.
Commentators on both the right and left of the political spectrum were
highly critical without either analysing or understanding the underlying
economic compulsions which necessitated this devaluation. IG should have
ensured that the economic logic for devaluation was explained in simple
terms in all regional languages. Namely, that a country’s prestige or honour
is not linked to the strength of its currency, and an overvalued currency
contributes towards trade deficits and can even lead to a balance of
payments crisis. It was not IG’s lack of understanding of the underlying
economic issues which proved costly for the country. Heads of government
are not expected to be subject specialists. IG failed to use impartial, well-
respected experts to explain to wider audiences the reason for her decision.
For instance, IG could have used Manmohan Singh’s doctoral work which
was published by Oxford University Press in 1964. Singh was cautiously
optimistic about exports unlike his own thesis supervisor Professor I.M.D.
Little, who was pessimistic about the prospects for raising India’s exports in
any substantial manner.9
Concurrently, there was rising resistance in the US to continued aid, in
any form, to India. As a consequence of the anti-West rhetoric of Krishna
Menon and others in the ruling Congress party, there was a caucus of US
legislators which had bracketed India as a camp follower of the Soviet
Union. Their influence contributed to the US administration stretching out
the time taken to clear each food shipment. Additionally, bilateral US aid
and multilateral financial assistance did not meet India’s expectations. A US
State Department official was reported to have remarked a few years later
that it was satisfying to have India over a barrel on food shipments.10 Even a
junior foreign policy practitioner could have educated that US official that it
is counterproductive to provide aid with bad grace.
 I.G. Patel has provided details of the difficult discussions with the
British, the US as also IMF and World Bank officials, and the offensive
behaviour of some of them. According to Patel, ‘Lyndon Johnson in fact
had pursued a ship to mouth policy of food aid to compel India to introduce
far reaching reforms in the agricultural sector.’ Even though Johnson’s
pressure tactics must have been unwelcome he was right since India’s
subsequent use of high-yielding wheat seeds raised production
considerably.
Patel also mentions that at a dinner in Paris, during the days that
discussions were going on with the Aid India Consortium, he was asked
how he felt the meetings were going, and he remarked, ‘Not bad, we were
lectured at for eight hours and we got a billion dollars. Not a bad exchange
rate.’ Hollis Chenery of the US happened to be present at that dinner and,
according to Patel, gave negative feedback to the US government, saying
that the Indians had behaved arrogantly at the consortium meetings.11
The issue of bank nationalization had been discussed often in Congress
circles since the 1950s, but Nehru had ruled it out except for nationalization
of the Imperial Bank (which became the State Bank of India). This issue
now divided the Congress, and Morarji Desai, as the deputy prime minister
and finance minister (1967–69), was firmly opposed to the growing demand
within the Congress, tacitly supported by IG, for nationalization of banks.
In May 1967, IG replaced L.K. Jha, who was perceived as pro-West, with
the left-oriented P.N. Haksar,12 and Haksar became the principal secretary in
the prime minister’s office (PMO). L.K. Jha moved to Bombay and was the
RBI governor13 from July 1967 to May 1970. He was hesitant about IG’s
peremptory move to nationalize banks, while Morarji Desai favoured what
was at that time called a ‘social control’ approach to managing private
banks rather than taking over ownership.
The All India Congress Committee meeting in June 1967 adopted a
resolution on the economic policies that the Congress party would
henceforth promote. These policies included ‘social’ control of banking,
further consolidation of ‘state trading’ in imports and exports, and even
state control over trading in food-grains within the country.14 The so-called
Young Turks in the Congress party, including Chandra Shekhar, supported
the resolution. Haksar did not support all aspects of this resolution, but he
carefully orchestrated policies which can only be called populist to bolster
IG’s position within the party by appearing to be pro-poor to the electorate.
On 19 July 1969, IG had an ordinance issued to nationalize fourteen
banks. V.V. Giri as the serving vice-president had earlier been elevated to
acting President on 3 May 1969 after President Zakir Husain had passed
away on that day. In his capacity as acting President, Giri approved the
bank nationalization ordinance immediately.
The nationalization decision was popular, schadenfreude and all that, and
there was dancing on the streets. Most private banks were owned by
business houses, and a considerable proportion of their lending was to
affiliate companies and they had little presence in rural areas. However, this
populist decision has had damaging consequences for the Indian economy
to this day. At most, a few banks which had persistently engaged in crony-
lending should have been nationalized.15 However, there was no
economically sound reason to nationalize as many as fourteen banks. The
cancer, if you will, of crony (capitalism) lending was treated by IG with the
excessively aggressive treatment of gamma ray radiation of nationalization.
The Supreme Court held this bank nationalization ordinance unlawful.
The confrontational manner in which IG chose to negate the Supreme
Court’s decisions sowed seeds of discord between her government and the
higher judiciary. The Banking Companies (Acquisition and Transfer of
Undertakings) legislation was approved by Parliament on 9 August 1969.
This led to the Supreme Court vacating its stay order on the ordinance of 19
July. However, the Supreme Court passed another stay order on 8
September 1969 to prevent the government from issuing any directions in
violation of the Banking Regulation Act of 1948. And, a judgment was
issued by the Supreme Court in this case on 10 February 1970. The
Supreme Court ruled by ten to one that bank nationalization was invalid
since it did not provide for adequate compensation to private owners and
hence violated a fundamental right under Article 31(2) of the Constitution.
The lone dissenting voice in this ten-to-one verdict was that of Justice A.N.
Ray.
The Banking Companies (Acquisition and Transfer of Undertaking) Act
of 1970 was passed to override the Supreme Court judgment. Under this
revised 1970 Act, compensation was specified. Further, the 1970 Act
provided for the setting up of a tribunal if consensus on compensation could
not be achieved. That is, although the 1969 legislation was struck down, the
1970 Act allowed the nationalization of banks to prevail.16
An important development in Centre–state relations was the NDC’s
approval of the so-called Gadgil17 formula in a meeting held in April 1969.
It had been felt for some time that the Centre’s financial assistance to the
states during the first three Five Year Plans and the annual plans from 1966
to 1969 had been somewhat ad hoc. This was an attempt to provide an
objective and relatively better framework.
In a separate move to tighten economic controls, in 1970 the Bureau of
Industrial Costs and Prices (BICP) was established. The BICP’s statutory
powers were derived from the Industries Development and Regulation Act
which had come into force in 1952. The BICP decided on the administered
prices of steel, cement, copper and pharmaceuticals including inputs. Over
time, these measures proved to be extremely costly for the economy. The
controls gave far too much leeway to government officials to play
favourites. Even with the best of intentions it is impossible for individuals,
howsoever gifted and well qualified as economists or finance professionals,
to figure what should be produced, in what quantities and at what prices. It
should have been apparent from the evidence around the world that such
controls would lead to mispricing and misallocation of scarce resources.
It appears that IG was oblivious or unconcerned about the longer-term
negative economic consequences of several decisions that she took at the
behest of her left-leaning senior-most adviser P.N. Haksar. IG’s primary
focus, to the exclusion of all other considerations, was on controlling
domestic economic levers to buttress her political position.
Little attention was paid to implementation of genuine land reforms in
rural areas or enforcement of minimum wages. The emphasis was on eye-
catching populist moves, and the next such decision was abolition of privy
purses. The continuation of such allowances to Indian princes, an
arrangement agreed to since Independence, was clearly a distressingly
unjustified anachronism by the late 1960s. However, moving abruptly to
stop allowances for privileged princes did not mean that the poor received
corresponding benefits. The legislation to abolish privy purses was passed
by a two-thirds majority in the Lok Sabha on 2 September 1970 but failed
to get the required number by just one vote in the Rajya Sabha. IG
overcame this parliamentary impasse by getting a presidential order
announced derecognizing princes. This was another example of IG’s style
of functioning, which was to bludgeon opposition and play to the gallery.
Through most of the 1960s, the government’s emphasis in the agriculture
sector had been on foodgrain self-sufficiency. Higher-yielding wheat seeds
were increasingly used in northern India. However, it took time for the
Green Revolution in wheat to raise yields, and India had to depend on
(United States) Public Law 480 food-grain imports against rupee payments.
In comparison, rice production stagnated and was one of the causal reasons
for riots in south India where rice is the staple food. Food scarcity was also
widespread in Bihar all through the second half of the 1960s. These
scarcities led to higher food-grain prices, and in Delhi the first Super Bazar,
intended to provide daily necessities at controlled prices, was set up in late
1966. Enough attention was not paid to the professed US desire to help
India acquire higher-efficiency agricultural equipment. As India’s
population rose, surplus agricultural labour needed help to find alternative
employment off land. This could have been an area for closer cooperation
with the US and Europe.18
Since the mid-1950s, when the State Bank of India (SBI) was
nationalized, it was expected to galvanize lending to the agriculture sector.
However, till the late 1960s loans to this sector were extended mostly by
rural cooperatives. The 1969 Rural Credit Review Committee suggested
that commercial banks should increase their lending to rural borrowers. One
of the justifications for the nationalization of fourteen banks was that this
would raise lending to the agriculture sector through ‘lead’ (that is
nationalized) banks. By 1972, this changed to so-called ‘priority sector
lending’ under which banks were expected to ensure that prescribed
proportions of lending had to be made to, for example, khadi, village
industries and the agriculture sector.19 Consistent with this objective of
providing easier credit access to villagers, the setting up of regional rural
banks was suggested in 1975. It was argued that depending only on
nationalized scheduled commercial banks to meet priority sector lending
targets would not suffice. Two years after IG came back as PM in 1980, the
National Bank for Agriculture and Rural Development (NABARD) was set
up under an Act passed by Parliament in 1982.
The setting up of financial institutions with the mandate to provide
directed credit raised the fraction of formal credit to agriculture, thus
somewhat reducing farmers’ dependence on moneylenders. Table 1.6 in the
Appendices shows that the loans from institutions rose three times from
1951 to 1971 and five times in 1981, while those from moneylenders
dropped by more than half. To that extent, loans in the agriculture sector did
not carry the usurious rates of interest charged by moneylenders.
Meanwhile, the overall objective of raising incomes sharply was not
sufficiently met. For instance, per capita income rose from Rupees 247.5 in
1950–51 to Rupees 324.4 almost two decades later in 1967–68 (both
numbers at 1948–49 prices).20
IG was convinced after the poor showing of the undivided Congress in
the 1967 general elections that a sharper turn to the left was necessary to
garner the support of the poorer sections of the electorate. The Dravida
Munnetra Kazhagam (DMK),21 then the dominant party in Tamil Nadu, and
the communist parties, a significant force in West Bengal,22 supported her
left-oriented policies. Tamil Nadu and West Bengal have thirty-nine and
forty-two seats in the Lok Sabha each and are among the states that have a
large presence in Parliament. IG’s strategy to beat back the challenge of the
Congress (Organization) led by Nijalingappa was to outflank them from the
left.
Subimal Dutt, an ICS officer, had been an Indian ambassador from 1947
onwards and also foreign secretary from 1955 till he retired in 1962. Prior
to Independence, he had worked in the fields of education, health and
agriculture. Surprisingly, in 1969, he was appointed chairman of a
committee on industrial licensing. Knowledgeable economists may have
been members of this committee, and experts must have been consulted.
This is just one of so many examples of generalists heading committees or
other bodies which were entrusted with making recommendations on
matters that should have been left to specialists. Knowledgeable generalists
do serve the useful purpose of demystifying the technical jargon of experts
for the political executive. All aspects considered, far too much discretion
was often left in the hands of generalists to finalise governmental decisions.
The report of this Subimal Dutt committee led to the adoption of the
Monopolies and Restrictive Trade Practices (MRTP) Act in 1969. The
MRTP Act was intended to prevent the concentration of economic power
and leverage. In other words, to prevent companies from setting up
monopolies in producing goods or services. Such monopolies invariably
result in prices rising inordinately above cost of production plus profit.23 In
practice, the Act was often misused by government officials to exercise a
stranglehold over industry and trade. Any company with assets of over
Rupees 25 crore could be identified as an MRTP company, which would
then need all manner of permissions for day-to-day operations and to grow.
The definition of restrictive trade practices was sufficiently general, namely,
any activity that could potentially impede the flow of capital to production.
The cap was raised to Rupees 50 crore in 1980, and the Act was finally
abolished as part of the wide-ranging economic reforms post 1991.24
In September 1970, the Communist Party of India (CPI) came to power
in Kerala with Congress support. General elections were scheduled to take
place in 1972, but IG wanted earlier elections and the Lok Sabha was
dissolved on 27 December 1970. Unlike the elections in 1967 when the
Syndicate had the dominant say in the choice of Congress candidates, this
time IG was the sole selector and her slogan of ‘Garibi Hatao’ (abolish
poverty) resonated with the electorate. IG was able to mobilize widespread
popular support by portraying the Supreme Court judgment turning down
the abolition of privy purses as the rich and the privileged hitting back at
her.
Mohan Kumaramangalam, earlier with the CPI, had joined the Congress
in 1969 and was appointed the steel and mines minister after winning the
Pondicherry seat in the 1971 elections. He was a prime mover in the
nationalization of coal and the setting up of the Steel Authority of India Ltd
(SAIL) in 1973. SAIL became the holding company for all public-sector
steel plants.
In a letter to Dorothy Norman dated 3 June 1973, IG lamented that
Kumaramangalam had died a few days earlier in an air crash.25 IG mentions
in this letter that after the last parliamentary elections, she took
Kumaramangalam into the cabinet ‘to clean up steel production which was
a mess’ and that he did a ‘marvelous job’. Private-sector companies do not
provide products or services at fair prices if there is little competition. The
setting up of public-sector near monopolies and behemoths such as Coal
India and SAIL, respectively, reduced competition and impacted the overall
efficiency of production in both these areas negatively.26
Russi Mody was the managing director from 1974 to 1984 and later
chairman from 1984 to 1993 of the Tata Iron and Steel Company (TISCO).
He was reported in the media as having said that as long as there was SAIL
—presumably he meant as an inefficient producer of steel which was then
sold at high prices to government-owned buyers—he could laugh his way to
the bank.
Prior to Independence, a tariff board in the Ministry of Commerce
advised on measures required to protect domestic industry. The tariff board
was overtaken by a tariff commission, which was set up in 1951 to suggest
duties on imports and on dumping of goods. This commission was
abolished in 1976 and even stricter procedures were prescribed for
restricting imports. At the same time, tighter conditions were stipulated
under the Foreign Exchange Regulation Act, 1973, for all dealings in
foreign exchange and the surrender of all hard currency earned on exports.
The focus once again was mistakenly on preventing foreign exchange
outflows rather than promotion of exports, which often depends on imports
of inputs.
The monsoon was patchy and inadequate in 1972, and the following year
the Organization of the Petroleum Exporting Countries (OPEC) raised oil
prices fourfold (from US $3 to $12 a barrel) by stopping oil exports. As an
immediate consequence of higher transportation costs to and within India,
prices of food-grains and commodities of daily use went up sharply. This
was reflected in the higher consumer price inflation numbers. The
inefficiencies and patronage practices related to production and pricing of
electricity, coal and food-grains rose substantially from 1969 onwards. This
was accompanied by higher rent-seeking in government and public-sector
circles. At around the same time, there were instances of individual
wrongdoing which were not satisfactorily investigated by IG’s government.
The media carried the stories sketchily but the rumour mills worked
overtime.
For instance, in May 1971, Rupees 6 million were handed over by an SBI
cashier to Rustom Sohrab Nagarwala, allegedly on the basis of a phone call
from the PMO.27 Many questions about why basic banking norms were
violated by the SBI cashier, and who Nagarwala was the front for, were left
unanswered in that case. In 1986, the Hindustan Times reported that the
CIA had used Nagarwala to sully IG’s name at a time when the US was
annoyed with India’s policies on Bangladesh. This explanation, without any
supporting evidence, does not explain why an SBI cashier handed over such
a large sum of money, in cash, outside the bank’s premises to Nagarwala.
In 1974, it was alleged that traders in Pondicherry had sought import
licences supported by the forged signatures of twenty-one MPs. In an
environment of scarcities and strict controls on imports, such licences were
highly lucrative. Tulmohan Ram, an MP from Bihar, was perceived to be
complicit, with the knowledge and perhaps instigation of then Commerce
Minister L.N. Mishra. IG addressed the criticism not by dropping Mishra
from the cabinet but by moving him to head the mammoth Ministry of
Railways. Mishra, as the treasurer of the Congress party, was already
widely perceived as a conduit for clandestine funds. He was mysteriously
killed by a bomb attack while he was addressing a rally in Bihar in 1975.
Again, there has been no satisfactory explanation to date about exactly who
was responsible or why he was assassinated. During the Emergency, court
hearings in the Tulmohan Ram case, the US Congressional hearings in the
case of Boeing pay-offs in India, and the conviction of some of those
accused in the Dalmia Jain Airways scam were censored and the media was
not allowed to report on them.28
In the late 1960s and the 1970s, there were any number of accusations
about the interference of the CIA and the KGB (Komitet Gosudarstvennoy
Bezopasnosti) of the Soviet Union in Indian elections. IG would often refer
to the threat to her life and the undermining of the Congress by foreign
agencies, and her allegations were invariably directed against the CIA.
Christopher Andrew and Vasili Mitrokhin have alleged that foreign
intelligence agencies including the KGB wielded considerable influence
with the Indian government when IG was PM.29 It is impossible to confirm
the numerous allegations made in their book. However, it is a fact that the
ruling party led by IG and the opposition parties made numerous
accusations against each other. These allegations included charges about
acceptance of monetary assistance from foreign intelligence agencies. All
this noise and fury distracted IG from sound economic policymaking or
implementation.
By the early 1970s, P.N. Haksar was no longer in favour with IG because
he did not support Sanjay Gandhi’s plans to set up the Maruti automobile
plant.30 Haksar had objected because this car proposal smacked of state-
supported nepotism. Sanjay was the only recipient of a licence to produce
50,000 cars out of many applicants, and Bansi Lal as Haryana chief
minister provided 300 acres of prime land in Gurgaon for the project.
Vinod Mehta provides details and alleges that RBI officials were
victimized because they objected to the demands for loans and overdrafts
for Maruti. In addition to Maruti Limited, Sanjay Gandhi also set up an
affiliated company called Maruti Technical Services (MTS). The partners in
MTS included Sonia Gandhi, her two children and someone called Shroff.
The Gandhi family owned 99 per cent of the equity in MTS which was paid
handsomely for allegedly non-existent technical services. According to
Mehta, by the end of 1976, Sanjay Gandhi was involved in building bus
bodies, selling cement and steel, and became an agent for foreign
multinationals.31
On the cover of his book, Vinod Mehta asks the rhetorical question,
‘Why did a nation of over 600 million people bow to the whims and fancies
of a Prime Minister’s favoured son?’ The answer is probably that just seven
years after Nehru’s passing, most of the values of honesty in public life had
given way to a culture in political circles of abject subservience to
executive power for personal gain. This shortcoming did not just affect
ministers in government but also senior civil servants who were often
rewarded with post-retirement positions. However, certain intrepid film-
makers were not cowed by IG’s government. For instance, a satirical film
on the prevailing obfuscation and worse about Sanjay Gandhi’s Maruti
venture, which was titled Kissa Kursi Ka (The Case of the Executive’s
Chair), was released in 1977.
Multiple accounts have confirmed that as a fond mother, IG overlooked
her younger son’s high-handed behaviour with government functionaries.
Haksar may have indicated his discomfort with Sanjay Gandhi’s extra-
constitutional clout within government. Instead of reining in Sanjay, IG
moved Haksar out in 1973, and he was later appointed to an advisory
position at arm’s length from her as deputy chairman, Planning
Commission. P.N. Dhar, an economist by training, was brought in as her
principal secretary and served in that capacity till the general elections in
1977.
IG had poor personal relations with US President Nixon. This gave an
added impetus to the downward slide in relations between India and the US.
In the mid-1970s, even though the public manufacturing sector had grown
and so had public-sector banking, well over 50 per cent of the Indian
economy was still in the private sector. Although the share of agriculture
was shrinking, it was and still is in May 2019 almost entirely private. It is
ironic, therefore, that in stark contrast to this low point in India–US
relations in 1971, in the same year communist China’s leaders had their
famous breakthrough meetings with US President Nixon and national
security adviser Kissinger in Beijing. The US overlooked communism in
China, and a decade later Deng Xiaoping opened up China for selective
foreign investment from the US, thus promoting technology transfer and
trade surpluses.
Even if for domestic political compulsions IG’s government needed to be
seen as distant from the US, there were no economic reasons to be hostile to
FDI from that country. For instance, the US oil company ESSO,32 which
had set up a refinery in India in the mid-1950s, felt compelled to gradually
wind up and was finally acquired by the Indian government in 1974. In the
mid-1970s, the other foreign oil companies Exxon, Burmah Shell and
Caltex were acquired by public-sector companies. For instance, the assets
of Burmah Shell were bought by Bharat Petroleum (BPCL), and those of
Exxon and Caltex by Hindustan Petroleum Corporation Limited (HPCL).33
Western oil companies were, and continue to be, involved in
conspiracies. In 1953, they were involved in the overthrow of the
democratically elected Iranian government of Mohammad Mosaddegh.34
Western governments and multinational companies have usually sided with
obscurantist, stuck-in-the-Middle Ages monarchies and sheikhdoms in the
Middle East. It was logical, therefore, to be cautious about multinational oil
giants. However, it would have been a demonstration of India’s
policymaking skills if it had attracted investments from international oil
companies without allowing them to meddle in domestic politics.
Tables 3.1 and 3.2 in the Appendices show that the Central government’s
finances were steadily worsening during IG’s tenure. For instance, the gross
fiscal deficit35 increased from 3.08 per cent of GDP in 1970–71 to 5.69 per
cent during 1983–84, the last year of her second term in office. Capital
outlays did rise but so did interest payments as a fraction of GDP. The
steady increase in the gross fiscal deficit constrained the Central
government’s capacity to push development expenditure. The Central
government’s deficits were alarmingly high at over 5.5 per cent in the
1980s.
 India’s budget and related numbers are based on cash-based accounting
and are not accrual based. Accrual-based accounting amortizes future and
contingent liabilities of the government, and this provides a more accurate
picture of government’s finances. All companies in India have to follow
accrual-based accounting norms. Of course, a number of assumptions
would need to be made to follow accrual-based accounting for a country’s
finances, and several developed countries have chosen not to move to this
norm. The larger point is that governments do tend to push out liabilities
into the future to provide a sturdier picture of the country’s economic health
than would be warranted if bonds and guarantees issued by the government
were to be taken into account.36
GDP growth rates fell and rose dramatically from one year to another in
the 1970s. In the 1980s, GDP growth rates gradually rose to over 7 per cent.
Growth was fuelled by higher fiscal deficits and was hence unsustainable.37
Fiscal deficit numbers, which include all the state governments, provide a
more comprehensive picture of the state of finances of the country.
However, as PMs do not exercise direct control over state government
budgets, the focus here is on the Central government’s finances.
Consumer price inflation was also very volatile and often in double
digits. Given high inflation and with no sign of higher productivity, the
exchange rate did not depreciate adequately between 1970–71 and 1983–
84. The high inflation in India during 1973–75 was driven by the sharp rise
in oil import prices, as mentioned above.
The IG years were marked by extremely high rates of income tax. There
were eleven different slabs for income tax from 10 to 85 per cent, and with
a surcharge of 15 per cent, the highest rate touched an absurd 97.8 per cent.
IG, presenting the Union government’s budget for 1970–71 on 28 February
1970 (she was then holding concurrent charge as finance minister),
remarked: ‘If the requirements of growth are urgent, so is the need for some
selective measures of social welfare. The fiscal system has also to serve the
ends of greater equality of incomes, consumption and wealth, irrespective
of any immediate need for resources.’38
 Income tax collection remained mired around 1 per cent of GDP despite
the high rates. Corporate tax rates were around 60 per cent and differed for
widely and closely held companies. This was an era when import duties
varied from zero to 200 per cent, and there were qualitative restrictions and
import licensing. The discretion, high rates of taxation and duties led to
widespread tax evasion and avoidance, and it was lucrative for the
unscrupulous among tax administrators.39
The Janata governments of Morarji Desai and Charan Singh proved
unstable, with competing egos and agendas, and midterm general elections
had to be called within three years40 of the first non-Congress government
coming to power in Delhi in 1977. In January1980, IG was voted back to
power with 362 seats in a Lok Sabha of 520 members. IG had not lost
support in southern India even in 1977, and in 1980 she again won a huge
absolute majority in the Lower House.
The antagonistic positions between the government and business were
more symptomatic of the Indira Gandhi years from 1969–77. Post 1980,
Indira Gandhi was somewhat chastened as it was starkly evident that
excessively tight government controls had led to a scarcity-ridden economy
without any compensatory semblance of distributive justice. At the same
time, she was correct in her analysis of some Indian business houses who
wanted to have their cake and eat it too. In an exclusive interview which
was carried in the Sunday Review of the Times of India dated 14 August
1983, IG quipped to Fatma R. Zakaria that ‘the industrialists who used to
speak for a free market blame us and demand a sheltered market—just as
bootleggers are said to favour prohibition’.
In fairness to IG, a few exploratory moves were evident even before
Congress lost power in 1977. For instance, L.K. Jha, who was somewhat
out of favour at that time, was asked to examine reforms of indirect taxes as
far back as 1970. And, an income tax settlement commission was set up in
1976 based on the recommendations of the Justice K.N. Wanchoo
Committee.41
After IG’s return, L.K. Jha, who was considered pro-US compared to
P.N. Haksar, was appointed chairman of the Economic Administration
Reforms Commission (EARC) in 1981, and he held that position till 1988.
The official resolution to set up this EARC said that it is ‘an appropriate
institutional arrangement for advising government on certain important
areas of economic administration and on matters involving interaction
between different sectors of government activity in this field’.42 It is likely
that IG was signalling a slight shift to the right in economic policies rather
than expecting much from Jha in an advisory capacity. The EARC had a
two-year term to begin with but continued for another four years after IG
passed away in 1984. Rajiv Gandhi probably left the EARC undisturbed as
a mark of respect to L.K. Jha, rather than expecting any substantive
contributions from it. In comparison to China, India’s communist
neighbour, which was opening up steadily to trade and investment since
1979, even in her second innings IG’s thinking was still too mired in state-
directed economic growth.
The second oil price rise in 1979–80 was due to the revolution in Iran
and the Iran–Iraq war. The Shah of Iran fled the country in 1979, and there
were widespread disturbances there. As Ayatollah Khomeini took over,
Iran’s oil production plunged. The following year, the war with Iraq, which
went on till 1988, meant that the upward bias to oil prices persisted for
several years. In anticipation of pressures on India’s balance of payments,
IG’s government concluded an IMF line of credit amounting to SDR 5
billion.43 As there was no immediate or impending crisis, the IMF could not
demand reforms. That is, IG’s government did not consider any relaxation
in industrial licensing policies, the excessively restrictive MRTP Act (which
used to be applied subjectively) or cuts in government expenditure. About
SDR 3.9 billion of this line of credit was drawn, and considerable virtue
was claimed by the Indian government for not drawing the balance SDR 1.1
billion.

Break-up of the Congress Party and Centralization of Power

In the 1967 general elections, out of a total of 520 seats in the Lok Sabha,
the Congress won 283 and lost power in eight north Indian states which had
gone to polls at the same time. The individual results for the Congress were
stunning since Kamaraj, S.K. Patil and Atulya Ghosh lost their seats. These
three heavyweight Congress leaders were well known in the respective
states of Tamil Nadu, Maharashtra and West Bengal. The fact that they lost
demonstrated that they had come to be seen as somewhat distant from the
pressing day-to-day concerns of voters. This was also the first sign of public
disenchantment with senior Congress leaders. However, Indira Gandhi and
Morarji Desai won with substantial majorities. The distrust between the two
continued and came to a head over the choice for the next President of the
country. Indira Gandhi prevailed in pushing the candidature of Zakir Husain
who became President on 13 May 1967. The Young Turks of the Congress
supported her. Nijalingappa replaced Kamaraj as Congress president in
1968, and almost from the start he had differences with IG.
The succession battle for the post of the next President started after Zakir
Husain passed away on 3 May 1969. On 28 October 1969, Nijalingappa
sent an open letter to IG in which he wrote ‘you seem to have made
personal loyalty to you the test of loyalty to Congress and the country’.44
Would the worst detractors of Nehru have ever said that about him? A
publicly acknowledged fact today about Indian politics is that many leaders
expect junior politicians and officials to be personally loyal to them. This
has to be unpalatable to self-respecting individuals since human beings can
be expected to be loyal to ideas or causes, not individuals. An environment
in which sycophancy is rewarded promotes mediocrity and worse in policy
formulation and implementation in government.
IG and the Syndicate, which now included Congress president
Nijalingappa, did not have a common candidate for the next President of
India. While IG supported V.V. Giri for the President’s post, the official
Congress candidate was N. Sanjiva Reddy. The results were declared on 20
August 1969, and Giri won by a narrow margin. Matters came to a head
between IG and the Congress party leadership in November 1969 when
Nijalingappa expelled her from the Congress. The Congress had 429
members in the two houses at that time, and of these, 310, including 220 of
the Lok Sabha, attended a meeting called by IG. From here on, the IG
faction of the Congress in the Lok Sabha was reduced to a minority of 220
members in a house of 530. Consequently, IG had to depend on the CPI’s
support in Parliament, and CPI cadres were delighted with this tactical
alliance.
IG centralized control over government incrementally and purged or cut
down elements who were suspect. For instance, Y.B. Chavan, who had
dithered in his support for IG, was stripped of the home portfolio and
allotted finance in late 1969. IG had earlier split the IB, and allocated
domestic intelligence to IB and foreign intelligence to a newly created
Research and Analysis Wing (R&AW) in September 1968. These two
agencies and Revenue Intelligence were made to report directly to the PMO
instead of through the home or finance minister. This unprecedented
concentration of administrative discretion in the PM’s secretariat made it
that much easier to silence doubters but also made timely course correction
on economic and foreign policies less likely.
The fifth general elections took place in March 1971, and out of the 518
seats in the Lok Sabha, IG’s Congress (R) won 352. Congress (O)45 led by
Morarji and others won just fifty-one seats. The Congress (O) made the
cardinal mistake of being perceived as favouring big business and the richer
classes since some of its members opposed bank nationalization and
abolition of privy purses for princes. Populist economic policies and anti-
West rhetoric had decidedly won, and IG was on the ascendant. In keeping
with the rhetoric that government ownership was necessary to widen
insurance coverage, General Insurance was nationalized in May 1971 (Life
Insurance had already been nationalized in 1957).
IG now had a two-thirds majority in the Lok Sabha which enabled her to
amend the Constitution. IG chose to whittle down state-level Congress
leaders of long standing who were popular with local voters. For instance,
she eased out the following well-known and popular chief ministers, M.L.
Sukhadia of Rajasthan, Brahmananda Reddy of Andhra Pradesh, M.M.
Chaudhuri of Assam and S.C. Shukla of Madhya Pradesh, over the course
of 1971–72. This replacement of Congress stalwarts with those who were
personally loyal to IG reduced reliable feedback from state capitals.
Foreign Policy—Ups and Downs

India’s relationship with the Soviet Union changed after IG’s return to
power. According to Inder Malhotra,46 this was partly because Soviet
leaders had not remained in touch with IG while she was out of power
between 1977 and 1980. In a reflection of the change in the relationship, in
response to a question from the Soviet leadership at a bilateral meeting
about what they should do next in Afghanistan, IG is said to have remarked
dryly that the way out of that country was the same as the way in.
A more specific answer to what IG felt about India’s relationship with the
Soviet Union is evident from the following exchange between her and
Ambassador Chandrashekhar Dasgupta.47 Ambassador Dasgupta was
posted to Singapore as the next Indian high commissioner in 1981. It was
customary for Indian ambassadors and high commissioners to call on the
prime minister before taking up their assignments in foreign capitals. In the
course of Ambassador Dasgupta’s call on IG, she asked a rhetorical
question about why India had closer ties with the Soviet Union than with
the United States. IG answered her own question and remarked that India
did so because the Soviet Union was the weaker of the two superpowers; it
had greater need for India’s cooperation and was, therefore, prepared to
accommodate India’s interests to a much greater extent.
This characterization of India–Soviet Union ties by IG gives a sense that
India was in the driver’s seat in this relationship. The fact is that India had
carried the burden of export pessimism and consequent import controls of
its left-oriented economists and administrators for far too long. This made
the rupee–rouble arrangement for defence equipment and other purchases
from the USSR appear more attractive than was actually the case. If the
long-term maintenance, replacement of parts and running costs of the
equipment and armaments purchased had been taken into account, the cost
of acquisitions from the Soviet Union would not necessarily be competitive.
Although Western countries had restrictions on arms sales to India,
transparent international bidding for defence imports should have been
initiated post the 1965 war.
 The following episode is symptomatic of the extent to which IG was
oversensitive to leftist sentiments. This was a posture she had adopted since
the late 1960s, and it had served her well in elections. In March 1983, India
hosted the seventh Non-aligned Summit in Delhi. The chairmanship passed
from Cuba to India, and Fidel gave that famous hug to IG in the main
Vigyan Bhavan auditorium. Saddam Hussain was another ‘non-aligned’
leader who participated in that summit. There was a great deal of
backslapping, and India as host had created this self-congratulatory
atmosphere, somewhat defiant of the West.48 In this environment any light-
hearted remark about the left was not appreciated. Mani Shankar Aiyar,
who was the joint secretary for external publicity in the Ministry of
External Affairs, was the designated official to brief the media every
evening. In one of the initial briefings, Mr Aiyar referred to communists as
‘commies’ and he did not mean any disrespect. However, stalwarts from
Indian communist parties complained to IG, and Mr Aiyar was replaced,
and for the remaining days of the summit then Secretary (East) K.S. Bajpai
briefed the press.
As for China, Huang Hua, senior leader and involved with China’s
external relations over a long period, was sent to India by Deng Xiaoping in
June 1981. This was a follow-up to Foreign Minister A.B. Vajpayee’s visit
to China in 1979.49 An element of normalization of relations with China
returned with the opening of Mount Kailash and Mansarovar lake in Tibet
to Indian pilgrims in 1981. These sites had been closed to Indians since
1962. Deng Xiaoping is understood to have conveyed through Huang Hua
that the India–China border could be formalized as per the existing Line of
Actual Control (LAC). Effectively, acceptance of the border as it exists in
Arunachal in the east for India, giving up its claim on Aksai Chin. G.
Parthasarathy was a senior adviser to IG on foreign policy and is said to
have counselled against it. The rumour is that he remarked to IG that no
such deal should be concluded since the Chinese had killed her father.
Narasimha Rao was the foreign minister at that time. However, as was the
practice then, senior ministers would not speak their minds for fear of
offending IG. Time was not necessarily on India’s side in reaching a
mutually satisfactory border agreement as the Chinese economy gradually
became much larger than that of India.
China had a domineering presence in South East Asia in the past. The US
had raised its profile with countries of this region by setting up SEATO and
was supportive of the ASEAN grouping which was put together in 1967.50
The India of the IG years was not sufficiently mindful of its historical
relations with the ASEAN nations and of the potential for trade and
investment. Surface transportation linkages between India and South East
Asian countries were extremely limited during these years. Building of
roads towards the ASEAN nations was difficult because of the pockets of
insurgency in India’s North-east, and Myanmar was more closed than now.
In retrospect, India was too West oriented to even begin to ‘look’ East
during the IG years.
By the late 1960s, India’s trumpeting of non-alignment and a closer
relationship with the Soviet Union was perceived as a more significant tilt
away from the West than during the Nehru era. Tightening of economic
controls and nationalization of banks contributed to this image domestically
and in foreign capitals. Post the 1971 general elections, the rhetoric against
the US and the so-called reactionary elements in the Congress was ratcheted
up by pro-IG elements within the Congress, surely with her consent, and by
the left parties.
Senior US politicians, officials and citizens from various walks of life in
developed Western countries and even non-resident Indians (NRIs) often
talk down to Indians. By definition, developed countries have high per
capita incomes, and the unstated sentiment among those living in these
countries is that they do not have the time or patience to figure out why
India is poor in per capita terms. Residents of economically advanced
countries also have a tendency to advise Indians on how to fix their
problems. Officials from Japan and Germany, as defeated powers of the
Second World War, are more careful and usually do not allow their
condescension to show.
Some in the Indian government, civil servants and the political executive,
are highly qualified and extremely well read. Invariably they are also thin-
skinned about anyone talking down to them. Unfortunately, Indian leaders
and senior officials allow their personal sense of outrage at being belittled
during conversation to colour their judgement about government-to-
government relations with developed nations. This was particularly true in
the case of India’s relations with the US during the IG years.

Bangladesh

In Pakistan, India’s troubled neighbour to the west, there was continuing

political instability after the 1965 war between the two countries. Field
Marshal Ayub Khan had to finally go early in 1969, and General Yahya
Khan, with little political acumen, came to power. Contrary to Yahya
Khan’s expectations, Pakistan’s elections of December 1970 saw the Awami
League win 160 out of 162 seats in East Pakistan, and Bhutto won eighty-
one out of the 138 seats in West Pakistan.
Mujibur Rahman was the leader of the party which had won more than
50 per cent of the total 300 seats (for West and East Pakistan combined) and
had the right to be invited to form the government. However, Yahya Khan
and Bhutto had no intention of allowing Mujibur Rahman to take over as
the PM of Pakistan. In the political impasse that followed, Yahya Khan
declared martial law in Pakistan, and in March 1971, Mujibur Rahman
declared East Pakistan independent and was put behind bars. Yahya Khan
ordered for the demonstrations in East Pakistan to be put down by Pakistani
troops. In the Pakistani Army’s violence against university students,
professors and other protesters, casualties soon mounted from the hundreds
to the thousands. Bangladesh has claimed that about 3 million people were
killed by the Pakistani Army. Fleeing this genocide, a total of about 10
million refugees poured into India.
The Hindu refugees had inflammatory accounts about how they were
singled out by Pakistani troops, and that a disproportionately high
proportion of those killed or violated were from this minority community in
East Pakistan.51 As the burden of making living arrangements for the
refugees and containing their resentment mounted, it became clear to IG
that India would have no option but to intervene in East Pakistan. IG was
prescient in recognizing that if there were to be a conflict with Pakistan,
India would need a veto-wielding supporter in the UNSC.
Accordingly, on 9 August 1971, the Indo-Soviet Treaty of Peace,
Friendship and Cooperation was signed in New Delhi. Six days later, at the
Independence Day speech from the Red Fort on 15 August 1971, IG
insisted that this treaty with the USSR did not mean that India had
abandoned non-alignment. She referred to Bangladesh and to the risks
ahead. US Senator Edward Kennedy was present at this function.52
It is to IG’s credit and that of the Indian foreign policy establishment that
an influential US senator was persuaded to visit the overflowing makeshift
camps in West Bengal where Bangladeshi refugees were housed.
Subsequently, Kennedy denounced the Pakistani Army’s bloody
suppression of dissent in Bangladesh as genocide. The New York Times of
17 August 1971 carried a report to this effect and that Senator Kennedy did
not feel that the Indo-Soviet friendship treaty was ‘in any way
disadvantageous to US friendship with India’. The then Foreign Minister
Sardar Swaran Singh had told him that India would be willing to sign a
similar treaty with the US, although this did not happen.
The overall feedback from official Western circles, though, was that it
was difficult to reconcile this level of ‘friendship’ between a democratic
India and the communist Soviet Union. In September 1971, IG visited the
Soviet Union and then went on a twenty-one-day tour of European capitals
including France, the UK and the US. This was part of India’s outreach to
explain what was happening in East Pakistan to governments and the public
in Western countries. The international community’s and the UN’s relative
indifference must have come as a surprise even to the hard-boiled in Indian
decision-making circles.
In another blunder on 3 December 1971, Yahya Khan ordered the
Pakistani air force to attack western India, and war was declared between
the countries on the following day, 4 December. Two days later, while the
war was raging, India recognized Bangladesh on 6 December. The Mukti
Bahini (Freedom Fighters) of Bangladesh provided invaluable information
to the Indian side on the terrain, logistics and locations of Pakistani Army
strongholds. As a consequence, the Pakistani troops in East Pakistan were
easily and quickly outmanoeuvred by the Indian Army led by Lieutenant
General J.S. Arora. On 16 December 1971, Pakistani Lieutenant General
Niazi surrendered to a joint India–Bangladesh command. About 93,000
soldiers and officers of the Pakistani Army became prisoners of war.
Given the publicity about Pakistan’s atrocities in Bangladesh, two
permanent members of the UNSC, the UK and France, abstained from US-
sponsored UNSC resolutions calling for an immediate end to hostilities
between India and Pakistan during the two-week war. In any case, the
Soviet Union repeatedly vetoed such resolutions. Within two months of the
declaration of ceasefire, the UK, West Germany and France recognized
Bangladesh in February 1972, even before Indian troops had fully
withdrawn from this newly born country. China blocked the entry of
Bangladesh into the UN using its veto till 1974.
Despite the almost intolerable pressures from various quarters for India
to act earlier to stop the Pakistani Army’s atrocities in East Pakistan, IG was
tactically wise to wait and then wait some more. With the passage of time,
there was wider dissemination of information about the violence perpetrated
by the Pakistani Army against its own citizens, and NATO members were
increasingly reluctant to give credence to Pakistan’s claim that India was
the clandestine aggressor in East Pakistan. IG’s calculated patience in
letting Pakistani genocide in East Pakistan get widespread media coverage
in the West made it difficult for the US to provide material support to
Pakistan. The genocide in East Pakistan is documented in detail in The
Blood Telegram by Gary J. Bass.53 It is speculated that Kissinger indicated
to China that the US would not be averse to China opening a second front
with India. In this context, the Indo-Soviet treaty may have contributed to
keeping China at bay.
A retired senior official of the Ministry of External Affairs has hinted to
the author that India received an assurance from China, through the good
offices of Russia, that China would not intervene militarily in any way.
Irrespective of the veracity of the multiple versions about how the end
result was achieved, on this occasion China was outsmarted by India since
it was not able to prevent the break-up of Pakistan, a state it had and
continues to use to contain India.
At this stage, IG was at the height of her powers with an absolute
majority in the Lok Sabha, the creation of Bangladesh and victory over
Pakistan. She was hailed within and outside India as a decisive leader. India
loomed too large in South Asia for China’s comfort, and it is likely that it is
since then that China decided to prop up Pakistan even more, including
helping it to acquire nuclear weapon capability.
Sheikh Mujibur Rahman was released from captivity in Pakistan on 16
December 1971, and he returned to Dacca via Delhi and became the first
prime minister of Bangladesh in January 1972. Indian troops needed to
leave Bangladesh speedily to encourage international recognition of this
new country, and they did so by March 1972. Publicly available records do
not indicate that any discussions were ever held with Mujibur Rahman
about leaving a small Indian Army contingent in Dacca for his personal
protection. Of course, it was a broader failure of the Indian government that
it could not protect Mujibur Rahman from assassination on 15 August 1975.
An armed Indian contingent may have saved Mujibur Rahman since it is
unlikely that pro-Pakistan elements in the Bangladesh army would have
confronted even a small Indian Army group directly. On the other hand,
Mujibur Rahman was convinced that no Bangladeshi would ever harm him
physically. His desire to be part of the Islamic world led him to allow
elements of the Jamaat and others with similar views to come back from
Pakistan. Perhaps it was difficult for him, taking domestic public opinion
into account, to accept armed protection from a friendly yet non-Muslim-
majority India. Mujibur Rahman alienated many in Bangladesh by banning
all parties other than his own and declaring himself President for life in
January 1975.
Mujibur Rahman’s assassination resulted in huge opportunity costs for
India’s north-eastern states. By the end of the nineteenth century, the British
had built a rail link from Sadiya in upper Assam to Chittagong port via tea
estates and Lumding.54 This railway line was used to transport oil from
Digboi, and tea, bamboo and coal from sources all along the rail tracks.
Assam and other states in the north-east became landlocked after relations
soured with Pakistan. Indians in the rest of the country tend to forget that
Kolkata was the dominant profit centre for the East India Company, and
goods from the north-east were initially floated down on barges and later
transported by rail to Chittagong port.

Sikkim

Sikkim had skirmishes with Bhutan and inimical relations with Nepal in the
seventeenth century, and most of its territory was annexed by the latter in
the eighteenth century. This relatively small state of Sikkim was of strategic
importance for Britain because of trade routes via its territory to Tibet, and
it regained its territorial integrity due to British intervention in the
nineteenth century. In the early twentieth century, Sikkim obtained
guarantees of independence and a protectorate status from Britain which
were transferred to India in 1947. However, the Indian Constitution of 1950
made no explicit mention of Sikkim. At that time, Sikkim’s population was
about 100,000, and most senior positions in administration such as head of
police were held by Indians. On balance, the chogyal (ruler) of Sikkim
needed India more than vice versa.
In the early 1970s, as official Indian thinking about Sikkim was being
revised, the then Foreign Secretary T.N. Kaul felt that Sikkim should be a
part of India and could have an ‘associated’ state status. Kaul’s overall
judgement on the status of Sikkim was too sensitive to the concerns of
Palden Thondup Namgyal, the chogyal, and his sister.55 Over time, the
number of people of Nepalese origin grew in Sikkim, and they, along with
segments of the local population, wanted to be formally a part of India.
Consequently, the chogyal’s dalliance with the idea of striking out on his
own was opposed by a majority of the by then multi-ethnic population of
Sikkim.
As the law-and-order situation deteriorated in Gangtok, the chogyal
finally agreed to a referendum. About 90 per cent of the vote in April 1975
was in favour of integrating with India. Kewal Singh had taken over as
foreign secretary in 1972, and his wry comment on hearing this news was
that this was ‘too high’ a vote of confidence in India. The Indian
government skilfully took advantage of the diversity in local sentiments to
hold elections to depose the chogyal and include Sikkim fully in India. The
Indian Constitution was amended in 1975 to incorporate Sikkim. Given the
strategic location of Sikkim, this was a significant success for Indira
Gandhi’s unhurried approach in this matter which blunted reservations in
China and possibly the US.

Accord with Sheikh Abdullah

By February 1975, Sheikh Abdullah was again the chief minister of

Kashmir, after a 197456 accord with the Indian government which was
orchestrated by IG. This accord was negotiated over more than two years
and the principal points were: (a) the definitive nature of the accession of
Kashmir to India; and (b) the special status of the state under Article 370 of
the Constitution. Subsequently, in 1977 Sheikh Abdullah won an
overwhelming majority in the state assembly elections. Kashmir has had a
troubled record of holding elections. The local population has on occasion
rejected the verdict on the grounds that voting booths were captured or that
counting, before automatic voting machines were introduced, was rigged.
(For instance, a decade later, the 1987 elections which led to Sheikh
Abdullah’s son, Farooq Abdullah, becoming chief minister were widely
perceived to have been rigged.)57 In sharp contrast, the relatively high level
of public trust in the results of the 1977 elections in Kashmir was a popular
vindication of IG’s judgement at having reached an understanding with
Sheikh Abdullah. That accord and the peaceful and transparent elections in
this sensitive state had a positive impact, at the margin, on India’s image,
particularly after the debacle of the Emergency.

Shimla Agreement—Missed Opportunities

IG did not display the same level of hard-headed clarity and risk-taking
ability in the negotiations that led to the Shimla Agreement as she did prior
to and during the Bangladesh war. Post the creation of Bangladesh, Yahya
Khan had lost all credibility domestically, and Bhutto was named President
of Pakistan on 20 December 1971. At that time, Sheikh Mujibur Rahman
was still in prison in West Pakistan and was charged with treason which
could have meant the death penalty. A combination of international opinion
and Indian cajoling led to Mujibur Rahman’s release in January 1972 and
he returned to Dacca. There is no confirmation in publicly available official
records but there are hints in writings about that period that Mujibur
Rahman’s release was perhaps secured by IG with a commitment to Bhutto
for subsequent concessions to Pakistan.
Within two months of Mujibur Rahman’s return to Bangladesh, he signed
a bilateral Treaty of Friendship, Cooperation and Peace with IG in Dacca on
19 March 1972. The possible trial of senior officers among the Pakistani
POWs was probably discussed at this time. Bangladesh initially wanted to
try about 1,000 senior Pakistani officers for genocide but later agreed to
reduce this list to about 195 officers. There was abundant evidence58 of the
numerous cases of torture, rape and mass murders committed by Pakistani
troops. IG may have calculated that recognition of Bangladesh may be
delayed indefinitely by Pakistan, Islamic countries and China, and did not
press for an international tribunal to assess the nature and extent of the
grave crimes committed against Bangladeshi nationals.
The official-level discussions with Pakistan on return of territory, POWs
and related issues began in Murree, Pakistan in April 1972. The Indian side
was led by Durga Prasad Dhar, and the Pakistani team was headed by Aziz
Ahmed, a veteran civil servant.59 Durga Prasad Dhar was active in Kashmir
politics in the 1950s. Between 1969 and 1971, he was the Indian
ambassador to Moscow and was closely involved in the deliberations
leading to the friendship treaty with the USSR. After he returned to Delhi in
1971, he was associated with policy formulation during the war with
Pakistan. Dhar fell seriously ill while the negotiations were on, and P.N.
Haksar had to take his place.
 The Ministry of External Affairs was conspicuous by its absence at these
negotiations, possibly because the then Foreign Secretary T.N. Kaul did not
have IG’s confidence. P.N. Dhar’s memoirs60 of those times indicate that
India was over-anxious to achieve a successful outcome to the negotiations.
In this drive to conclude an agreement, India did not hold out for a
definitive resolution of the Kashmir issue. Namely, that the ceasefire line
would not just become the LoC but the international border.
According to various accounts of the period, Bhutto seems to have
convinced IG that democracy in Pakistan would be in grave danger if he
agreed to convert the ceasefire line in Kashmir into an international border.
Even without the benefit of hindsight, it seems naive of IG and Haksar to
have actually believed that Bhutto would build an open and plural
democracy in Pakistan. Bhutto, as Pakistan’s foreign minister in Ayub
Khan’s government, was high on virulent rhetoric against India from 1963
onwards. To an extent, Bhutto was responsible for the tense environment
which led to Pakistan starting an armed confrontation in 1965—first in
Kutch and then in Kashmir. Bhutto was also part of the army–politician
nexus in West Pakistan that did not allow Mujibur Rahman to be PM of
Pakistan after its 1970 general elections. It appears highly counterintuitive
for the Indian side to expect such a man to be overly concerned about
democracy taking root in Pakistan or to keep his word on resolving the
border issue.
The Indian side could have hinted at the possibility of trials on the lines
of Nuremberg. This would have got the attention of the Pakistani elite.
According to P.N. Dhar, the chief official-level Pakistani negotiator Aziz
Ahmed made ‘some crude remarks in Punjabi about their wives not really
missing their [Pakistani POWs in camps in India] husbands’.61 It is not clear
whether the possibility of publicly held trials was ever mentioned to Bhutto
or his senior negotiator Aziz Ahmed.
P.N. Haksar was of the view that driving a hard bargain with Pakistan
would have been similar to the onerous and hence counterproductive
Versailles Treaty imposed on Germany after the First World War. This
equivalence is misplaced. While Germany did commit genocide before and
during the Second World War, it had not done so in the first. The
knowledgeable Haksar must have been well aware of this. Obviously, there
has to be some other explanation why India let Bhutto off the hook.
What may have worked was if India had insisted that in exchange for the
LoC becoming the recognized border, it would no longer lay claim to what
is called PoK, except a guaranteed trade and transit corridor through it to
Afghanistan. However, P.N. Dhar says that ‘Mrs Gandhi herself was
worried that a formal withdrawal of the Indian claim on Pakistan-occupied
Kashmir would create political trouble for her’.62 From this statement, it
appears that the future political fortunes of the Congress party were more
important for IG than achieving a lasting solution to the Kashmir issue for
the nation.
P.N. Dhar also mentions that ‘Y.B. Chavan and Jagjivan Ram were
unhappy about the return of POWs and territories to Pakistan without an
adequate quid pro quo, but did not, as was their wont, articulate their
misgivings clearly enough’. In R.K. Laxman’s cartoon, below, Chavan and
Jagjivan Ram can be identified on IG’s left as mini-men in a cabinet so
ludicrously dominated by her.
 According to P.N. Dhar, in a briefing session when just Haksar and he
were present with IG, Dhar suggested that India should not immediately
give back captured Pakistani territory. IG flew into a rage, and Haksar
indicated that Dhar should leave the room. Dhar says, ‘My hunch is that she
was under pressure—this could only have been from the Soviets—to return
the occupied territories.’63 There was similar speculation that Shastri had to
give back the Haji Pir pass at the deliberations in Tashkent because of
Soviet pressure. It is likely that there were back-room deals between the US
and the Soviets for the latter to pressure India on both these occasions. The
US wanted to maintain leverage in Pakistan which had provided military
base facilities in the past and could be useful in the future. Pakistan did
become particularly useful to the US from the late 1970s, and more so
during the 1980s, as the logistical conduit through which mujahideen were
armed by the US during the decade that Soviet forces were in Afghanistan.
The Soviet Union too wanted to gain influence with Pakistan. In a
throwback to the nineteenth century ‘Great Game’ jousting between Russia
and the UK, decision makers in Moscow may have harboured fond hopes of
access to the Arabian Sea via Pakistan. Since that was an extremely low-
probability outcome and hence an unlikely rationale for Soviet pressure on
India, maybe the USSR had an interest in Pakistan’s cooperation to keep
extremist Islamic elements, in its soft underbelly, namely, the Central Asian
republics, in check.
The Shimla Agreement was finally signed by the Indian and Pakistani
heads of government, IG and Z.A. Bhutto, on 3 July 1972. The overarching
guiding principles were that: all disputes in the future would be settled
bilaterally, without conflict and hostile propaganda; territorial integrity of
both countries would be respected; the LoC would replace the ceasefire
line; and the heads of government would meet again for a final settlement
of the Kashmir issue. All the POWs were gradually repatriated and the
5,000 square kilometres of territory captured in West Pakistan was returned.
Now, so much later, with the experience of the steady infiltration of
extremists into Kashmir and Punjab, the Kargil war in 1999 and the
November 2008 attack in Mumbai, it is obvious that the Shimla Agreement
did not result in any measure of normality in India’s relations with Pakistan.
As a thought experiment, even if Pakistan had signed an agreement to
convert the ceasefire line into a border, it could well have reneged on the
grounds that the agreement was signed under duress. The bottom line is that
Pakistan’s military establishment self-servingly holds India responsible for
losing East Pakistan. Hence, as long as the armed forces have a dominant
say, the Pakistani state is likely to keep trying to wrest the Srinagar valley
from India. However, all things considered, an opportunity was lost in India
signing an agreement with Pakistan which did not convert the ceasefire line
into an international border.

Nuclear Test and Technology Denial

Homi J. Bhabha died in a plane crash over the Swiss Alps on 26 January
1966, the same day that IG was sworn in as India’s PM. Given Bhabha’s
stature as a scientist and able administrator, his untimely death slowed
down all aspects of India’s nuclear programme. However, IG did pay
attention to the selection of respected replacements despite her
preoccupation with the squabbling within Congress. The nuclear and space
programmes were entrusted to eminent scientists such as Raja Ramanna,
Vikram Sarabhai, Satish Dhawan and Brahm Prakash. In the field of
agriculture, M.S. Swaminathan was put in charge of the Indian Council for
Agricultural Research. IG accepted P.N. Haksar’s recommendations and did
not play favourites in technically demanding fields. Haksar was also
successful in getting IG to continue with Nehru’s approach to empower
eminent specialists as secretaries to government and ensure minimal
interference except for overall budget issues from generalist civil servants.
The 1968 Treaty on the Non-Proliferation of Nuclear Weapons (NPT)
was agreed upon among existing nuclear weapon countries to let nations
that had tested nuclear weapons before 1 January 1967 to retain such
weapons, and prohibited all others from acquiring nuclear weapons or
related technology. It is surprising that the then Foreign Secretary
Rajeshwar Dayal and R. Jaipal, the joint secretary concerned in the Ministry
of External Affairs, recommended that India become a party to this
discriminatory treaty.64 It is to IG’s abiding credit that she overruled the
foreign secretary and did not sign this treaty.
Subsequently, IG authorized India’s first test of a fission device, which
took place in Pokhran on 18 May 1974. Jairam Ramesh suggests in his
book65 that the decision to test a fission device must have been taken when
P.N. Haksar was still at IG’s side, and it was probably his influence that led
her to go ahead with the test. This was a bold decision in a country beset
with high inflation and underemployment, and the central and state
governments were having to deal with frequent strikes and public
demonstrations against perceived official apathy and connivance with
corruption. There were clashes between agitators and the police in several
states, all of which made the administration’s tasks more difficult. Despite
the criticism from several quarters that this was an attempt to distract the
public’s attention from everyday problems, the test raised IG’s prestige
domestically. Even the less technologically aware understood that this was
quite a feat, and the scientists were applauded at a time when there was
little else to cheer about.
Towards the end of the Second World War, the US scientist Robert
Oppenheimer headed the Manhattan Project in a race to build nuclear
weapons before any other country. Oppenheimer and his team orchestrated
the first-ever successful test of a nuclear fission chain reaction in New
Mexico, USA, on 16 July 1945. At a personal level, Oppenheimer was
deeply conflicted about the destructive power of nuclear energy, and he was
well aware of the teachings of the Bhagavad Gita. Oppenheimer is said to
have rationalized to himself, on the lines of Krishna’s advice to Arjuna that
warriors have to carry out their duty (dharma) irrespective of the death and
destruction caused in the process. In a press interview, Oppenheimer
quoted66 Krishna when He revealed Himself to Arjun with the brilliance of
a thousand suns and said that the destruction of the Kaurava clan was
inevitable, Arjun was merely the instrument and: ‘Now I am become Death,
the destroyer of Worlds.’ Oppenheimer was comparing the imagery of
Krishna’s resplendent appearance and terrifying words with his own feeling
of awe when he saw the blinding flash and sensed the overwhelming power
from the concussion waves that were released by that first nuclear fission
test.
China had conducted its first nuclear weapon test in October 1964 at its
Lop Nur test site. The NPT was opened for signature in 1968 and the NPT
came into force in 1970. Under this treaty’s Article 1, China could retain its
nuclear weapons. While IG was lauded at home, her decision to call the
1974 testing of a fission device a Peaceful Nuclear Explosion (PNE) was
disingenuous and dented India’s credibility internationally. The test did not
meet India’s strategic interests. To acquire strategic credibility, India needed
to carry out more tests and declare itself as a nuclear weapon power. It is
likely that in those domestically troubled times for IG, these issues were not
discussed thoroughly within India’s atomic energy and strategic
establishments.
India could have reminded the West of the ambivalence with which the
builders of their own nuclear devices viewed such weapons. IG should have
remained noncommittal about end uses of nuclear fission. In any case, as an
immediate result of India’s so-called PNE the Nuclear Suppliers’ Group
(NSG)67 was set up in 1974. Given the high probability of developed
countries banding together to isolate India and ban transfer of nuclear
technology or materials, the contingent next steps should have been thought
through before the test.
The Soviet invasion of Afghanistan in late 1979 led to Pakistan becoming
indispensable in the jihad against the Soviet Union for over ten years till
about 1990. Consequently, the US was less inclined to clamp down on
Pakistan’s nuclear weapons programme. Taking this into account, at least by
the early 1980s India should have pressed on towards nuclear weapons and
corresponding delivery systems.68 It is unlikely that such a decision would
have led to additional economic sanctions and diplomatic isolation beyond
what happened post India’s nuclear tests in May 1998. A weakness in this
line of reasoning is that the post-1991 economic reforms had not yet
happened, and India was far more vulnerable to economic sanctions in the
1980s. That begs the question that if the Indian economy was indeed so
vulnerable, why did IG not embark on systemic economic reforms in the
1970s?

Emergency—National Disaster

On 12 June 1975, the Allahabad High Court set aside IG’s election to the
Lok Sabha in 1971 and debarred her from contesting in elections for six
years. The reasons for the court’s decision were pathetically trivial and
included the involvement of government officers in making arrangements
for public meetings. It could not be anyone’s case that IG would have lost
that election. However, the popular mood had turned against IG in some
parts of the country. For instance, in the Gujarat assembly election in that
year, IG’s Congress won less than an absolute majority—seventy-five out
of 182 seats. Discontent was spilling over into the streets because annual
consumer price inflation had shot up to 21.5 per cent in 1973–74 and even
higher to 34.4 per cent in 1974. The fourfold rise in oil prices in 1973–74
fuelled inflation in India.
P.N. Dhar recounts69 that there was wilful disregard of the law by those
who had resorted to agitations starting from the drought year of 1972 and
particularly from 1974.70 Many of the state governments were headed by
Congress chief ministers at that time. However, with the break-up of the
Congress party those with political bases such as K. Kamaraj and others of
the Congress (O) had been replaced by IG’s appointees who were
personally loyal to her. Hence, there were fewer early warnings, and local
leadership had little ability to deal with the frustrations of limited job
opportunities in the formal sector, higher inflation and reports of corruption
in high places. The Navnirman student agitation in Gujarat caught the
attention of average voters.
Veteran leaders such as Jayaprakash Narayan called for a mass
movement against what they perceived was an unfeeling government.
Public-sector workers and the average Indian were hurting badly. In this
environment, George Fernandes called for an extensive railway strike that
lasted three weeks in May 1974. Although the grievances were genuine, a
line was crossed when Fernandes structured the railway strike to stop the
movement of goods around the country and bring the economy to a
grinding halt. All this fed into a strong anti-government sentiment and made
IG extremely insecure about her position.
Nani Palkhivala argued IG’s appeal in the Supreme Court, and Justice
Krishna Iyer’s judgment gave a conditional stay. This stay allowed IG to
continue as PM but without the right to vote in Parliament. It is likely that
the Allahabad High Court order’s highly questionable stipulation that IG
could not seek re-election for six years would have been reversed by the
Supreme Court. However, Indira Gandhi was betrayed by her own cynicism
and lack of faith in due process. Not enough of Nehru’s understanding and
patience in dealing with the Opposition in a democracy had rubbed off on
her.
IG’s self-perception that she was indispensable took precedence over all
other considerations. Her government made the implausible allegation that
the CIA was trying to topple her. Tragically for India, on 25 June 1975, IG
decided to declare an Emergency71 with the instantaneous approval of an
unquestioning President Fakhruddin Ali Ahmed. The cabinet had not even
been informed about the decision. Despite the provocations, internal and
external, since the domestic agitations did not amount to an armed
insurrection against the state, there was no reason for government to have
imposed an Emergency. P.N. Dhar was surely wrong in his perception that
Jayaprakash Narayan and IG were equally responsible for the Emergency.
Foreign Minister Sardar Swaran Singh was dropped, probably because
IG anticipated that he would demur. Bansi Lal, who had helped IG’s son
Sanjay Gandhi set up the Maruti car plant in Gurgaon, was appointed
defence minister. Opposition leaders, including Jayaprakash Narayan,
Morarji Desai and Atal Bihari Vajpayee, were jailed. J.B. Kripalani
(Acharya Kripalani), veteran freedom fighter, Congress president at the
time of India’s independence in 1946–47, was a trenchant critic of IG.
Kripalani was in his nineties and was not arrested. Electricity was cut off to
newspapers on Bahadur Shah Zafar Marg in New Delhi, and censorship was
imposed on private media. One of the reasons was to first get the official
side of the story out through government-owned All India Radio.72 The then
Congress president Dev Kant Barooah declared ‘India is Indira and Indira is
India’. As far as I can remember, IG did not ever publicly distance herself
from this extreme level of sickening and hyperbolic sycophancy.
Inflation came down sharply in 1975, and there was deflation in 1976
with the imposition of tight controls and raids on hoarders of food-grains
and other products. Sanjay Gandhi pushed for private-sector investment, but
not in any systematic manner, to free it of the multiple controls which were
in place. On the political front, due to Sanjay Gandhi, there was a
distancing from the communists, and to that extent their influence on
economic policymaking was diluted. However, there was no serious
thought given to attracting FDI. In any case, the overall law-and-order
situation was not conducive to attracting foreign investment, what with the
allegations of forced sterilization and associated violence in northern India
including the outskirts of Delhi.
Chapter V of the Industrial Disputes Act of 1947 titled ‘Strikes and
Lockouts’ lays out in detail the conditions under which workers can be laid
off.73 In 1976, during the Emergency, the government amended this chapter,
requiring firms to obtain government approval before any closure or
dismissal of workers. Subsequently, in IG’s second innings as PM, in 1982
this 1947 Act was amended again to further restrict the declaration of
workers as redundant. On 15 August 1976, IG emphasized in her
Independence Day speech from the Red Fort that ‘there would be no
deviation from the socialist path’.74 Sanjay Gandhi’s Maruti car venture was
very much in the news at that time. It is likely that IG wanted to silence
those who felt that she was shifting to the right.
An Urban Land (Ceiling & Regulation) Act was passed in 1976. This Act
provided for government to acquire land above prescribed ceilings for
nominal compensation and was meant to bring about ‘an equitable
distribution of land in urban agglomerations to sub-serve the common
good’. Several state governments passed their own urban land ceiling
legislation shortly thereafter. In theory, it does help urban development if
individuals with excessively large landholdings use these for
housing/commercial purposes or sell them. On the ground, this legislation
did not result in a sharp upsurge in the development of urban land. Gujarat
and Maharashtra have since repealed their Acts as these states felt that
legislation of this nature did not serve any useful purpose.
IG’s government had faced opposition from the Supreme Court on
abolition of privy purses and bank nationalization. The narrative of some in
the Congress was that the apex court was too rigid in the interpretation of
the Constitution when it came to individual rights versus those meant for
common good. The problem with this line of thinking was that the
government’s moves were less aimed at sustainable public welfare and were
meant to engender popular support. Specifically, IG had the 38th
Amendment to the Constitution passed on 22 July 1975 which disallowed
any form of judicial review of the Emergency. The 39th Amendment,
carried out a couple of weeks later, put the election of a PM outside the
purview of any judicial scrutiny, effectively rendering the Allahabad High
Court judgment irrelevant.
Separately, on the issue of the many who had been imprisoned under the
Maintenance of Internal Security Act (MISA), the Supreme Court decided
on 28 April 1976 that although there had been no trials, the government was
within its rights to keep such individuals under detention.75 This was a five-
judge Supreme Court bench. Justice H.R. Khanna disagreed, but the four
others, Chief Justice A.N. Ray and Justices M.H. Beg, Y.V. Chandrachud
and P.N. Bhagwati, went along with the outrageous contention of the IG
government that prisoners could be imprisoned indefinitely without trial.
This pusillanimous judgment pandering to the wishes of the IG government
was a pathetic commentary on the lack of a basic sense of justice among
India’s senior-most judges. Clearly, they did not want to antagonize the
government of the day, and the motivation was probably to later be elevated
to the position of chief justice.76
H.R. Khanna was next in line to become the chief justice. Instead, in
January 1977, M.H. Beg, who was junior to Khanna, was appointed chief
justice by Indira Gandhi, and H.R. Khanna resigned. Y.V Chandrachud rose
to become the chief justice in 1978 when the Janata government was in
power. Chandrachud has had the longest tenure of over seven years
compared to all chief justices before or after him since Independence. The
Janata government was short-sightedly too preoccupied with looking for a
way to jail IG. Morarji Desai should have set aside seniority to deny
Chandrachud the position of chief justice.
IG was banking on her hunch that the personal ambitions of the judges
would prevail over fair application of the law. She was proved right, but the
nation paid a heavy price with the highest levels in the Indian judiciary
dropping to unprecedented lows in their judgments and setting a cynical
precedent for those who followed. Late in his life, about thirty years too
late, Justice P.N. Bhagwati was reported in the print media to have regretted
his decision in the ‘habeas corpus’ case during the Emergency. Justice
Bhagwati should have also regretted his letter, written while he was a sitting
judge of the Supreme Court, praising IG excessively on her return as PM in
1980.77
The 42nd Amendment of the Constitution was approved during the
Emergency by the Parliament in 1976. This amendment curtailed the
powers of the Supreme Court and high courts to decide on the validity of
laws passed by Parliament.78 The MISA of 1971, the 42nd Amendment and
the other changes in the law intended to give the government the power to
overrule courts were inconsistent with any democratic construct.
During the Emergency, Sanjay Gandhi and his band of obstreperous
supporters flouted rules and the law with impunity. This undermined
security for the poor and minorities. Some among the elite, and particularly
in government, were profuse in their praise for trains running on time and
that public order had been restored. Privately, however, cynicism about the
police, tax and administrative officials reached distressing proportions
during the Emergency. It had done little to address the endemic patronage
practices, for example, related to coal mining, production of power and
foodgrain subsidies which stoked egregious wrongdoing by private
individuals and government employees.
The consequences of the Emergency included the immense damage done
to India’s image, and the government’s attention was drawn away from the
country’s multiple economic and social challenges. Inder Malhotra and
Pranab Mukherjee79 have suggested that IG need not have called for general
elections in 1977. That is, she could have continued with an Emergency for
at least another year and even indefinitely. Usually episodes of one-person
rule end up in military dictatorships. Unlike in theocratic or communist
countries, the Congress party did not have cadres of supporters in the army.
An indefinite extension of the Emergency may eventually have led to the
military taking over, along with calls for independence from some states
supported by external powers.
Inder Malhotra’s analysis of the years 1975–77 suggests that IG was not
fully aware of what was going wrong during the Emergency, and it was
others such as Siddhartha Shankar Ray who had advised her to impose an
Emergency. This is ex-post rationalization. PMs are praised when things go
well and have to take the blame if they take decisions with disastrous
consequences.

Domestic Missteps

Since the mid-nineteenth century, the British had moved tribals and others
from Bihar, Orissa and Bengal to Assam to work in tea gardens, coal mines
and the oil industry which started with the first refinery in Digboi, upper
Assam, in 1901. By the 1970s, feelings were running high in Assam about
the continuous trickle of economic and political refugees from erstwhile
East Pakistan and particularly at the time of the birth of Bangladesh in
1971. An agitation led by the All Assam Students’ Union (AASU) and the
All Assam Gana Sangram Parishad garnered considerable popular support
of the local Assamese starting from about 1979. The agitation was directed
at forcing the Central government to take legislative and administrative
steps to stop and then roll back illegal migration into Assam, mostly from
Bangladesh.
Under legislation going back to 1946 it is for the individual to prove
residency and citizenship of India. Subsequently, in 1964 a tribunal issued
an order which was consistent with the 1946 Act on the detection of
foreigners. IG’s government, for obvious partisan electoral benefit reasons,
allowed illegal migrants to remain in Assam by passing the Illegal Migrants
(Determination by Tribunal) IMDT Act in 1983. Ostensibly, the principal
aim of the IMDT Act was to prevent harassment of migrants into Assam.
However, unlike in the past, under the IMDT Act, it was for the government
to prove that a suspected foreigner had entered and settled in Assam
illegally.80
The cynicism with which this issue of ‘foreigners’ in the sensitive North-
east was treated by IG and by subsequent Congress governments has had
negative consequences for law and order in Assam and neighbouring states.
It also led to a rise in widespread suspicion in Assam about the Central
government’s motivations. The difficult situation in Assam during 2018–19,
due to the implementation of the National Register of Citizens in Assam,
can be traced back to the IG years.
On 2 July 1984, the governor of the sensitive state of Jammu and
Kashmir dismissed Farooq Abdullah’s government. IG’s second cousin
B.K. Nehru, who was the governor of J&K, had to be replaced by the
Sanjay Gandhi acolyte Jagmohan of the Emergency years since B.K. Nehru
felt that dismissing Abdullah was unwarranted. Once the Abdullah
government was sent packing by Jagmohan, Ghulam Mohammad Shah
became chief minister. Unfortunately for Kashmir, Mohammad Shah was
unable to increase private investment in storage facilities, fruit processing
or related areas and thus increase formal sector employment opportunities
outside the state government and affiliated agencies. There were public
demonstrations, particularly in Srinagar, and again IG lost credibility and so
did the Union government. In similar fashion as in Assam, the subsequent
developments in Kashmir and loss of faith in the Central government
among many in the Srinagar valley can be traced back to events in the early
1980s.
In August 1984, IG had N.T. Rama Rao’s Telugu Desam Party (TDP)
government (of undivided Andhra Pradesh) dismissed on the grounds that
some TDP legislators had left that party. Rama Rao had come to power with
a slogan of Telugu and Andhra pride (‘Atma Gauravam’). According to
media reports, Rajiv Gandhi, treated as heir apparent in Congress circles,
had humiliated the then Andhra Chief Minister T. Anjaiah in 1982 at the
Hyderabad airport. There were violent street incidents, and the army had to
be called out to restore order. The TDP came back to power by September
1984 since TDP’s breakaway faction plus Congress were outnumbered by
Rama Rao’s supporters. The Central government’s image in another state
and internationally was dented by these episodes of dismissal of state
governments without reasonable cause.
Consistent with IG’s practice of undermining state Congress leaders, she
did not allow Giani Zail Singh, who was the CM in Punjab from 1972 to
1977, to return as CM in 1980. Instead she appointed Darbara Singh.
Darbara Singh did not favour Zail Singh’s policies of outdoing the Akali
Dal in extolling the teachings of Sikh gurus and highlighting Sikh history.
Darbara Singh felt that such partisan politics was not consistent with the
Congress party’s avowed support for secularism. Zail Singh was the home
minister in IG’s cabinet post 1980, and he encouraged his supporters in
Punjab to maintain their lines of communication with radical Sikh
elements.81
In April 1980, the head of a Nirankari sect was shot dead in Delhi, and in
September 1981 Lala Jagat Narain, the owner of a number of newspapers
published out of Jalandhar, was killed. In both cases, the finger of suspicion
pointed at a Sikh preacher called Sant Jarnail Singh Bhindranwale. Jagat
Narain’s newspapers were critical of Bhindranwale. As per media reports of
that time, Home Minister Zail Singh prevented the arrest of Bhindranwale.
About a year later, on 2 August 1982, IG wrote to her US-based friend
Dorothy Norman82 about the situation around her in the following terms, ‘Is
it because of age that one thinks things everywhere are deteriorating? . . .
Yeats said things fall apart, the centre does not hold. What is the centre, and
where?’83 IG as PM was at the centre of all major decision making in India.
And, the ‘Centre’ was not ‘holding’ because she had allowed the law-and-
order situation in Punjab to steadily slip to crisis proportions.
IG’s objective was for the Congress to appear more sympathetic to Sikh
sentiments than the Akalis and thus prevent their return to power. Her
decision not to take timely action against violent elements led by
Bhindranwale, Zail Singh’s dubious role and related details are well-
documented in a 1985 book by Mark Tully and Satish Jacob.84 Tully writes
in compelling terms that the crisis in Punjab could not be blamed on
‘external [to India] forces’ alone.
Bhindranwale had stocked up a large cache of arms in Amritsar’s Golden
Temple, which is the most sacred of all places of worship for Sikhs. Why
was this not nipped in the bud? By the summer of 1984, IG was left with no
other option but to ask the army to take military action, called Operation
Blue Star, to flush out extremists from the Golden Temple. The army had to
use tanks and Bhindranwale was killed in the confrontation which took
place in the first week of June 1984. As the title of the Tully–Jacob book
says, this was literally IG’s last battle. At the end of October 1984, she was
shot dead at her New Delhi residence by two Sikhs in her security detail.
The damaging consequences for Punjab and the Indian state have been deep
and long-lasting.
In another cynical misstep, IG countenanced the training of Liberation
Tigers of Tamil Eelam (LTTE) guerrillas in Tamil Nadu, and this started
around 1983. It is likely that the Tamil Nadu government headed by M.G.
Ramachandran (MGR) had extensive contacts with all shades of opinion
within the Tamil communities in Sri Lanka. Even if the state government
had decided to look away from the setting up of training camps in Tamil
Nadu, the Central government could and should have stopped such
activities. In fact, as per articles in India Today magazine of that time,
Central government agencies may have been involved in providing training
in the use of arms and explosives. It is possible that to regain the electoral
support which the Congress had lost to MGR’s All India Anna Dravida
Munnetra Kazhagam (AIADMK), IG decided to pander to pan-Tamil
sentiments.

Legacy

If positives are netted out against negatives, on the foreign policy front IG’s
record is in positive territory. For instance, her calm and skilful handling of
the crisis created by the influx of 10 million refugees from erstwhile East
Pakistan. The strategic ‘capital’ created by the emergence of Bangladesh
continues to pay dividends for India. The handling of relations with the US
and communist USSR was coloured by the need to be seen as pro-poor in
domestic politics. To an extent, she was pushed towards the Soviet corner
by the US providing arms to Pakistan. On balance, the defence relationship
with the Soviet Union needed a rethink post 1965 or at least after 1971.
IG’s record on economic decision making is marked by an imposition of
excessive controls with long-lasting negative consequences for the Indian
economy. Among several other factors, two important preconditions to
achieve high levels of sustained growth are low inflation and restrained
fiscal and current account deficits. During IG’s years as PM, inflation went
over 10 per cent in seven out of her fifteen years in office. Inflation was
over 34 per cent in 1974–75 before the imposition of the Emergency. In
IG’s defence, to an extent, this was due to the oil shock of the early 1970s,
and in the following years, inflation did come down sharply. IG’s
government followed up on the Green Revolution by spreading the
systematic use of high-yielding seeds which was initiated during the Shastri
years.
Echoing the suggestion of Milton Friedman and others, Vijay Joshi85 has
pointed out that while government has to necessarily fund welfare
programmes in education and healthcare for the poorer sections, the
corresponding services can be more efficiently and effectively provided by
the private sector. IG’s twenty-point programme and Sanjay Gandhi’s five-
point programme during the Emergency relied not just on government for
funding but also its rusty, inefficient and porous official machinery for
implementation.
IG was able to assume the mantle of a progressive, egalitarian leader with
Indian voters. This was ironic since her younger son Sanjay was high-
handed in his behaviour with senior Central government ministers and chief
ministers. Sanjay died in an air crash on 23 June 1980, within six months of
IG taking charge as PM a second time. Thereafter, IG started grooming her
older son Rajiv as her successor. Indira Gandhi’s manoeuvrings to
emasculate her own party and state-level leadership to lay the ground for
one of her sons to succeed her as PM proved to be immensely damaging for
Indian politics and the economy. The culture of dynastic succession was
copied by regional parties as the popularity of the Congress party
diminished in the states due to the local leadership being entrusted to those
who were personally loyal to her. This was hugely negative and completely
different from the Nehru years.
Despite the exposure to liberal thought at home and in her interactions
with friends based in the West, IG was feudal in her mindset. Nehru and
several of his eminent contemporaries sought to promote a sense of respect
for each other as individuals. Nehru looked ahead to the future and tried to
lead Indians out of their social and scientific backwardness. IG was reactive
and backward-looking in domestic affairs. Unfortunately, IG did not give
importance to building on the foundations of a forward-looking, pluralistic
society that Nehru had laid. On the contrary, IG dealt Indian democracy a
low blow with the imposition of an Emergency in 1975. The amendments to
the Constitution carried out during the Emergency were self-serving. IG
also curtailed press freedom and undermined the independence of the
judiciary by favouring judges who gave judgments that were helpful to her.
The press has since regained some of its poise due to the democratic
consciousness of the Indian people sensitized to such thinking during the
Nehru years. Unfortunately, the same cannot be said for the judiciary. In
recent years, judges have been accused by the media and social activists of
financial corruption, and the finger of suspicion has been pointed towards
those who have served at the highest levels of the Supreme Court.
Indira Gandhi’s domestic decisions were often motivated by cynical self-
interest. Nehru wrote to chief ministers almost every fortnight to explain the
Central government policies and sought their feedback. When the combined
strength of the opposition parties in the Lok Sabha was well below that of
the Congress, Nehru spent hours explaining his domestic and foreign
policies in Parliament. IG by comparison had little patience for democratic
niceties within the Congress, let alone in her interaction with opposition
parties.
Although the country regained its balance, the Congress party did not
recover from the body blows it received from IG’s single-minded pursuit of
complete domination of the party. Congress party leaders with popular
followings in various states were either put out to pasture or cut to size.
This undermining of Congress leaders resulted in a steady fall in popular
support for the Congress in successive general elections. Over time the
Congress came to depend on IG’s heirs to lead the party. Ironically, IG’s
policy of centralization led to the growth of regional parties in several
states, for example, UP, Bihar, Orissa, West Bengal and Andhra Pradesh.
 One of the measures of mature leadership is the ability to accept
constructive criticism. By all accounts, IG was not receptive to any form of
criticism about the way in which she helped first one son and then pushed
the second into politics. In national politics, IG did not alter her
authoritarian ways after her return to power in 1980. In contrast to
Crocker’s description of the Nehru years as a status society, India became
very much a money-nexus society with Indira Gandhi as PM.
In Intertwined Lives,86 P.N. Haksar is quoted as having said in a letter to
Bakul Patel87 in September 1997 that he could hardly have been IG’s
conscience keeper since IG had no moral compass of what was right or
wrong. Intertwined Lives rationalizes this devastating indictment of IG on
the grounds that by 1997 Haksar was suffering from ‘late life melancholy’.
By all accounts, till his passing away, Haksar was known to be clinical and
unsparing of himself and others in his assessments and not given to
hyperbole. Another excuse given in Intertwined Lives is that Haksar was
more balanced about IG in his feedback to Katherine Frank.88 Well, that is
not consistent with Frank’s book on IG which is critical of the latter for
being too much under the influence of her younger son who was allowed to
exercise arbitrary power.
Commentators suggest that Haksar is to blame for the turn to the left that
India’s economy took in the late 1960s and early 1970s. India’s PMs,
including IG, cannot have it both ways. Just as the overall strategy and
decision making regarding Bangladesh goes to her credit, she has to take
the full blame for the long-lasting harm she did to the Indian economy. IG
had no permanent advisers, only permanent personal-family interests. It is
likely that she identified with Dev Kant Barooah’s ill-advised praise that
‘India is Indira and Indira is India’. By extension, what was not good for
Indira was not good for India either.
All things considered, Haksar’s comment that IG did not have a moral
compass is justified. She did undermine the integrity of domestic political
processes and institutions. A powerful magnet,89 namely, her felt need to
ensure dynastic succession, interfered with her moral compass and pointed
her in the wrong direction. IG worked single-mindedly to ensure that one of
her two sons, first Sanjay and later Rajiv, should succeed her as PM. IG
muzzled the press during the Emergency. She also undermined the
independence of the judiciary, from which it has still not entirely recovered.
At the same time, IG has to be credited with helping the socially and
economically disadvantaged groups to band together to use the power of the
ballot box to their advantage. Along with this success also came the
immense failure of her inability to channel this electoral power of laggard
groups to improve their educational and financial standing. Nayantara
Sahgal (Indira Gandhi’s cousin) claims90 that India lost ten years of
development thanks to IG’s policies. Another way of evaluating the cost to
the nation of IG’s restrictive economic policies is to estimate what would
have been the size of India’s economy if the reforms of the early 1990s
were carried out at the beginning of the 1970s. It is possible that Indian
GDP may have grown at an additional 3 per cent every year over the last
forty-eight years. If this assumption is realistic, the size of India’s economy
would have been close to US $10 trillion by 2018.
In the context of the cost for India of erroneous economic policies, I.G.
Patel’s criticism was both pointed and trenchant. In an article in the
Economic and Political Weekly, he wrote that India had no option but to
accept the conditionalities that came with an IMF line of credit in the early
1990s. Patel was of the opinion that ‘the present [the balance of payments]
crisis [in 1990–91] is because successive governments in the 1980s chose to
abdicate their responsibility to the nation for the sake of short-term partisan
political gains and indeed out of sheer cynicism’.91 Patel was referring to
the governments of IG, Rajiv Gandhi and V.P. Singh in the 1980s.
In the mythological epic Mahabharata, the Kuru clan was headed by the
patriarch Dhritarashtra. Dhritarashtra’s son Duryodhana was unfair to his
cousins the Pandavas, and in the ensuing war between the two clans, all of
Dhritarashtra’s sons including Duryodhana were killed. In the words of the
narrator, Sanjaya, Dhritarashtra’s fatal mistake was excessive indulgence of
his eldest son Duryodhana, that is, ‘putra moh’. Literally, those two words
mean excessive attachment to one’s children which prevents parents from
accepting the shortcomings of their offspring. If parents happen to be heads
of government, such infatuation can lead to national and personal tragedy as
it did for India, IG and her sons.
In mythological tales around the world, even gods make errors of
judgement, and at times their moral compass goes awry. This is a useful
backdrop against which to reflect on IG’s nearly sixteen years as PM. A fair
summation probably is that her significant foreign policy achievements
were overwhelmed by the long-lasting consequences of her domestic
economic failures and undermining of democratic institutions. Many have
pointed out that IG came back with a sizeable majority in the Lok Sabha in
1980. After she was assassinated in 1984, the sympathy around the country
resulted in the Congress winning 404 out of 533 seats in the general
elections to the Lower House of Parliament. Elections in Assam and Punjab
had to be held in 1985 because of the serious ongoing security disturbances
there.
IG’s election victories, including the huge posthumous victory for her
party in 1984, confirm that large numbers of Indian voters trusted her
repeatedly. It does not mean that she lived up to their trust. IG is a
representative example of the fallacy of composition. She displayed great
courage and resilience in the creation of Bangladesh and by coming back to
power in 1980. However, what was true about her in part was not true about
her in totality. In totality, the balance is negative since IG countenanced
brazen venality, and, starting with her own family, promoted blatant
feudalism and nepotism in Indian politics. In fairness to all Indians, the
Election Commission should not have just changed the election symbol of
her party to a ‘Hand’ but also archived the name Indian National Congress
as a political party forever.
IG was very particular about her dress and was exquisitely attired on
foreign trips in the best Indian silk saris.92 In India, IG invariably wore
white or light-coloured saris, and on occasion she wore saris made out of
khadi. Although IG did deliver speeches in Hindi, she was more
comfortable in English. IG made do in English and Hindi, but she was not a
proficient public speaker like her father or others who participated in the
freedom struggle. On the India–Bharat divide, IG leaned more towards
India than Bharat.
As for the 3 Cs (Character, Competence and Charisma), Indira Gandhi
was highly Charismatic. She was Competent but only if it suited her
domestic politics. Her high level of Competence in foreign relations was
best illustrated in how she handled the birth of Bangladesh. As a direct
consequence of her leadership, disillusionment with politicians and politics
in general set in all over the country. To that extent, her Character was
flawed to say the least.
 MORARJI DESAI
Sincere Yet Inflexible and Outmoded

For the obdurate people will not believe

What they do not see and distinctly feel

The Journey to the East, Hermann Hesse

Morarji Desai1 was a deputy collector in Gujarat for over ten years after
graduating from college. Later he joined the freedom movement and by the
mid-1940s, he had been jailed several times by the British, including during
the Quit India movement. Post the 1946 state assembly elections, Desai
became the home and revenue minister in Bombay, and was chief minister
of Bombay state from 1952 to 1956. Subsequently, after Gujarat and
Maharashtra became separate states, he moved to Delhi and was finance
minister in Nehru’s cabinet from 1958 to 1963. Desai favoured less state
intervention in the economy than Nehru and harboured the ambition of
becoming PM after him. However, when Nehru passed away in 1964, he
was overlooked by the Congress leadership, or the Syndicate, as it was then
called. Lal Bahadur Shastri became PM and did not include Desai in his
cabinet.
Later, when Shastri passed away in January 1966, Desai claimed that,
given his contributions during the freedom struggle and experience in
government, he should rightfully be the next PM. Unfortunately for Desai,
senior Congress leaders were again not in his favour. It is apparent from
these two failed bids for the prime ministership that while Desai was
respected, he was not seen to have the conciliatory qualities that a fractious
polity like India needs. Additionally, he had a strong political base in
Gujarat and would have been too independent minded for the Syndicate’s
liking. As things turned out, Indira Gandhi was elected decisively by the
Congress parliamentary party members, and she gave Desai the finance
portfolio.
Desai opposed the taking over of banks by government and resigned
from IG’s cabinet when she nationalized fourteen banks at one go in 1969.
Desai would have felt considerable antipathy towards a much younger IG
for having denied him the premiership after Shastri. This negative sentiment
must have been aggravated by her jailing him and other opposition leaders
during the Emergency.
In the 1977 general elections, IG and son Sanjay Gandhi lost from
Raebareli and Amethi respectively. IG’s Congress and its supporting parties
were reduced to 189 members in the Lok Sabha. Opposition parties had
fought the elections under a combination called the Janata Party, and this
loose alliance won 345 seats. None of the major constituents of the Janata
Party2 could have formed government on their own. At that point of time,
the other two contenders for the PM position were Jagjivan Ram and
Charan Singh. Ram had resigned from IG’s cabinet and had left the
Congress party as late as 2 February 1977. By then, the immense public
resentment against the Emergency must have become clear to a politically
astute Jagjivan Ram. From the start, the Janata Party was riven with
personality clashes as the head of each of the coalition members had
differing views on how to govern and had ambitions to be PM. Acharya
Kripalani was asked to decide who should be PM out of these three
candidates, and his vote went in favour of Desai.
Desai was essentially a regional leader from Gujarat and he enjoyed
recognition in Maharashtra. At eighty-one years of age, he was much older
than Nehru or Shastri when they had become PM. All things considered,
Desai made his mark in history as the first non-Congress party prime
minister of India, and he was sworn in on 23 March 1977.
The Janata Party leaders had come together because of a common dislike
for IG’s high-handed and unjustified decisions during the Emergency years
of 1975–77. The constituent parties did not have commonly agreed
economic or social programmes. Desai was in favour of promoting the
private sector in India. However, his government took the short-sighted
decision of requiring foreign companies to compulsorily tie up with local
companies. This led to the exit of IBM and Coca-Cola, which sent out a
negative signal for inward FDI. In overall terms, instead of paying close
attention to the economy and development, Desai and others in the Janata
Party focused almost exclusively on bringing IG to book for excesses
during the Emergency.
Given the sharp differences on government policies within the Janata
Party government, Desai faced challenges from his two deputy PMs Charan
Singh and Jagjivan Ram. Charan Singh and his supporter Raj Narain felt
that Desai was too focused on the well-being of urban India, and this
needed to be corrected with pro-rural and farmer-friendly policies. Jagjivan
Ram had no strong views which differentiated him from Desai or Charan
Singh. For Ram, it was a question of how to seek out an opportune time for
him to become PM. If Desai was convinced that Indira Gandhi’s policies of
excessive government controls had straitjacketed the economy, he needed to
build a consensus for change across a wide cross section of business, social
and political groupings.
Desai’s lack of attention to the required changes in economic policies
was apparent in his first Independence Day speech from the Red Fort on 15
August 1977. The newspaper report the next day focused mostly on Desai’s
promise to eradicate untouchability.3 It takes time to address social
prejudices, and Desai wisely reminded the nation that this was still work in
progress. At the same time, Desai’s first address from the Red Fort should
have indicated, at least in broad terms, how he meant to raise growth and
increase employment opportunities.
 Desai appointed H.M. Patel, a former ICS officer, as the finance minister.
During the years that Sardar Vallabhbhai Patel was home minister, H.M.
Patel was cabinet secretary and was opposed to Nehru’s left-of-centre
economic policies. H.M. Patel’s views were closer to those of C.
Rajagopalachari and the Swatantra Party. Desai’s other senior cabinet
members consisted of farmer-friendly Charan Singh who was home
minister and Jagjivan Ram who was defence minister. Trade unionist
George Fernandes was industry minister, and agriculture was handled by
Akali Dal leaders—first Parkash Singh Badal and then Surjit Singh Barnala.
Madhu Dandavate, who was left-of-centre in his views about the economy,
was minister for railways, and erstwhile Congress leader H.N. Bahuguna
was minister for petroleum. The erratic Raj Narain was the minister of
health and Mohan Dharia, who was perceived as a socialist, became the
commerce minister. Desai also depended on socialists outside the
government, such as Jayaprakash Narayan. H.M. Patel’s budgets between
1977 and 1979 did not show any significant break with the past. There was
no move to unshackle the Indian economy and this was understandable
given the number of left-leaning ministers in the cabinet.
The profitability of railways and its complex, misleading accounting
methodologies needed to be examined. However, given the contrarian pulls
within Desai’s government, it was too much to expect that Dandavate
would be able to make significant changes in the working of railways. India
was and remains highly dependent on oil imports. Bahuguna was perceived
as a competent Congress chief minister of UP from November 1973 to
November 1975. However, funding of oil exploration, empowerment of the
petroleum-sector’s publicly owned undertakings, and allowing the re-entry
of the foreign private sector required a calmer political environment in
Delhi. It was no surprise, given Dharia’s left-leaning political views, that
there were no bold moves to reduce import tariffs or promote exports and
FDI under his stewardship of the commerce ministry. Desai had opposed
bank nationalization, but he was unable to start a discussion on raising
banking-sector efficiency by encouraging the entry of new private-sector
banks.
 Table 4.1 in the Appendices shows that gross fiscal deficits increased
from 3.5 per cent to 5 per cent of GDP between 1977–78 and 1979–80,
while capital outlays went down marginally from about 2 to 1.9 per cent of
GDP. Consumer price inflation (CPI) was over 10 per cent in 1977–78.
However, in 1978–79, inflation came down sharply to minus 0.2 per cent.
The following year, CPI was again up to 9.4 per cent. It was a reflection of
the performance of a Central government devoid of direction in Delhi that
GDP growth went down from 7.3 per cent in 1977–78 to minus 5.2 per cent
in 1979–80.
In January 1978, Desai’s government wasted its limited political capital
by demonetizing high-denomination notes. It should have been obvious that
an effective demonetization exercise requires a number of follow-up steps
which are best initiated in the first year of a five-year term. Desai, and later
Charan Singh, did not have the time in office or the ability, given the
shifting loyalties of the constituent parties, to bequeath a sound economy to
the next government. The then RBI Governor I.G. Patel claims4 that he had
mentioned to Finance Minister H.M. Patel that demonetization would not
have the desired effect of reducing ‘black’ money in the economy because
unaccounted wealth is usually not stored in cash.
In what turned out to be a highly significant social, political and
economic decision on 1 January 1979, Desai appointed B.P. Mandal as
chairman of a commission to ‘identify socially and educationally backward
classes’, and to examine the issue of reservations for this grouping. The
terms of reference for the Mandal Commission did not include a review of
the existing reservations of 15 per cent for Scheduled Castes (SCs) plus 7
per cent for Scheduled Tribes (STs) in government and public-sector
institutions. The Mandal Commission submitted its report in December
1980 which recommended that 27 per cent of jobs in government
undertakings should be reserved for OBCs. However, the Janata
government collapsed before it could even consider implementing these
recommendations.
Desai’s views on foreign policy were far removed from ground realities.
For instance, he favoured the elimination of nuclear weapons and was
prepared to sign the NPT, provided all declared nuclear weapon countries
were to denuclearize. Similarly, he had reservations about spying on other
countries. It is rumoured that in a fit of openness about nuclear matters,
Desai revealed to Pakistan that India was aware of the latter’s uranium
enrichment facilities at Kahuta. Desai is said to have written to Pakistani
President Zia-ul-Haq expressing concern about Pakistan’s nuclear weapons
programme.5 If true, Desai’s openness may have hurt Indian intelligence-
gathering efforts in Pakistan.
By July 1976, Indira Gandhi had restored diplomatic relations with China
at the ambassador level. Desai had indicated his reservations in the past
about the absorption of Sikkim into the Indian Union. This may have
signalled to China that India was now less inclined, than during the Indira
Gandhi years, to extend its influence in its neighbourhood.
Mao passed away on 9 September 1976, and the more pragmatic Deng
Xiaoping took over. This was the setting in which Atal Bihari Vajpayee of
the Bharatiya Jana Sangh (BJS), who was the external affairs minister in the
Janata government, visited China in February 1979. Vajpayee’s visit was
significant as it restored a measure of normality to the bilateral relationship
which had been in a comatose state since the 1962 war. There is continuing
speculation about the extent to which China was serious about resolving the
border issue at the time based on Deng raising it with Vajpayee at their
meeting in the Great Hall. In any case, Vajpayee had to cut short his visit
when China attacked Vietnam while he was on Chinese soil.
US President James (Jimmy) Carter visited India in January 1978. Carter
chose not visit Pakistan on the same trip to signal that the US did not equate
India with its troublesome neighbour. Earlier visits of US President
Eisenhower and vice-president Nixon to the subcontinent had been to both
countries. Carter indicated to Desai during his visit that if India decided to
abandon nuclear weapons, the US would restart its supply of enriched
uranium fuel to the nuclear power plants at Tarapur. The US had stopped
supplying fuel for the Tarapur plants after India’s nuclear test in 1974. Even
without US tutoring, Desai did not want India to develop nuclear weapons.
However, Desai was against the discrimination embedded in the 1968 NPT
and he declined Carter’s offer.
On this visit to India, Carter was said to have offered ‘to develop the
Brahmaputra basin on the lines of the Indus Waters Accord of 1960
between India and Pakistan’.6 The US also offered to broker equitable water
sharing between India, Nepal and Bangladesh. Desai did not respond to this
offer since India preferred to resolve these issues with Nepal and
Bangladesh on a bilateral basis.
In the forty years since Carter’s visit in 1978, there have been floods in
Assam annually during the monsoon season. Branches, leaves and leftover
construction materials come down from the upper reaches of this major
river in Assam, namely the Brahmaputra. Those who are in charge of urban
regulatory bodies in Assam and its neighbouring states have allowed
construction too close to the river. Over the decades the river has become
shallower due to the accumulation of debris on its bed and because the river
has not been dredged regularly. This makes the Brahmaputra prone to
changing its course, causing loss of life and property.
Given the stakes involved, Desai’s government should have found a way
to avail of US expertise and financial assistance from multilateral
institutions such as the World Bank to contain floods and improve the reach
of assured irrigation. That is, without India having to surrender its right to
conclude bilateral water-sharing agreements with Nepal or Bangladesh.
Towards the end of 1978, the cracks in Desai’s government were clearly
visible. Senior ministers, including Charan Singh, had serious differences
with Desai, ostensibly on economic policies. The reality was that the
parting of ways was driven by Charan Singh’s ambition to be PM. While
the Indian government was distracted by the sharp differences between
Desai and his senior cabinet colleagues, clouds of war were gathering over
Afghanistan with far-reaching consequences from then till now.
The left-leaning government of Afghanistan, with Babrak Karmal in
charge as President after Hafizullah Amin was assassinated, was out of
favour with the US. President Jimmy Carter’s national security adviser
Zbigniew Brzezinski has since said that the US started funding and sending
shipments of arms to the Taliban to support them in their fight against the
Afghan government. Brzezinski has commented that the US hoped that by
doing this, they could draw the Soviet Union into a quagmire in
Afghanistan. In response to a question from Le Nouvel Observateur,
Brzezinski responded that he has no regrets at all, as a consequence, for
having boosted extremist sentiment. According to him, the end, namely the
demise of the Soviet Union, more than justified the growth of
fundamentalism and terrorism since that time.7
Clearly, the Indian government was not in a position to act on this
information even if it had any inkling of the situation on the ground in
1978–79. However, an earlier realization of the likely consequences in and
around Afghanistan would have better informed Indian foreign
policymaking.
Desai’s time as PM of two years and four months was marked by
incessant squabbling among the Janata Party coalition partners. The only
point they all agreed on was that IG should be prosecuted. Desai set up a
commission of inquiry headed by former Chief Justice of India J.C. Shah to
look into ministerial and official misdoings during the Emergency. Instead
of a patient, step-by-step approach to allow judicial processes to work
unhindered, Desai’s government made the cardinal mistake of arresting IG
on flimsy charges on 3 October 1977 in Delhi. The charges were thrown out
by a Delhi magistrate, and she was released the following day. IG gained
the upper hand as the aggrieved party.
It also soon became clear to the electorate that it had fallen from the
frying pan of the corruption, inflation, widespread unemployment plus
excesses of the Emergency into the Janata government fire of appalling
incompetence. In fairness to Desai, the wide divergence in the thinking and
beliefs of the coalition partners made any kind of coherent governance next
to impossible.

CHARAN SINGH
Short-sighted
Charan Singh (CS)8 was a senior leader in Congress since before
Independence and was imprisoned on more than one occasion during the
struggle for freedom. CS was opposed to Nehru’s planning policies for the
agriculture sector and was successful in getting forward-looking land
reforms legislation passed in UP. He left the Congress in 1967 and formed
his own party called the Bharatiya Kranti Dal (BKD). With the support of
socialists such as Ram Manohar Lohia and Raj Narain, he became the first
non-Congress chief minister of UP—but for less than a year, from April
1967 to February 1968. Chaudhary Charan Singh, as he was called by his
followers in western Uttar Pradesh, felt strongly about helping farmers,
whose incomes were exposed to the vagaries of weather and manipulation
of prices of their produce by intermediaries.
CS’s party had been dissolved to form the Janata Party before the 1977
elections. In July 1979, abetted by Raj Narain, he pulled his party out of this
coalition, and Morarji Desai resigned as PM. President Sanjiva Reddy
invited Charan Singh, then seventy-seven years old, to form the
government. At that point of time, Charan Singh had a letter of support
from Indira Gandhi’s Congress (I). On 28 July 1979, he became the fifth
prime minister of India with the support of his sixty-four MPs and an
assurance from Indira Gandhi that she would support him on the floor of the
house. However, a day before the Lok Sabha was due to meet, Congress (I)
withdrew its support, resulting in Charan Singh having to relinquish office
on 14 January 1980 without ever having faced Parliament.
The Janata Party government had the numbers in the Lok Sabha to
continue in power. Due to Charan Singh’s ambition to be PM, which he was
for a little over five months, general elections had to be held in January
1980, two years before the Janata Party’s term would have been over.
Charan Singh must have known that the Congress would pull the rug
from under him whenever elections suited Indira Gandhi. However, it
appears he wanted to be PM, even if it were for a few months. His cynicism
was reminiscent of Indira Gandhi’s self-serving justification of the
Emergency. To that extent, purely self-interest-driven politics started to
become more common in India.
Legacy

The governments of Morarji Desai and Charan Singh were marked by sharp
differences among the constituent parties and lasted about three years in all.
While Desai’s government went into overdrive to ensure a jail term for
Indira Gandhi, it passed legislation to make the imposition of an unjustified
Emergency more difficult in the future. Desai did the nation a disservice by
appointing the Mandal Commission, which eventually led to additional
reservations in government-owned institutions. Over the decades,
reservations have often become a political ploy to appease the socially and
economically downtrodden without pushing for effective policies to ensure
equal opportunity for the underprivileged. A new low was reached in
national politics in the formation and collapse of the Charan Singh
government.
 RAJIV GANDHI
Forward-looking Yet Catastrophically Error-prone

The brash unbridled tongue, the lawless folly of fools, will end in pain.

Euripides

Rajiv Gandhi (RG)1 was the elder of Indira Gandhi’s two sons. After the
death of Sanjay Gandhi in a flying accident in June 1980, Indira Gandhi
made it abundantly clear to the Congress party that she wanted Rajiv
Gandhi to succeed her. RG was elected to the Lok Sabha from Amethi,
Sanjay Gandhi’s constituency, and was sworn in as an MP in August 1981.
The first time RG had executive authority, albeit without a formal
government position, was when he was authorized by IG to supervise the
arrangements for the Asian Games which were held in Delhi in November–
December 1982.
Indira Gandhi was assassinated on 31 October 1984, and President Zail
Singh and Sardar Buta Singh pushed for RG to succeed her. Rajiv Gandhi
was just forty years of age when he became India’s youngest PM ever. A
tidal wave of sympathy following IG’s assassination swept the Congress to
power with an overwhelming majority of 405 out of 543 Lok Sabha seats in
the December 1984 general elections.
 It was to prove counterproductive for the Congress party to have thrust
this immense responsibility on RG who had limited formal education and
administrative experience, or the political acumen to negotiate the
complexities of governing a country as varied and poor as India. The reality
was that the Congress had by now become overdependent on IG as the
principal vote-getter, and obsequious sycophancy to IG’s sons, first Sanjay
and later Rajiv, was seen as a ticket to high political office.
RG took charge as PM in an environment of mass killings in Delhi,
longstanding agitation against Bangladeshi settlers in Assam, and continued
disturbances in Punjab. From the day RG took office and for the next few
days, there were brutal revenge killings of several thousand Sikhs, mostly in
Delhi but also in other parts of India. He and his government proved
unequal to the task of dispersing the bands of roving murderers and the
wanton massacre, particularly in less affluent east Delhi.
RG was reported to have commented on 19 November 1984 (Indira
Gandhi’s birth anniversary) that the earth shakes when a big tree falls.2 It is
not clear that RG meant to justify violence against Sikhs as an
understandable expression of public anger caused by his mother’s
assassination. However, the substantive issue is that his government should
have been able to stop the violence against the Sikhs within a couple of
hours on 31 October. Others who held crucial positions at that time were
Home Minister P.V. Narasimha Rao, Lieutenant Governor P.G. Gavai and
Delhi police commissioner S.C. Tandon. Much after the event, I heard the
former principal secretary to the prime minister, P.C. Alexander, say3 on
Indian television that he was unaware of the extent of violence after Indira
Gandhi’s assassination. Coming from a senior official in the then PMO, I
found this statement crass beyond measure.
RG took office the same day his mother was killed. It is possible he was
too grief-stricken to think of public order, and it was also the responsibility
of the home minister and officials to take prompt action. Is the usual
exemption from work for a person grieving over the unexpected and cruel
death of a parent relevant in this case? RG could have asked one of the
cabinet ministers to hold interim charge as PM for a fortnight or more to
give himself time to grieve. By all accounts, including that of Pranab
Mukherjee, those close to him such as Arun Nehru4 pushed Rajiv Gandhi to
take the oath of office administered by the vice-president and not even wait
for President Zail Singh to return to Delhi. However, Zail Singh was able to
return to Delhi in time to administer the oath.
On a personal note, on 31 October 1984, I happened to be in my ancestral
home Tezpur (Assam) with my wife and infant daughter. I was on home
leave from my posting as the first secretary in the Indian embassy in
Havana. At around noon, one of my maternal uncles came over looking
extremely agitated. He told us that the BBC had reported that IG had been
shot dead by two of her guards in Delhi. My wife, daughter and I were
scheduled to take an Indian Airlines flight from Guwahati the following day
to return to Delhi. The three of us reached Delhi in the evening on 1
November. The taxi driver at Palam airport demanded an additional Rs 200
above the meter fare for the ride from the airport to Defence Colony. He
expressed his fear about being stoned or attacked even though he was clean-
shaven and not a Sikh. It is unbelievable that ministers and senior
government officials claimed later that they were unaware of the violence
against Sikhs in Delhi, which lasted at least three full days.5
The following day, on 2 November, the Ministry of External Affairs,
realizing that I had not yet left for Havana, put me on ‘special duty’ in
Delhi and I was told to help with the arrangements to be made for the
foreign dignitaries who were to attend IG’s funeral. I was directed to the
temporary offices set up by the Ministry of External Affairs in the Ashok
Hotel. In casual conversation in the hotel’s control room, I expressed my
anguish that while elaborate security arrangements were being made for
visitors, Sikhs were being hunted down in several parts of Delhi. A
colleague responded that the Sikhs had it coming. I was dumbfounded and
saddened that it was not just the crazed mobs, lumpen or Congress elements
—some among those around me in government also felt that the killing of
innocent Sikhs was justified retribution.
Thirty-four years later, on 18 December 2018, the Delhi High Court
sentenced Sajjan Kumar, a former Congress Lok Sabha MP from Delhi, to
imprisonment for the rest of his natural life. Kumar was convicted for
having personally instigated crowds to attack Sikhs. The court commented
that ‘criminals enjoyed political patronage’. Sajjan Kumar was imprisoned
on 31 December 2018, and his appeal against the high court’s judgment is
pending with the Supreme Court.
The Rajiv Gandhi government appointed Judge Ranganath Misra to head
an inquiry commission to look into the 1984 ‘riots’.6 This commission’s
finding was that the government and the Congress party were not culpable
in any way, and Justice Misra went on to become the chief justice of India.
For the record, he was later chairman of the National Human Rights
Commission and a Congress Rajya Sabha MP from 1998 to 2004.
Gyani Zail Singh had been elevated to the position of President of India
in July 1982 by Indira Gandhi. She felt he could be useful in that position,
and additionally she wanted to distance him from state-level politics in
Punjab. Zail Singh remained President for five years till July 1987. By the
time RG assumed office, Zail Singh had been the President of the country
for about two and a half years. During the last year that Indira Gandhi was
PM, her relations with Zail Singh deteriorated, possibly because Zail Singh
continued to follow developments in Punjab and kept in touch with radical
elements in that state.7
Traditionally, the Indian PM briefs the President on all significant issues.
The periodicity of such briefings has varied depending on who was the PM.
The relationship between RG and Zail Singh started off on the wrong foot
because of media speculation that the President’s phones were bugged by
the IB. Additionally, RG’s briefings of President Zail Singh were few and
perfunctory. As the youngest PM since Independence, with no
administrative experience of running a ministry, let alone the entire Central
government, RG would have been well advised to keep his relations with
the President on an even keel.
Pranab Mukherjee was the finance minister and a senior minister in IG’s
cabinet. When she was assassinated, Mukherjee was rumoured to have
remarked that the next in seniority in the cabinet, implying himself, usually
succeeds the Indian PM in the event of an untoward death. This alleged
remark was perhaps perceived as excessive ambition by RG, and he
dropped Pranab Mukherjee from the cabinet. Mukherjee was then removed
from the Congress Working Committee, the principal decision-making body
of the party. Subsequently, on 26 April 1986, Mukherjee was expelled from
the Congress party, and he then formed his own party called Rashtriya
Samajwadi Congress. This party merged with the Congress in 1989. Pranab
Mukherjee’s expulsion from the Congress was possibly due to a feeling
within the party that none other than Rajiv Gandhi should have any chance
of becoming PM. The prevailing culture of abject sycophancy in the
Congress had no resemblance with the values of the party which had fought
for India’s Independence.
RG proceeded to be high-handed, not just with Pranab Mukherjee but
also with other veterans such as Kamalapati Tripathi of Uttar Pradesh.
Rajiv’s disdain for some elders in the Congress was not entirely misplaced.
Some of them had outlived any public welfare purpose they had at the start
of their political careers, and had little concern for, or any sway with voters.
Rajiv tried to make a break with the past in the same way that Indira Gandhi
had distanced herself from Atulya Ghosh, K. Kamaraj, S.K. Patil and S.
Nijalingappa when she became prime minister in 1966.
The coterie around RG included people who were roughly his age, and
some were his contemporaries in Doon School. They were equally removed
from the masses and did not have any experience of working in
government. RG cut himself off from the Congress party faithfuls who were
intensely loyal to his mother while gradually becoming cynical about the
best interests of the people. He thus ended up neither hunting with the
hound nor running with the hare. The corrosion of the party from within
was due to IG’s insistence on personal loyalty as the stepping stone for high
positions, and RG took the party further down that path. As evident from
Pranab Mukherjee’s case, RG did not see the merit of picking his battles.
Even if he was impatient to change the working of the Congress party and
the government, he needed the support of those who knew how to avoid
political pitfalls better than him.
Unrest in Border States

Assam had been on the boil8 for nearly five years when RG took over as
PM, and this had negative implications for India’s relations with
neighbouring countries to the east. RG’s government deserves high praise
for the 1985 Accord that his government concluded with the All Assam
Students Union (AASU) and Asom Gana Parishad (AGP) to call off the
Assam agitation. Under this Accord, the Indian Citizenship Act of 1955 was
amended to include Section 6(A), which gives Indian citizenship to all
Bangladeshis who came to Assam prior to 24 March 1971.9 The logic for
this cut-off date was that the Bangladesh government had given an
undertaking that it would accept the return of all those who had moved from
that country to India after March 1971. Although the Assam Accord did
bring violent agitations and bandhs to a halt, greater attention needed to be
paid to surface transportation linkages within the north-eastern states, with
the rest of India and towards Myanmar and beyond.
As for Punjab, violent disturbances continued due to separatist
sentiments in that state, exacerbated by Operation Blue Star. In retrospect,
RG needed to reach out to pro-Khalistan elements in India and abroad.
These elements were behind the bombing of the Emperor Kanishka (an Air
India flight 182 from Canada to India) on 23 June 1984. All 329 passengers
and crew aboard that flight were killed. Four troubled years later, in 1988,
RG appointed K.P.S. Gill, an Assam cadre IPS officer known for his tough
tactics in the North-east, director general of police in Punjab, while
Siddhartha Shankar Ray was the governor. The last vestiges of separatism
in Punjab were extinguished at considerable loss of life two years after
RG’s term was over by 1991.

Centenary Speech and Idealism

Despite the unrest around India, RG’s initial phase as PM was marked by
optimism. This sense of hope was underscored by RG’s address as PM and
Congress president at the party’s centenary session in Bombay on 28
December 1985. RG’s speech came as a breath of fresh air, and he loftily
quoted Gandhi at this 100th anniversary of his party on how to choose
between competing courses of action: ‘Whenever you are in doubt or when
the self becomes too much with you, apply the following test: Recall the
face of the poorest and the weakest man whom you may have seen and ask
yourself if the step you contemplate is going to be of any use to him.’
This was a high standard that RG had set for himself. On interfaith
relations, RG recalled Nehru and said, ‘to him [Nehru], secularism was the
beacon light when waves of passion threatened to submerge us’. As for
Indira Gandhi, RG said that she had ‘analysed with clinical precision how
the entire system had been weakened from within, how the party had once
again been infiltrated by vested interests who would not allow us to move,
how patronage and graft had affected the national institutional framework,
how nationalism and patriotism had ebbed, how the pettiness and
selfishness of persons in political positions had ruptured social fabric’.
In this speech, Rajiv Gandhi mentioned that India has ‘government
servants who do not serve but oppress the poor and the helpless, police who
do not uphold the law but shield the guilty, tax collectors who do not collect
taxes but connive with those who cheat the State and whole legions whose
only concern is their private welfare at the cost of society. They have no
work ethic, no feeling for the public cause, no involvement in the future of
the nation, no comprehension of national goals, no commitment to the
values of modern India. They have only a grasping, mercenary outlook,
devoid of competence, integrity and commitment.’
As for the Congress party, RG mentioned that

. . . we have distanced ourselves from the masses, basic issues of national unity and
integrity, social change and economic development recede into the background. Instead,
phoney issues, shrouded in medieval obscurantism, occupy the centre of the stage. Our
Congress workers, who faced the bullets of British imperialism, run for shelter at the
slightest manifestation of caste and communal tension . . . Corruption is not only tolerated
but even regarded as the hallmark of leadership. Flagrant contradiction between what we
say and what we do has become our way of life. At every step, our aims and actions
conflict.
RG’s speech in Bombay on 28 December 1985 has been quoted at length
here since most of what he said on that day is relevant to the India of 2019.
In his early days, RG was in a sweet spot—he was a young man, with a
clean image, and he had an overwhelming majority in the Lok Sabha. RG
had demonstrated in his Congress centenary speech that he was aware of
the systemic shortcomings both within the political elite and among
officials who needed to translate pious intentions into action. However,
because of his lack of administrative experience or the iron will necessary
to take on established interests, the country lost a golden opportunity for
change.
The culture of courtiers had developed into a fine art form in the
tamarind and laburnum tree-lined avenues of central (Lutyens’s) Delhi
during the IG years. Consequently, for RG, it was not clear who was sincere
and who was pretending. This resulted in frequent changes in RG’s inner
circle. For instance, RG changed his finance minister (FM) three times in
five years. RG first appointed V.P. Singh as FM in 1985 and then took
charge of this portfolio himself in 1987. He then gave the finance ministry
to N.D. Tiwari for less than two years, and finally S.B. Chavan for 1988–89
(see Table 3 after the prologue for the tenures of finance ministers since
Independence). Towards the end of RG’s tenure all crucial finance ministry
meetings, including annual budget-related deliberations, were held in the
PMO.
As was the case for finance ministers, there were four defence ministers
between 1984 and 1989. To start with, P.V. Narasimha Rao was defence
minister from December 1984 till September 1985. Then RG took over till
end January 1987, and V.P. Singh was moved from finance to defence in
January 1987. Singh resigned in less than three months in April 1987, and
K.C. Pant was in charge of the defence ministry till the end of RG’s term.
Arun Singh, born in 1944, the same year as RG, was his contemporary at
Doon School and Cambridge, and they were close friends. Arun Singh was
the minister of state for defence from the start of RG’s term. Given the
direct access that Arun Singh had to RG, he was more influential than the
defence minister.10 RG’s cabinet was reshuffled too frequently, and this was
not conducive to implementation of substantive reform.

Economic Context and Policies

RG inherited a sclerotic Indian economy gasping for breath because of the

government’s python-like grip on industrial licensing, foreign trade and
investment. Consumer durables and electronics products were in short
supply and import duties were exorbitantly high. India’s trade in goods was
perennially in deficit, and the manufacturing sector did not grow fast
enough to raise employment in the formal and semi-formal sectors and
draw workers away from subsistence, monsoon-dependent agriculture.
Most of these shortcomings were plaguing the Indian economy since the
mid-1960s and had grown to harmful proportions through IG’s years as PM.
Turning to the environment for business, the prevailing view in
government circles in the mid-1980s was that owners of businesses short-
change workers by declaring lockouts. RG’s remedy for this was worse than
the ailment. Instead of loosening controls to allow companies to close
businesses when there was no other option, the Sick Industrial Companies
(Special Provisions) Act (SICA) was passed in 1985.11 The infamous Board
for Industrial and Financial Reconstruction (BIFR) was established under
SICA. In practice, BIFR and the corresponding Appellate Authority for
Industrial and Financial Reconstruction (AAIFR) prevented struggling
companies from ever folding up. BIFR’s overriding logic was that workers
needed protection from rapacious owners who stripped companies of assets
and declared bankruptcy. It is likely that owners of some companies took
such an approach. However, a blanket presumption on these lines resulted
in the BIFR inordinately delaying disposal of appeals to shut down sick
companies. Even without referring to Schumpeter’s concept of ‘creative
destruction’,12 it should have been obvious that preventing terminally ‘sick’
companies from dying results in losses for the economy. Indian courts often
took it upon themselves to rule against even the atrociously delayed
decisions of BIFR to prevent closure of companies on the grounds that it
would hurt workers.13 Given the delays in a company being allowed to wind
up, SICA and BIFR were effectively anti-worker since fresh investment and
hence the creation of employment opportunities in the formal sector were
inhibited.14
Readers who are old enough will remember the days when only those
who had access to landline phones in offices or at home could book a ‘trunk
call’ to another city or country, and talking times were restricted to three
minutes which could be extended at extra cost. In 1984, during IG’s last
year as PM, forward-looking changes were adopted in government’s
telecommunication and information technology policies. Changes were also
sought to be made in the regulations for production of two-wheelers. It is
likely these initiatives were taken at RG’s behest. Specifically, the Centre
for Development of Telematics (C-DOT), which was set up in August 1984
by the Government of India, was actively supported by RG. Rural
automatic exchanges came up and used electronic rather than electrical
switching equipment which made subscriber trunk dialling booths
ubiquitous even in rural India. C-DOT was able to connect remote parts of
India with the rest of the country, triggering huge efficiency gains.15
The advances made in the 1980s helped to usher in the mobile phone
revolution a decade later in the 1990s. The relative opening up to imported
electronic products was a result of RG’s understanding that the use of
technology should be widened and deepened. However, not enough was
done to drop the licensing requirements for manufacture of such items in
India. At times, there was negative protection for local manufacturers of
electronic equipment since finished products attracted lower rates of duty
than intermediate parts. All said and done, in 2019 India is not that far
behind developed countries in telecommunications, and RG was central to
the start of it all in the mid-1980s.
Scooters and motorcycles were in short supply in the 1980s. Those who
could obtain foreign exchange from relatives abroad or other sources could
jump the queue. In January 1984, while IG was PM, the Hero Cycles group,
with RG’s support, concluded a collaboration agreement with Honda
Corporation. This agreement enabled technology transfer and helped Hero
Honda to produce two-wheelers in India which were fuel-efficient with less
polluting emissions. By the beginning of the twenty-first century, Hero
became the largest producer of two-wheelers in the world and had about 50
per cent share in the Indian market. In 2011, Honda exited from this
partnership. Millennial Indians would have no memory of the frustration
that earlier generations felt, because they can walk into a showroom and
buy a two-wheeler outright or on an instalment payment plan.
It does not appear from publicly available records that the RG
government was aware of the changes in economic policies in China. By
the mid-1980s China must have started signing up FDI contracts with
companies headquartered in the US or other Western countries to produce
garments, furniture and other items of mass consumption. Consumer goods
made in China started appearing in US retail outlets in the early 1990s, and
by the late 1990s it was a deluge.
In the RG years, Indian businesses and the political-bureaucratic elite had
too much invested in maintaining the status quo. India needed a campaign
to persuade internationally competitive firms that investing in India would
be profitable, and that the credit and market risks were manageable.
According to a 2010 study,16 China received about US $560 billion of FDI
from 1980 to 2004. A World Bank report dated 16 July 2010 mentions that
‘when market institutions were not fully in place in 1980s and 1990s, China
experimented with opening up to foreign investment in selected coastal
cities and in special economic zones/industrial parks with a focus on
attracting export-oriented manufacturing’.17 It is not clear why India, with a
functioning private sector and a number of Indian-origin professionals
working in the US, could not attract more FDI. During his term, RG did
hire non-government economists. However, their recommendations to
reduce government’s chokehold on the Indian economy were factored into
reforms only after P.V. Narasimha Rao took over as PM in 1991.
RG tried to reach out to the poor in rural areas through a series of so-
called ‘technology missions’ which were started in 1987. These missions
included: a) immunization; b) literacy; c) safe drinking water; d) oilseeds;
e) telecommunications. The missions (a), (b) and (c) have been much
discussed in Central and state government forums since the Nehru years.
The success in implementing government programmes around the country
has varied from state to state, and the southern and western states have done
better than the Hindi heartland. To an extent, they had a head start since
they were ahead in human development indicators at Independence. On (d),
namely oilseeds, to reduce India’s dependence on countries such as
Malaysia for edible oil imports, this was a much-needed push and met with
some success compared to the past since the RG government’s efforts
widened awareness and also improved access to seeds. On (e),
telecommunications, Indira Gandhi’s government had started improving the
required infrastructure, and during RG’s term, significant improvements
were made in telecommunication connectivity around the country.
Returning to (b) and (c), to raise literacy levels and make safe drinking
water available on a consistent basis to the poorest and those living in
inaccessible regions, it is the steady extension efforts of fieldworkers which
results in lasting improvements as compared to patchwork success.
Obviously, heads of government just do not have the time to get involved
with the implementation details of primary education and public health
programmes. Thus it was crucial for India’s PMs including RG to find ways
to motivate the millions of field officials, primary schoolteachers and public
health workers.

Fiscal Irresponsibility, High Defence Expenditure, Trade and Indirect Tax

Reforms

The economic indicators during RG’s term from 1984 to 1989 are detailed
in Table 5.1 in the Appendices. Capital outlays as a percentage of GDP
were at around the same level of about 2.5 per cent through these five years,
but gross fiscal deficit was consistently high at around 7 per cent and was
irresponsibly high at over 8 per cent in 1986–87. The automatic
monetization of fiscal deficits through issuance of ad hoc short maturity
treasury bills (T-bills), which started in the mid-1950s, was still in vogue
during the 1980s. Consumer price inflation rose during RG’s term and was
at 12.7 per cent in 1988–89.
GDP growth rates, which were at 4–5 per cent from 1984 to 1988, shot
up to 9.6 per cent in 1988–89 which was RG’s last year in office. Some
partisan commentators have suggested that this one year of high growth is
evidence of reforms implemented by RG’s government. It has also been
suggested that economic reforms were not initiated in 1991 but were started
by Indira Gandhi in the early 1980s and accelerated during the RG years.
The boost to growth in 1988–89, in fact, came from fiscal profligacy.
Montek Singh Ahluwalia, former finance secretary and deputy chairman,
Planning Commission, has commented that ‘some of this growth [in the
1980s] was fed by [high] fiscal deficits in the later years of the decade,
which laid the foundations for the balance of payments crisis in 1991’.18
Foreign exchange requirements were not financed by stable FDI inflows but
by short-term hard currency debt which was a contributing factor to the
1991 crisis. These hard-currency borrowings were camouflaged since they
were contracted by public-sector oil companies. The current account deficit
rose to 2.7 per cent of GDP by 1988–89. In the foreign trade sector, no
systematic effort was made to reform the anti-export bias of the past.
Prior to the 1980s, the highest annual defence expenditure was 3.76 per
cent of GDP in the India–China war year of 1962. All through the five years
that RG was PM, defence expenditure was consistently higher than 3 per
cent of GDP. This number rose to 3.95 per cent of GDP in 1987–88, which
was the highest ever for defence in the seventy-one years of independent
India from August 1947 to May 2019. The rise in defence expenses was due
to fresh acquisitions of weapons systems, from foreign sources, such as
tanks, field guns, infantry fighting vehicles (IFVs), French Mirages and
newer versions of Soviet MiG fighters. This sustained increase in defence
expenditure was caused by RG’s muscular approach to defence policies. For
example, at the urging of Arun Singh and General Sundarji, the
counterproductive Operation Brasstacks was mounted. This operation
resulted in the massing of Indian troops on the border with Pakistan
between November 1986 and March 1997. The Indian Peace Keeping Force
(IPKF) at its maximum numbered about 100,000, and was in Sri Lanka
from July 1987 to March 1990.19
During the Emergency, in 1976, the L.K. Jha Committee recommended
use of value added tax (VAT) to make it easier to comply with and track
indirect taxes. This committee suggested VAT at the manufacturing level
and called it MAN VAT. Ten years later, in 1986, the then finance minister,
V.P. Singh, introduced modified value added taxation (MODVAT). It was
similar to the MAN VAT suggested by Jha and was an important reform for
its time. V.P. Singh was finance minister for about two years, and a
‘medium term strategy was outlined for the first time’.20 During his tenure,
the maximum income tax rate was reduced from 62 to 50 per cent and
wealth tax from 5 to 2 per cent. The estate duty was abolished and corporate
tax rate was brought below 50 per cent. In V.P. Singh’s second budget, a
significant number of reforms in indirect taxes were effected, including
reducing the number of customs duty tiers. The Abid Hussain Committee
on Trade Policies had started work in 1984 and the Foreign Exchange
Regulation Act (FERA) was relaxed. However, there was no reduction in
the reservations for small-scale industries.
In the last year or so of RG’s term, the Prime Minister’s Office did
review the constraints that were binding the economy, including restrictions
on industrial licensing, foreign investment and imports. This preparatory
work came in handy later for P.V. Narasimha Rao’s government to
announce wide-ranging policy reforms almost from the day it took office.

Bofors Controversy

On 24 March 1986, fifteen months after RG became PM, the Government

of India and the Swedish company Bofors signed an agreement worth about
US $285 million for the supply of 155-mm Howitzer field guns. A little
over a year later on 16 April 1987, Swedish radio reported that Bofors had
bribed top Indian politicians and officials to win this contract. The alleged
intermediaries included an arms dealer named Win Chadha and Ottavio
Quattrocchi who was the Delhi representative of an Italian petrochemicals
company Snamprogetti.
Three months later, on 15 July 1987, Arun Singh, who was minister of
state for defence, resigned without giving any credible explanation for his
decision to leave RG’s government. It was reported by the media that after
resigning, he went away to Almora and spent years there in seclusion.
Separately, a Geneva-based journalist, Chitra Subramaniam reported that
she had obtained documents from Swedish sources which confirmed
payments to the Swiss bank accounts of Win Chadha and a front for
Quattrocchi.21 The then Comptroller and Auditor General T.N. Chaturvedi
was critical of the way the contract had been concluded with Bofors.22
Given the adverse and intense media coverage, RG set up a joint
parliamentary committee (JPC) to investigate the alleged pay-offs in the
Bofors case. In May 1988, the JPC cleared the political executive and
officials of having received any pay-offs.23 Much later in 1992, Madhav
Singh Solanki, the then Indian external affairs minister, was accused of
having written to the Swedish foreign minister requesting that the ongoing
Swedish investigations in collaboration with Swiss banks be stopped.
Confronted with this accusation, Solanki resigned from the Indian cabinet.24
Both S.K. Bhatnagar, defence secretary at the time the Bofors deal was
concluded, and Win Chadha passed away in 2001 without shedding any
light on who if anyone had accepted bribes to get this deal done. In July
2013, Quattrocchi died in Milan, and there seem to be no leads left to prove
guilt or innocence any more. To date, successive Indian governments have
not been able to prove any wrongdoing on the part of those alleged to have
benefited from this deal.
Although no one was legally held guilty, in public perception there was a
cloud over RG’s administration, and it was commonly believed that some
who were close to RG had received kickbacks. Although it is unfair, in the
court of public opinion those in high office can be deemed to be guilty
unless they prove their innocence. RG’s government had a huge absolute
majority in the Lok Sabha and a fund of goodwill when he took office. The
Bofors scandal muddied a substantial part of his image as Mr Clean.
Foreign Policy—Dangerous Posturing, Blunders and Successes

In line with RG’s shuffling of his defence and finance ministers, he changed
the foreign minister four times. First from 31 October 1984 to 24 September
1985, RG held concurrent charge as the external affairs minister (EAM),
then Bali Ram Bhagat was EAM for seven months from 25 September 1985
till 12 May 1986, and P. Shiv Shankar held this portfolio for just five
months. Shiv Shankar was followed by N.D. Tiwari from 22 October 1986
onwards for eight months and Rajiv Gandhi again from 25 July 1987 till 25
June 1988. Finally, P.V. Narasimha Rao held the external affairs charge till
2 December 1989. They were all seasoned politicians, and N.D. Tiwari and
P.V. Narasimha Rao had been chief minister of Uttar Pradesh and Andhra
Pradesh respectively. This cavalier treatment of regional leaders would not
have gone down too well with voters in these states. The frequent changes
would also not have allowed officials in this ministry to settle down and
work as a team.
In this atmosphere of chopping and changing ministers, RG did manage
to maintain the relationship with the Soviet Union. However, not enough
attention was paid to the changes that were happening internally in that
country. Two years after his government lost the elections in 1989, India
was taken by surprise when the USSR broke up in 1991. There were limited
numbers of intermediaries in the exchange of consumer goods and defence
supplies between India and the Soviet Union. Those who benefited
financially from this lack of transparency may have consciously injected a
false sense of confidence that India’s special economic–defence relationship
with the USSR would not be disturbed.
RG and Gorbachev25 had overlapping tenures as Gorbachev was at the
helm of the Soviet government from 1985 to 1991. In the latter half of the
1980s, the Soviet Union had somewhat diluted its earlier politically solid
communist moorings, but there were continuing discussions between India
and the Soviet Union for collaboration on hydroelectric projects and
manufacture of steel. However, the changes in the Soviet Union leading to
its break-up presaged changes in India’s economic and technological
relationships with that country.
Gorbachev was convinced that the past policies of Russia dominating
over the other republics within the USSR and its overweening influence in
East Europe imposed too heavy a burden politically and economically.
Hence he initiated the policies of perestroika (economic reforms) and
glasnost (openness). Overcome by the needless loss of young Soviet
soldiers in Afghanistan and military expenditures, which had been
excessive for this uncompetitive commodity-exporting economy to bear, the
Soviet Union broke up in 1991. Gorbachev’s interactions with other world
leaders included five meetings with President Ronald Reagan between 1985
and 1988, and seven meetings with President George W. Bush from 1988 to
1991 to discuss arms control and Afghanistan. Despite these
preoccupations, Gorbachev met RG four times alternately in Delhi and
Moscow. A highly significant agreement between the two countries was for
India to lease a nuclear-powered missile-carrying submarine from 1988 to
1991 which was renamed INS Chakra. This experience helped India put
together the Arihant class of indigenously built nuclear submarines, the first
of which was commissioned in 2016. As of May 2019, about two-thirds, in
value, of the stock of Indian military equipment has been sourced from the
Soviet Union–Russia.
The joint statements issued by India and the USSR during the 1980s
about global peace and disarmament were of little consequence bilaterally
or internationally. For instance, the Delhi Declaration of 27 November 1986
includes platitudes about peaceful coexistence and includes the evangelistic
goals of a ‘nuclear weapons-free world’ and ‘complete disarmament’.
RG’s attitude towards China was resolute but end objectives remained
unclear. For instance, there was a stand-off between Indian and Chinese
troops at Sumdorong Chu at the border north of Tawang in Arunachal
Pradesh in July 1986. This wore off without any serious repercussions, but
no understanding was reached at that time on how such border issues would
be dealt with in the future.
The then Pakistani President (General) Zia-ul-Haq had attended Indira
Gandhi’s funeral and met Rajiv Gandhi in Delhi on 4 November 1984. They
met again on the sidelines of another funeral, that of Soviet President
Konstantin Chernenko, in Moscow on 13 March 1985. They met yet again
in New York when they were both in that city to attend the UN General
Assembly discussions in October 1985 and in Dhaka on 7 December 1985,
when they attended the first South Asian Association for Regional
Cooperation [SAARC] Summit. These meetings, and another one in India
when Zia transited through Delhi on 17 December 1985, improved the
atmosphere. Yet, just a year later, in November 1986, Operation Brasstacks
made Pakistan suspicious about India’s intentions.
Between November 1986 and March 1987, the Indian Army massed over
half a million armed personnel on the India–Pakistan border in Rajasthan in
an exercise called Operation Brasstacks. The Indian armed forces included
infantry and mechanized and air assault divisions. The Indian troops were
deployed slightly less than 100 miles from the border with Pakistan. An
Indian amphibious naval force was also deployed not far from Karachi. In
response, Pakistani troops went on a state of high alert.
Kuldip Nayar was in Pakistan in January 1987 in his capacity as a
journalist and syndicated columnist. Nayar reported that A.Q. Khan had
indicated to him on 28 January that Pakistan would not hesitate to use
nuclear weapons to prevent Indian adventurism. The interview was
published in London’s Observer newspaper on 1 March 1987.26 By this
time, the ratcheting up of tension between India and Pakistan had been
defused through diplomatic channels.
General Krishnaswamy Sundarji was the chief of army staff from 1986 to
1988, through the period during which the border skirmish took place with
China and Operation Brasstacks was conducted. According to Natwar
Singh, Arun Singh and General Sundarji had masterminded the massing of
troops at the border between November 1986 and March 1987, and RG was
unaware of this operation.27 This is unlikely since the Indian PM receives
daily briefings from the IB and R&AW, and any large deployment of Indian
troops at the border with Pakistan could not have escaped the attention of
both these agencies. My guess is that RG, the then de facto defence
minister, Arun Singh and General Sundarji felt that a menacing approach
towards Pakistan would make that country drop its support for Khalistan.
In April 1984, when Indira Gandhi was PM, the Indian and Pakistani
armies confronted each other at the freezing heights of Siachen,28 and the
Indian Army was gradually able to gain control over this region. This was
achieved at a considerable cost of the lives of young soldiers, and
intermittent fighting continued with Pakistani forces till a ceasefire was
declared in 2003. Even accepting the strategic value of an Indian military
outpost at Siachen it was a failure of diplomacy on both sides.
All through RG’s tenure, Pakistan encouraged anti-India sentiments in
Kashmir and Punjab. In the mid-1980s, India–Pakistan discussions were
complicated by Pakistan’s growing confidence stemming from its perceived
indispensability to the US in backing jihad in Afghanistan. All things
considered, it should have been possible for the Indian government to find a
solution for Siachen without giving any military advantage to Pakistan,
while sparing Indian armed forces personnel the never-ending torture of
defending this outpost.
Zia was blown to bits on 17 August 1988 in an air crash, possibly an
internal conspiracy against him. After Zia’s death, Benazir Bhutto came to
power in Pakistan as an elected leader, and RG made his only visit to
Pakistan on 15–16 July 1989 with more than the usual press publicity. The
media in both countries was agog with unrealistic expectations, possibly
because two young and photogenic leaders were heads of government of
their respective countries. RG was forty-four, and Benazir Bhutto was just
thirty-six years of age. However, the underlying reality, that Pakistan
wanted India to make territorial concessions in Kashmir, meant that no
substantive progress could be achieved. Nevertheless, there was an
improvement in the climate for private visit visas.
Far away from India, I was the first secretary in the Indian embassy in
Havana from September 1983 till September 1986. It was a small embassy
with just two diplomatic officers, the ambassador and me. We were
informed by the Ministry of External Affairs in early 1985 that RG had
accepted Fidel Castro’s invitation to visit Havana on his way to New York.
After one of many preparatory meetings, as we came out of the office of
the Cuban foreign minister, Isidoro Malmierca Peoli, Fidel Castro was
passing by. On hearing from Malmierca that we were tying up loose ends
for RG’s visit, Castro mentioned to his foreign minister that schoolchildren
should be lined up on both sides of the road from the airport to RG’s place
of stay. Those were the days of government-orchestrated gestures for
visiting dignitaries in several countries, including India. I remember
wondering to myself whether this was a useful way for children to spend
their time during school hours.
The then foreign secretary, A.P. Venkateswaran, arrived a week before
RG reached Havana, probably because he felt that given the small size of
the embassy, he needed to personally check that everything was in order. I
received him at the airport, and as we drove to my residence to have lunch,
he asked me who had written the briefs for the PM’s forthcoming visit. I
debated whether I should own up to writing them, as I was unsure whether
he had found the briefs analytical enough. Deciding that honesty was the
best policy, I confirmed that it was indeed I who had written the briefs.
Hearing this, Venkateswaran had a hearty laugh. He said he knew that
already, and was just checking whether I would try to pass the blame or the
credit to someone else. Venkateswaran was a delightful conversationalist,
with a never-ending repertoire of anecdotes and an irreverent sense of
humour.
The US had imposed a trade embargo on Cuba and refused to have full
diplomatic relations with that country. Consequently, for Cuba, this was an
important visit of the head of government of a large democratic country. For
India, the relations with Cuba were marked by a sense of companionship on
the path of development, and independence from great power tutelage. In
India’s case, the desire not to be a camp follower of either the US or the
USSR during the Cold War years manifested itself in ‘non-alignment’. As
for Cuba, given the hostility of the US, it became dependent economically
and for security cover on the Soviet Union. However, Cuba under Fidel
Castro’s leadership also had a fiercely nationalistic streak which made the
country an enthusiastic member of the non-aligned fraternity.
RG arrived in Havana on 21 October 1985 with more than a dozen senior
officials in his delegation. Despite the best of efforts on both sides, there
could be little substance to the visit beyond affirmations of friendship,
economic cooperation and international solidarity. In material terms, this
meant little for India. However, for the professedly left-leaning in RG’s
office, such as Principal Secretary Gopi Arora and those with similar views
in the Ministry of External Affairs, this visit was probably intended to
signal India’s independence from the US in foreign policy matters. All
things considered, the official delegation was excessively large, even taking
into account the fact that RG was carrying on to New York to speak at the
UN.
I returned to India from Cuba in September 1986 and heard informal
reports that Foreign Secretary Venkateswaran was opposed to India’s
approach to the Tamil issue in Sri Lanka. It was reported by the Indian
media in December 1986 that Venkateswaran had mentioned to his
Pakistani counterpart during a visit to that country that the Indian PM
would visit SAARC countries. It was also reported that Venkateswaran had
mentioned, without prior authorization from the prime minister, that a visit
by RG to Pakistan may be possible. The very next month, at a press
conference in Delhi on 21 January 1987, RG, responding to a query about a
possible visit to Pakistan, said that there would soon be a new foreign
secretary. Venkateswaran happened to be in the front row at this press
interaction and resigned the same day.
I remember the strong sense of solidarity that my colleagues in the
Ministry of External Affairs felt with Venkateswaran. According to Natwar
Singh, Venkateswaran had been guilty of ‘irreverence’ and of being ‘openly
and unwisely critical of the abilities and functioning of the Prime
Minister’.29 It is precisely such an official who can provide the political
executive with objective feedback. However, given the feudal mindset
among many in India’s officialdom and political circles, it is obsequious
acquiescence that is usually expected from those who are junior in the
hierarchy. There is little sense of humour or the ability to take even a hint of
criticism constructively. Soon after, Venkateswaran, who remained
irrepressible, commented to a university audience in Madras that the
students may have heard many distinguished diplomats but this would be
the first time they would be listening to an ‘extinguished’ diplomat.
From mid-1987 onwards, the need to neutralize or at least soften negative
public perception caused by the Bofors scandal seem to have impacted
several of RG’s foreign policy decisions. Specifically, the interventionist
approach to Sri Lanka was probably driven by the need to achieve a
spectacular success in foreign relations.30
The training of LTTE guerrillas in India had started during IG’s second
innings as PM in the early 1980s.31 I was the undersecretary for Sri Lanka
and Maldives in the Ministry of External Affairs at that time. It was evident
at my lowest level in the hierarchy that the Indian government was not
sufficiently mindful of Sri Lankan concerns about Indian support for LTTE.
For instance, the Sri Lankan equivalent of the Indian director, IB, would sit
in my second-floor South Block room (which I shared with my fellow
undersecretaries) for hours waiting to meet the joint secretary.
While this Sri Lankan official was cagey about what he had come to
discuss, over several cups of coffee as he waited to meet my seniors, Sri
Lanka’s unease with India’s actions became all too evident. Anita Pratap,
the Time magazine correspondent in Delhi, had reported about the training
camps for LTTE guerrillas in Sirumalai, Tamil Nadu. Karunanidhi of the
DMK and other Tamil Nadu leaders competed with each other to show
support for Sri Lankan Tamils and attended Eelam Tamil rights protection
forums.32
Around the mid-1980s, Prabhakaran, the unreliable, egomaniacal LTTE
leader, was in touch with Kuldip Sahdev, the joint secretary dealing with Sri
Lanka in the Ministry of External Affairs, J.N. Dixit, Indian high
commissioner in Colombo (1985–89), N. Ram of The Hindu newspaper and
MGR, chief minister of Tamil Nadu.33 Although for IG and later RG, it may
have been about competitive pandering to pan-Tamil sentiments, given
RG’s overwhelming majority in the Lok Sabha, it is incomprehensible that
Tamil Nadu politics was allowed to influence the Government of India’s
policies towards Sri Lanka to the extent that it did.
At the SAARC Summit in Bangalore in November 1986, Sri Lankan
President Jayewardene was sharply critical of India’s stance. This was
unusual, since at multilateral meetings, heads of government do not usually
bring up bilateral differences. Despite this tangible expression of Sri
Lankan disquiet, on the instructions of RG, Natwar Singh, minister of state
for external affairs, and P. Chidambaram, minister of state for personnel,
met Velupillai Prabhakaran on the sidelines of this summit in Bangalore.34
Prabhakaran had come to Bangalore with MGR. It was absurd that an
Indian chief minister was allowed to meddle in the internal affairs of a
friendly neighbouring country, namely Sri Lanka, that was a member of
SAARC, the non-aligned movement (NAM), the Commonwealth and the
UN. It should have been evident even then that Prabhakaran was not
interested in a negotiated settlement of any sort with the Sri Lanka
government. For him, the ideal solution was a separate Tamil Eelam, one
which would include the Indian state of Tamil Nadu, with him as the
undisputed leader.
The Indian government was well aware that the Sri Lanka Sinhala
leadership was a house divided and deeply conflicted about the extent to
which India was seen to be meddling. While the personal agenda of certain
leaders in Tamil Nadu was apparent, under no construct can it be
convincingly argued that Indian national interest was served by helping
separatist elements in Sri Lanka. This holds even if Sri Lankan Tamils were
facing discrimination and worse in their homeland.
On the other side of the argument, it is likely that the international
community would not have addressed the issue with any sense of urgency.
However, there is little evidence that unilateral interventions of larger
countries in the internal affairs of smaller neighbours is a better option. It
was the narrow strip of water between India and Sri Lanka that eventually
averted a repeat of the Bangladesh refugee crisis.
In its attempt to isolate and discredit the increasingly aggressive LTTE,
the Sri Lankan government blockaded Jaffna from January 1987 onwards,
leading to shortages of food and other supplies in this Tamil-majority
region. In the first few days of June 1987, India sent nineteen fishing boats
with food and medicine flying Indian Red Cross flags. These fishing vessels
were accompanied by an Indian Coast Guard ship carrying journalists and
Red Cross workers. The Sri Lankan navy turned these fishing boats back.
Given the strong sentiments in Tamil Nadu in favour of Jaffna Tamils,
India tried to mediate but there was growing antipathy in Colombo to
India’s overtures. It is in this environment that the Indian government
launched Operation Poolalai (Flower Garland). Also called Eagle Mission
4, this was to airdrop food and other supplies on 4 June 198735 to Tamil-
majority regions, including Jaffna in Sri Lanka. As the internal situation had
worsened in that country, there were appeals from various shades of
political opinion in Tamil Nadu that the Indian government should do
something. However, this was not a sufficient reason for India to violate Sri
Lankan sovereignty.
Chinmaya R. Gharekhan was the Indian permanent representative (PR) to
the UN from 1986 to 1989. According to Gharekhan,36 he discussed the
food dropping with Daya Perera, Sri Lankan PR, and persuaded him not to
petition the UNSC on this matter. Gharekhan’s reasoning with Daya Perera
was that as neighbours, India and Sri Lanka had to live with each other,
implying that they needed to understand the compulsions of each other’s
domestic politics.
Through the summer of 1987, the two governments had several rounds of
discussions which culminated in the signing of an Indo-Lanka Accord on 29
July 1987. This accord was aimed at defusing tensions and bringing to an
end the violence between separatist Tamils and the armed forces of the Sri
Lankan government. The accord provided for an amendment of the Sri
Lankan Constitution to delegate more powers to the Tamil-majority
provinces and for the sending of an Indian Peace Keeping Force (IPKF) to
Sri Lanka to whom the LTTE would surrender its arms. The LTTE was at
best ambivalent about surrendering arms and against giving up their cause
for an independent Tamil state. The situation on the ground soon
degenerated into fighting between the IPKF and the LTTE, and about 1,700
Indian soldiers were killed. The last units of IPKF left Sri Lanka in March
1990.
It could be argued at a stretch that because of the embedded strategic
risks, India had no option but to get closely involved in resolving the
differences between minority Tamil and majority Sinhalese communities in
Sri Lanka. According to this alarmist argument, prolonged hostilities
between Sri Lankan armed forces and the LTTE may have drawn in
Pakistan, China or the US, and one or the other of these countries may have
established military bases in Sri Lanka. The costs, human and financial, for
countries which set up military bases in foreign locations have often been
higher than any long-term strategic or economic benefits. The many bases
of the US, for example in the Philippines and Vietnam, proved to be
unpopular with local populations and costly in the long run. Well, all things
considered, it was well worth taking the chance that foreign powers setting
up military bases, which would prove to be disastrous for India, was a low-
probability event.
Some Delhi-based analysts rationalize the support for LTTE terrorists on
the grounds that it was necessary to stem separatist sentiments in Tamil
Nadu. Such an argument does not hold much water since the Indian Union
had been able to successfully take a tough line against advocates of
Khalistan and separatism in the North-east, and the same could have been
done in Tamil Nadu.
On 30 July 1987, at the presidential residence, as RG was taking the
guard of honour, a naval rating attacked him with the butt of his rifle. The
images of this embarrassing attack were aired on television around the
world. Another pointer about sullen Sinhala disaffection was the then Sri
Lankan PM Ranasinghe Premadasa’s refusal to be present at the signing of
the accord or at the dinner hosted by President Jayewardene.
Chinmaya R. Gharekhan claims he had cautioned Rajiv Gandhi in the
following terms about the accord, ‘I am uneasy about the Accord because
the very same people we have set out to help will turn against us.’37 This
cautionary advice proved prophetic. It was subsequently revealed by both
Sri Lankan38 and Indian Army generals that Premadasa, who took over as
President at the beginning of January 1989, authorized the Sri Lankan army
to provide LTTE with weapons to fight the IPKF.
Kuldip Sahdev,39 the joint secretary dealing with Sri Lanka along with
other responsibilities, felt that R&AW’s daily briefings to RG received
more attention from the PM than considered reports of the Ministry of
External Affairs. Excuses were made later, by Congress acolytes, for RG’s
costly mistake to send in the IPKF on the grounds that the Indian generals
were excessively confident, and R&AW did not have accurate information
about where Prabhakaran and the separatist elements loyal to him were
hiding.
J.N. Dixit was the Indian high commissioner to Sri Lanka from 1985 to
1989 and foreign secretary from 1991 to 1994. According to Dixit:40 ‘Rajiv
Gandhi should not have sent in the Indian Peace-keeping Force [IPKF] to
Sri Lanka. This was an unjustified military intervention into a neighbouring
country. The alleged failure of the IPKF in neutralizing the LTTE and its
subsequent withdrawal signified a major foreign policy failure for India,
which Rajiv Gandhi could have avoided.’ This foreign policy failure was
second only to Nehru’s missteps leading to the military defeat against China
in 1962.
Dixit states a few pages later in the same book that: ‘Whatever
judgement may be passed about his [RG’s] Sri Lanka policies, the logic of
his objectives, his deep commitment to India’s national interests and
regional peace inherent in his policies at that point of time cannot be
questioned.’ Dixit’s understanding about RG’s motivations may well be
true, but that does not detract from RG’s deeply flawed understanding of the
Sri Lankan situation and Indian national interest. Dixit must be respected
though for making both statements in the same book and letting readers
decide for themselves. Others who have held high positions in government
and do not express themselves frankly do posterity a grave injustice.
RG espoused the cause of nuclear disarmament, taking the cue from his
mother IG’s ‘Five-Continent, Six-Nation Initiative’ (the other five countries
were Sweden, Mexico, Argentina, Greece and Tanzania). After taking over
as PM, he followed up with the leaders of these five countries and jointly
called for a nuclear test ban in the Mexico Declaration of 7 August 1986. At
a bilateral level, RG and Gorbachev signed a Joint Declaration on the
Principles of a Nuclear-Weapons-Free and Non-Violent World on 27
November 1986. Subsequently, in June 1988, speaking at the UN in New
York, RG called for an ‘Action Plan for Ushering in a Nuclear-Weapons-
Free and Non-Violent World Order’. This speech did not find even a single-
line mention on the front page of the New York Times the following day.
Nevertheless, Indian newspapers and television were agog at the seminal
and historic significance of this speech.
A far-fetched rationalization of this Rajiv Gandhi speech was that he
wanted to give one last opportunity to the five permanent members of the
UNSC (P5) to give up their nuclear weapons before giving directions for
India to go nuclear. An informed college student could have predicted that
the P5 countries would not bother to engage with India or the others
members of the Six Nation Initiative on this issue with any seriousness.
This type of sycophantic ex-post rationalization made it difficult for officers
of my vintage in government to take the public pronouncements of RG and
his close circle of foreign policy advisers seriously. It was disconcerting to
witness senior officers in the Ministry of External Affairs and the PMO
vying with each other to claim credit for having drafted what they claimed
was the most brilliant speech ever on disarmament. This harping on global
nuclear disarmament sounded noble but also impossibly naive. Those in
high office have to be mindful that credibility is difficult to acquire and
even more difficult to retain.
From the mid-1980s onwards, while India was in this make-believe
world of helping the world move towards universal nuclear disarmament,
Pakistan was in the process of developing nuclear weapons. After Ronald
Reagan became the US President in 1981, he wrote to Zia-ul-Haq
questioning Pakistan about its uranium enrichment capabilities and a
simulated nuclear fission test. On the face of it, the US was not satisfied
with the stonewalling by Pakistan on this issue, and Senator Larry Pressler’s
amendment was passed in 1985. Under this Pressler Amendment, the US
President was required to certify annually that Pakistan did not possess a
nuclear explosive device and that US assistance would reduce the
probability of Pakistan working towards acquiring such a device. Such a
certification would then allow the US to provide economic and military
assistance to Pakistan. The certification required under the Pressler
Amendment met the concerns of US based non-proliferation lobbies, and
the US government cynically ignored Pakistan’s drive to acquire nuclear
weapon capability.
 All this while, within India there was mounting criticism about the
country disavowing nuclear weapons. In May 1985, former finance minister
in the Janata government, H.M. Patel, demanded in Parliament that India
develop nuclear weapons. General Sundarji pushed for a focused nuclear
weapons programme with the required delivery, command and control
structures. Media reports and other references41 suggest that by early 1989,
RG had decided that India did need nuclear weapons. The Department of
Atomic Energy (DAE) had continued to work on enhancing capabilities
while waiting for such a political signal. Anecdotal evidence suggests that
Naresh Chandra, the then defence secretary, was given the task to
coordinate with the scientists and engineers of the BARC and the DAE to
undertake the preparatory work to test nuclear weapons.
In 1986–87, I was based in Bombay as a deputy secretary in the
DAE.While I was posted in Bombay, initially Dr Raja Ramanna was the
chairman of the DAE and he was succeeded by Dr M.R. Srinivasan. My
stint in DAE made me realize that the scientist–engineer community too is
riven with personality differences and competing egos that at times prevent
political executives and the civil services in Delhi from working as teams.
This may also partly explain the stop-go nature of India’s nuclear weapons
programme. However, the tacit go-ahead given by RG at the beginning of
1989 did put India firmly on the track towards testing nuclear weapons.
In another highly significant initiative, Rajiv Gandhi was the first Indian
PM to visit China after the 1962 war. The meetings during this visit in
1988, including with Deng Xiaoping, went well. The principal gain from
this interaction was the setting up of a bilateral mechanism for talks
between the foreign secretaries of the two sides to work towards resolving
the border issue. Subsequently, the interlocutor was changed to the national
security adviser on the Indian side.
Not much has been reported in the narratives of those who accompanied
RG to indicate whether the economic policies of China to promote FDI and
manufacturing were noted for adaptation or emulation back in India. China
had changed not just its FDI policies to attract Western capital but also its
stance on issues which had been irritants for the US. For instance, China
dropped its support for left-leaning elements in ASEAN countries.
The following apocryphal story has done the rounds in the Ministry of
External Affairs. That is, when RG met Deng Xiaoping and heard of all the
changes that China had implemented, RG asked Deng, ‘Don’t you think
these policies will result in rising inequalities?’ Deng is said to have
responded, ‘I hope so, I sincerely hope so.’
After IG’s return to power in 1980, she appears to have recognized that
India’s relationship with the Soviet Union had restricted India’s options
with the West. It seems that Soviet leadership was not sufficiently courteous
to her when she transited through Moscow on the way to London at the end
of 1978.42 A recalibration of India–US relations followed. From 1982
onwards, RG was kept in the picture on external relations, and he did not
carry the anti-US baggage of the Congress of the 1970s. RG felt that India
needed technological upgradation and, in most fields, Western companies
were better placed to provide the technical tie-ups. The US too was aware
that with RG likely to step into IG’s shoes, they had an opening to improve
ties through closer technological cooperation.
It was in this atmosphere of high expectations of cementing closer Indo–
US ties that RG visited the US as PM in June 1985. However, expectations
on both sides were belied. The US did not deliver on the Cray XMP-24
supercomputer, disappointing the technology-minded RG. The US had
reservations about the potential use of this computer for military and
nuclear applications, and not just for meteorological studies as claimed by
India. Instead, the US offered the XMP-14 computer with less sophisticated
capabilities. Despite the new opening, the US continued to maintain some
distance from India because of its tie-up with Pakistan on bleeding the
USSR in Afghanistan.
The US was also suspicious that India had kept its lines of
communication open with the leftist Sandinista government in Nicaragua
and the Heng Samrin government in Cambodia which leant towards
Vietnam. India has consistently maintained that it favours a multipolar
world in which disputes are resolved through discussions at recognized
international forums such as the United Nations. India was justified in
maintaining its lines of communication with regimes which had difficult
and even inimical relations with the US. At the same time, to dilute US
strategic interaction with Pakistan and commercial ties with China, India
could have pushed for eye-catching FDI tie-ups with large companies such
as Boeing and closer classified interaction between research personnel in
the two countries.

Domestic Missteps with Lasting Negative Consequences

The folklore is that the Babri Masjid located in Ayodhya, Uttar Pradesh,
was built in the sixteenth century by a Mughal general over a temple
dedicated to Lord Ram. In December 1949, Hindu devotees offered prayers
at this site, broke into the mosque and placed idols of Lord Ram (avatar of
Vishnu) and Sita inside. The government then locked up this space. On 1
February 1986, a Faizabad judge gave an order to unlock the mosque. Rajiv
Gandhi, acting on the advice of Arun Nehru, was reported to have had the
mosque opened within an hour of this court ruling.43 This ‘error of
judgement’ on the part of RG is referred to in the second volume of former
President Pranab Mukherjee’s memoirs titled The Turbulent Years: 1980–
1996. RG’s relationship with Arun Nehru soured after this, and
subsequently, Arun Nehru left the Congress to join V.P. Singh’s party.
Another issue on which RG showed poor judgement was the Shah Bano
case. Shah Bano had been divorced in 1978 by her husband in Bhopal and
offered inadequate alimony for which she went to court. In 1985, the
Supreme Court ruled in favour of Shah Bano, whose case by then had
become well-publicized. In order to appease conservative Muslim opinion,
RG amended the Constitution to overturn the Supreme Court judgment.
Arif Khan, a minister in RG’s government, resigned in protest against this
retrograde action taken by RG.
RG must have been briefed regularly by intelligence and regular sources
about the ground-level situation in Jammu and Kashmir. It is surprising,
therefore, that the 1987 Jammu and Kashmir assembly elections were
perceived in that state and elsewhere in India as heavily rigged.44 Farooq
Abdullah became CM again, and his state government’s performance in
building trust and employment opportunities left much to be desired. Given
the troubled history of this state since Independence, RG’s government
could have done better in ensuring free and fair elections in the 1987 J&K
elections.

Legacy

Rajiv Gandhi began with a fund of goodwill around the country after the
assassination of Indira Gandhi as her only surviving son. Since the death of
Sanjay Gandhi in 1980, RG was groomed by his mother to step into her
shoes. But the transition happened too suddenly when Indira Gandhi was
assassinated, and RG became PM at age forty with no prior experience of
any executive position within government or in the private sector.
RG’s policies made significant positive changes in telecommunications,
computing and in promoting a can-do attitude in the use of forward-looking
technologies. Various committees had been formed by successive Central
governments since the 1950s to devolve greater powers to local bodies.
This was given a determined push by RG, and about two years after he had
passed away in April 1993, the 73rd Amendment to the Constitution which
gives legal status to Panchayati Raj45 local bodies came into force.
RG’s visit to China in 1988, the first by any Indian prime minister since
the 1962 war, resulted in a thawing of some sort in the relations with that
country. It also set up a forum for discussions about border incursions and
disagreements. He raised the content of the strategic relationship with the
Soviet Union by leasing a nuclear-powered submarine from that country.
RG maintained the ties with the US but there were limitations to what he
could have achieved with Pakistan, given the ground realities.
RG’s major foreign policy misstep was the military intervention in Sri
Lanka. It led to needless loss of Indian lives and made India look like a
bully in dealing with a much smaller neighbour. It was tragic that a Sri
Lankan LTTE suicide bomber caused his untimely death on 21 May 1991.
The LTTE may have been concerned that if RG came back to power after
the Lok Sabha elections in June 1991, he may have taken a hard line against
them. RG was campaigning in Sriperumbudur in Tamil Nadu on that
particular day. As he was no longer PM, he did not have the same level of
security, and the suicide bomber was able to get close enough to bend down
to touch his feet and then blow herself up. He was two months short of his
forty-seventh birthday.
After the assassination of Indira Gandhi in the first week of November
1984, there were en-masse attacks on the Sikhs which traumatized them for
a long time. It defies belief that the Central government, which is ultimately
responsible for internal security around the country, took four days to bring
the violence in Delhi to an end. As for inter-religious harmony, RG should
not have allowed any form of worship at the disputed Babri Masjid–Ram
Mandir site. The related issues have become a continuing source of inter-
community tensions after the masjid was demolished in December 1992.
Kashmir suffers due to alienation from the rest of the country and
insurgency. The lack of credibility of the state elections in March 1987
contributed towards a deep sense of estrangement of the average citizen
there. The indifference at best, or complicity at worst, of RG’s government
has contributed to the continuing misery and violence in that state.46
The most telling difference RG could have made in the country was
through economic reforms. He had an absolute majority in both houses of
Parliament and complete control over his own party. There is no reason why
the reforms after 1991 could not have started in 1984. Excessive
government expenditures during his five years as PM, including for defence
purchases, contributed directly towards India’s balance of payments crisis
of 1990–91. RG could have made himself aware by the mid-1980s of the
wide-ranging economic reforms in China. Instead, he wasted his own time
and diverted the focus of the Ministry of External Affairs by preaching
universal nuclear disarmament.
RG could have tried to reform the Congress which was still the pre-
eminent national party in the 1980s. It would have helped reinvigorate
development efforts if workers of the Congress party had been empowered
instead of letting the party continue on its downward slide to becoming a
family-dominated fiefdom. There was an obvious contradiction between his
trying to reform the party, as he had so eloquently outlined in his December
1985 address in Bombay, and the fact that he became PM only because he
was Indira Gandhi’s son.
Looking back, RG’s tenure as PM was like watching a Greek tragedy
unfold. There was a certain inevitability about the way events progressed.
RG’s sincere start was soon overtaken by brash decision making in which
he mostly took the partisan advice of school friends, personal acquaintances
and family retainers with disastrous results.
Based on his experience of attending meetings at high levels since the
early 1980s and that the huge win for Congress was due to the assassination
of his mother, RG would have known that he was unequal to the task of
both heading the Union government and holding the post of Congress
president. Accordingly, he could have promoted genuinely open and free
elections within the Congress party and requested P.V. Narasimha Rao to
take over as PM while he rebuilt the party as Congress president. This may
be expecting too much of a person who did not see the contradiction
between his inheriting the position of the prime minister of India and the
requirements of inner democracy in a political party. The pity is that Rao’s
economic reforms may have started in 1984, and India may not have had
short-lived coalition governments between 1989 and 1991. Of course, this
is pure speculation.
On the India–Bharat divide, RG was way to the side of India. He was
always dressed in the buttoned-up jacket called bandhgala in Indian
diplomatic circles, and Western-style trousers. His preferred language for
communication was English. RG could and did speak in Hindi but was less
proficient in public speaking than his mother, Indira Gandhi. RG was
probably not even conscious of the need to woo the average voter, and the
latter’s reaction to this distance was one of the reasons for the poor showing
of the Congress party in the 1989 general election.
Moving on to the 3 Cs, RG was enormously Charismatic, and at the
beginning of his tenure, he appeared to be compassionate and committed.
Unfortunately for India, RG’s Competence in formulating effective reforms
was low. His lack of managerial competence also showed up in excessively
frequent changes of his cabinet ministers. Given his lack of relevant
experience it was unrealistic to expect him to skilfully manage the caste,
community, regional and religious differences in India or the complex Sri
Lankan Tamil issue. The entire Bofors episode and its aftermath was out of
Character with the contents of his speech at the Congress centenary event in
Bombay.
 V.P. SINGH
Downward Game Changer

V.P. Singh1 was sworn in as PM on 2 December 1989.2 All was not well
with this Janata Dal coalition government right from the start. Devi Lal, the
‘elder’ statesman from Haryana, had cobbled together a weak consensus in
favour of Singh. However, Chandra Shekhar3 was resentful that this
potpourri coalition of parties had not chosen him as PM.4
Early in his tenure, Singh moved to assuage Sikh sentiments. He visited
the Golden Temple to seek forgiveness on behalf of the Central government
and replaced S.S. Ray, then governor of Punjab, with civil servant N.K.
Mukherjee. This was timely and much needed, given the declining yet
continuing support for a separate state of Khalistan among some sections of
the Sikh communities in the UK, Canada and the US. All shades of political
opinion in Punjab, some more reluctantly than others, would have agreed
that Operation Blue Star had become inevitable since heavily armed
extremists had taken refuge in the Golden Temple. However, the question in
the minds of many in Punjab was why Indira Gandhi’s government had
ignored the signs of a gathering storm till army action became the only
option. Singh had correctly assessed that the Sikh community was looking
for such a gesture, and it had been short-sighted of Rajiv Gandhi to not have
sought visible reconciliation with Sikhs of all political persuasions during
his five years as PM.
The gross fiscal deficit rose above 7 per cent in the two years between
1989 and 1991, and the current account deficit went up from 2.3 per cent to
3 per cent of GDP. Since Singh failed to sound the alarm on these mounting
deficits, he was partly responsible for the full-blown balance of payments
crisis by around January 1991. Given the gravity of the situation, Singh
should have initiated discussions with the IMF as soon as he assumed
office. He probably did not want to be seen taking the help of an institution
which would have imposed conditionalities. Any tightening of the fiscal
belt and other austerity measures, plus the much-required devaluation, may
have been perceived as anti-poor. According to I.G. Patel, ‘. . . this was
obviously politically inconvenient in 1988 and 1989 when winning
elections was the only concern. The government of V.P. Singh (must have)
been aware of the writing on the wall. But it preferred to add its own (brand
of) fuel to the fire, a la loan waivers and the red herring of reservations. It
was left to the feckless Chandra Shekhar government to start serious
negotiations with the Fund when it was almost too late.’5
Over the decades, much has been said or done by successive Indian
governments in the name of the ‘common man’, whose bemusement used to
be caricatured in R.K. Laxman’s cartoons.
The quotas in government-owned/affiliated educational institutions,
companies and banks are the same as for jobs in government. Namely, 15
per cent of available vacancies for SCs and 7.5 per cent for STs. To consider
further reservations the First Backward Classes Commission, headed by
Kaka Saheb Kalelkar, was set up by a Central government order dated 29
January 1953.6 The Kalelkar report’s recommendations were rejected by
Nehru’s government in 19557 on the grounds that the tests used to assess
‘Backward Classes’ were not objective or adequate. It is possible that the
decision makers of that era were apprehensive that this would open up a
‘Pandora’s Box’ of further demands for reservations and consequent
controversies.
 The Second Backward Classes Commission, headed by B.P. Mandal, had
submitted its report in 1980.8 Indira Gandhi and Rajiv Gandhi, with large
majorities in the Lok Sabha, were the prime ministers between 1980 and
1989 and chose to not act on the recommendations of the Mandal
Commission. However, they both did not formally reject this report either.
After he was out of power, Rajiv Gandhi explained in Parliament on 6
September 1990 in a speech lasting over two hours why he felt that the
Mandal Commission’s report needed more discussion, and that the ‘creamy
layer’ needed to be removed.9 That leaves us with the inevitable conclusion
that IG and RG chose to postpone the electorally difficult decision related to
reservations for OBCs while in power. In their defence caste-based parties
found it politically paying to demand further reservations.
For example, the Samajwadi Party of Mulayam Singh Yadav and the
Rashtriya Janata Dal of Lalu Prasad Yadav had come to power in their
respective states of UP and Bihar on the slogans of empowerment for the
socially and economically backward, and had supported Singh in his quest
to become PM. Accordingly, on 6 August 1990, the V.P. Singh government
accepted the Mandal Commission’s recommendations for OBC
reservations. This decision led to widespread protests and self-immolations
by upper-caste students. However, the acceptance of the Mandal
Commission report by Singh was aimed at obtaining the electoral support of
the OBCs, who were estimated to add up to about 41 per cent of India’s
population in 2007.10 The implementation of this reservation of an
additional 27 per cent of vacancies for OBCs started in 1993.11
The subsequent demands from other communities around India who feel
that they face social and economic discrimination are an indication that the
decision not to accept the recommendations of Kalelkar’s First Backward
Classes Commission was perhaps correct. The agitations for additional
groups to be included among OBCs has led to confrontations within and
across political parties12 and with the police, accompanied by loss of life as
happened in May 2008.13 This was when relatively well-off Gujjars of
Rajasthan demanded OBC status and 5 per cent reservation for themselves.
This would have raised the total reservations to 54.5 per cent, which would
be above the ceiling of 50 per cent stipulated by the Supreme Court.14
The way forward is to build a meritocratic India with economic and
social protection for the poorest and the weakest. Merely adding more
reservations undermines the objective of building a socially caring system
where the underprivileged are enabled to compete on par. A number of
communities who are currently demanding OBC status are not among the
poorest or the most socially disadvantaged.
The situation in India was and is that an adequate number of formal-
sector jobs are not being created in the private sector. Singh was not PM
long enough to raise formal-sector employment. Hence, he cannot be
blamed for the jobs situation which was and continues to be difficult.
However, he does share the responsibility for further raising the clamour for
reservations for jobs in government and public-sector institutions. The irony
is that even if all requests for OBC reservations are granted, government
and parastatals can absorb only a miniscule fraction of those seeking
salaried employment.
In 1989, Singh decided to help the poor in rural areas and announced a
waiver of all loans below Rs 10,000 for farmers, artisans and weavers.
Although the stated motivation for this loan waiver was laudable, this step
created another unsustainable precedent. A culture of responsible borrowing
needs to grow in India to create the climate for private firms to invest in the
manufacture of consumer durables. Such an environment cannot be
engendered in an atmosphere of loan write-offs. Government needed to find
other ways to help the poor rather than weaken credit practices in the
country.
V.P. Singh had appointed Ajit Singh as the industry minister, and
progress was made in that ministry in thinking of ways to relax
government’s overweening control over industrial licensing and the
attendant cornucopia of restrictions. However, left-leaning Madhu
Dandavate, as the deputy chairman of the Planning Commission, was
opposed to reducing licensing controls over industry. Additionally, Singh’s
precarious position as the head of an unstable coalition meant that he
probably did not want any single minister to be given credit for
implementing much-needed reforms.
Mufti M. Sayeed, home minister in the Singh cabinet, was a prominent
political leader from Jammu and Kashmir. On 8 December 1989, the home
minister’s daughter Rubaiya Sayeed was abducted by Jammu and Kashmir
Liberation Front (JKLF) operatives. The kidnappers sought the release of
five persons who were in jail in Srinagar at that point of time on a range of
serious charges. Farooq Abdullah, the chief minister of J&K, counselled
against yielding to the blackmail of the JKLF but he was overruled.15 The
five prisoners were released in exchange for Rubaiya Sayeed.
The Singh government, and particularly the home minister, could have
been more alert given that he was from the sensitive state of Jammu and
Kashmir. This is not to imply that the events would necessarily have
unfolded any differently if the home minister had taken precautionary steps.
The considerable alienation of many in the Kashmir Valley was the result of
decades of flawed state and Central government policies. The unfortunate
implication for India’s image among those who would take hostages or
commit acts of terrorism on Indian soil was that India was a ‘soft’ state and
an easy target.
An urgent decision Singh had to take on a foreign policy issue was about
the IPKF in Sri Lanka. The Sri Lankan government headed by Premadasa
was urging India to withdraw its armed forces. Singh and his external
affairs minister I.K. Gujral agreed, and the Indian armed contingent was
withdrawn in March 1990. J.N. Dixit has argued16 that this premature
withdrawal was used by LTTE to re-establish its hold over the northern and
eastern provinces of Sri Lanka. Dixit’s logic is at variance with India’s
consistent position that there should be no armed presence of foreign
powers in any country without the express consent of the local government.
Saddam Hussein’s Iraq invaded Kuwait in August 1990, and there was
widespread condemnation of this aggression. It would have been naive to
think that the West, led by the US, would allow Saddam to retain possession
of the Kuwaiti territory that Iraq had occupied. The then minister of
external affairs I.K. Gujral visited Iraq and was photographed hugging
Saddam. This image, interpreted by some in the media as an expression of
India’s support for Iraq, did its damaging rounds around the world. On a
positive note, the Singh government did successfully carry out a major
airlift operation to bring back Indians who were in distress in Iraq. In this
context, it was claimed by the then government’s supporters that Gujral’s
visit to Iraq and apparent bonhomie with Saddam Hussein was to buy time
to evacuate Indian workers from there.
In September 1990, BJP leaders L.K. Advani and Pramod Mahajan
embarked on a ‘Rath Yatra’ to garner support for their proposal to build a
temple in Ayodhya dedicated to Lord Ram. This move was aimed at
boosting the BJP’s image with the majority Hindu community around the
country and was opposed by the CMs Mulayam Singh Yadav and Lalu
Prasad Yadav. The Bihar government arrested Advani on 23 October 1990
in Samastipur and thus prevented kar seva at the Ayodhya temple site which
was planned for 30 October 1990. The BJP withdrew support from the
Singh Central government on the grounds that it had not been supportive of
kar seva in Ayodhya, and V.P. Singh’s coalition government fell on 10
November 1990, less than a year after it was formed.

CHANDRA SHEKHAR
Harmful Interlude

Chandra Shekhar17 had parted company with the Congress party at the time
of the Emergency and was respected for preferring to go to jail. By contrast,
V.P. Singh had continued as a junior minister in IG’s cabinet and was
promoted to cabinet rank during the Emergency. Chandra Shekhar probably
felt that he deserved to be the leader of an anti-Congress coalition in 1989,
and was aggrieved when Singh became PM. He left the Janata Dal coalition
that Singh had forged when the BJP dropped its outside support after
differences with Singh on the rebuilding of a Ram temple in Ayodhya.
Inexplicably, Chandra Shekhar, with just sixty-four Lok Sabha members
who called themselves Janata Dal (Socialist), accepted the cynical support
of Rajiv Gandhi’s Congress which had 211 members in the Lok Sabha to
form government. Chandra Shekhar was sworn in as PM on 10 November
1990 but had too short a time as PM to address the looming balance of
payments crisis, let alone to take any major policy decisions. For Chandra
Shekhar and several parties which were either part of or supporters of the
Janata Party, the catchwords were socialism and social engineering.
By mid-1990, six months before Chandra Shekhar had taken over as PM,
it was abundantly clear that there was no option but to seek assistance from
the IMF. By then it had become difficult for India to finance its current
account deficit, and international banks which provided short-term credit
were reluctant to continue doing so. Consequently, the Chandra Shekhar
government sent RBI and Ministry of Finance officials to Washington DC
at the end of 1990 for discussions with the IMF. As a result, the Indian
government was able to negotiate an IMF line of credit of about US $1.8
billion. By January 1991, India’s foreign exchange reserves had come down
to a mere US $1.1 billion. Shortly thereafter, India had barely enough hard
currency left for about three weeks of imports. It is in this environment of
economic crisis that Chandra Shekhar asked Dr Manmohan Singh to be his
economic adviser.
As the situation continued to worsen, the Chandra Shekhar government
decided to move gold out of the country as collateral for hard currency
loans. In mid-1991, about 47 tonnes of gold were moved to the vaults of the
Bank of England and the Union Bank of Switzerland. The loans received
for the gold, which included an option to repurchase the gold, amounted to
US $405 million. These loans were repaid by November 1991, but the gold
was left where it had been sent as Indian property. Unfortunately for
Chandra Shekhar, the most remembered event of his short tenure as PM is
the airlifting of gold from India.
In March 1991, the Chandra Shekhar government agreed to refuelling
facilities for US military aircraft in Bombay and Madras.18 The Congress
protested against this and also alleged governmental spying on Rajiv
Gandhi. All this occurred while India’s foreign exchange reserves continued
to erode to precipitously low levels as NRIs made net withdrawals out of
their hard currency deposit accounts in Indian banks. It is in this
environment of extreme difficulties in India honouring its external debt
obligations that the Congress party withdrew its support to Chandra
Shekhar’s government. And this was within four months of the Congress
helping him to become PM. The Congress was merely waiting for an
excuse to precipitate midterm elections, and this must have been obvious to
Chandra Shekhar from the outset. Chandra Shekhar continued as caretaker
PM till 21 June 1991.

Legacy

V.P. Singh plumbed to low depths of self-interest-driven politics to become

prime minister of a manifestly unstable coalition. He had made a name for
himself as a crusader against the corruption of big business houses as
finance minister in Rajiv Gandhi’s government for which he was moved
from that position. He was also seen as principled for resigning from the
position of defence minister because of his discomfort about the allegations
of bribe-taking in the purchase of the Bofors guns. Singh was projected as a
social reformer with the implementation of the Mandal Commission’s
recommendations, but he overlooked the long-term negative fallout for the
country.
Singh needed to have discussions with the BJP before matters reached a
flashpoint with Advani’s arrest in Samastipur. That is, well before Advani’s
announcement that kar seva would be carried out at the site of the proposed
Ram Mandir (temple) in Ayodhya. Singh could have taken the initiative to
have frank discussions with all shades of political and social opinion to
arrive at an understanding that an impartial body, or the courts, would be
asked to deliberate on what would be acceptable all around. Either Singh
did not understand the danger of communal conflict embedded in the Ram
Mandir issue, or he looked away and hoped that it would blow over on its
own.
 V.P. Singh, Lalu Yadav, Mulayam Singh and the BJP had papered over
their differences on economic issues at the time of the formation of the
Singh government. Singh chose to focus more on keeping his rickety
coalition together rather than the immediate danger of default on India’s
external debt. In any case, given the competing interests and egos, it was
only a matter of time that differences would resurface leading to the
collapse of the Singh government.
Chandra Shekhar had built a formidable reputation for himself as a
committed socialist in the 1960s and 1970s, and had defied Indira Gandhi
during the Emergency. It is a sad commentary on how much he was
prepared to compromise on his past beliefs that he accepted the support of
Rajiv Gandhi’s Congress to be PM from November 1990 till March 1991.
 P.V. NARASIMHA RAO
Economic Reforms—Better Late than Never

A person should not be too honest, straight trees are cut first;
Never share your secrets with anybody;
A man is great by deeds not by birth

Chanakya also known as Kautilya, 320 BC

In Hindu belief, Narasimha is one of the divine avatars of Vishnu who

assumed the form of part-man and part-lion to destroy evil and restore
dharma. Two well-documented biographies of P.V. Narasimha Rao1 have
been published in recent years.2
Rao was a member of the Andhra legislative assembly from 1956
onwards and a minister in the Andhra Pradesh (AP) government for nine
years by the time he became the chief minister in September 1971. Rao was
selected for the post of AP CM by Indira Gandhi because of his deference
to her and his years of experience in state-level politics. One of Rao’s major
initiatives after becoming CM was land reforms. This became an important
objective for him, and legislation was enacted to limit landownership which
inevitably angered large landowners.
The average Andhra voter too turned against Rao for accepting a
Supreme Court judgment which provided for reservations in government
jobs for people from the Telangana region of Andhra Pradesh.
Consequently, support for Rao within the AP Congress eroded, and Indira
Gandhi asked him to step down from the position of CM in January 1973.
President’s rule was imposed thereafter, and this happened even though the
Congress party had an absolute majority in the state legislature. Clearly, IG
viewed land reforms as secondary to retaining the support of the politically
influential large landowners. She also probably did not want Rao to develop
too large a following among the landless in AP.
In keeping with his prudent nature, Rao hid his disappointment and
stayed out of Andhra politics, doing his reading and visiting his daughter in
the US for the next few years. Rao never returned to state-level politics
post-1973, although he was a veteran of state government administrations.
Another Congress leader, Vengala Rao, was appointed CM by IG. In
October 1974, in a signal that he was being rehabilitated, Rao was
appointed a general secretary in the Congress party. However, Rao was not
part of IG’s inner circle. Like the average Indian, he too learnt about the
Emergency on the morning of 26 June 1975 from an announcement on All
India Radio.3
Unlike in the north, the Congress party did extremely well in Andhra
Pradesh, even in the post-Emergency general elections of 1977, and Rao
was elected from Hanamkonda in Andhra Pradesh. Rao won again from this
constituency in the midterm general elections in 1980. Rao was quietly and
consistently loyal to IG in her wilderness years between 1977 and 1980. For
this, and for keeping quiet after losing his CM position in 1973, he was
appointed foreign minister after she came back as PM in 1980.
Despite Rao’s win in 1989, he was disappointed with his low profile
within the Congress. He packed up his belongings and was all set to leave
Delhi when Rajiv Gandhi was assassinated on 21 May 1991. Despite the
consequent wave of sympathy, Congress fell well short of an absolute
majority, winning 226 out of 545 Lok Sabha seats in the 1991 general
election.
Meanwhile, the BJP increased its share of seats from two in 1984 to
eighty-five in 1989 and to 120 in 1991. The Janata Dal’s seats fell sharply
from 143 in 1989 to sixty-nine in 1991. The changes in the political
fortunes of the various parties in the 1991 general elections provides a sense
of the uncertain environment which prevailed prior to formation of the
Central government in mid-1991.
Although there were other contenders in the Congress party such as
Arjun Singh for the post of PM, a set of fortuitous circumstances led to their
elimination. Rumour has it that it was on P.N. Haksar’s advice that Rao was
chosen. He was sworn in on 21 June 1991 to become India’s first
‘accidental prime minister’. Rao was acutely aware that he was a
compromise candidate and that many in the Congress party were waiting
for an opportunity to unseat him. For instance, Arjun Singh left in protest
after the demolition of the Babri Masjid.
Rao looked for an economist of standing to take charge of the Ministry of
Finance, and he first requested I.G. Patel who declined for personal reasons.
This position was then offered to Manmohan Singh. Rao understood that
the country needed an economist with experience in government as the
finance minister. At the same time, Rao appointed seasoned civil servants
Amarnath Verma and Naresh Chandra as principal secretary to the PM and
cabinet secretary respectively. He gave them the required authority within
government to push through decisions taken on economic reforms.4 The
various ministries of the Central government tend to work in silos. Hence
this delegation of authority to proven administrators was a shrewd move on
Rao’s part.
In another calculated move, Rao rehabilitated Pranab Mukherjee who
was in political wilderness during the Rajiv Gandhi years. Rao appointed
Mukherjee as the deputy chairman of the Planning Commission (June 1991
to May 1996). The Gadgil formula was revised by the National
Development Council (NDC) after Mukherjee took over. The revised
construct for assistance to states stood the test of time and was used till
2014–15.
Rao gave political cover to Manmohan Singh and his team5 while they
implemented reforms which hurt established private-sector interests and
went against the grain of the political left. For instance, when Manmohan
Singh offered to resign following the Harshad Mehta stock market scam,
Rao did not accept his resignation. Rao was aware that for economic
reforms to gain ground, he needed continuity in crucial positions.
The principal message in Rao’s first Independence Day speech on 15
August 1991, less than two months after taking over as PM, was that the
‘country had been brought back from the brink of economic disaster’.
Despite his expertise in the area of foreign policy, for the most part Rao
stayed away from this topic in his speech.6 His strategy on the Kashmir and
Ram Mandir–Babri Masjid fronts was to address these issues quietly and
through procrastination. In the first two years of his government, Rao
stayed away from controversial issues to fight the battles on the economic
front where he faced entrenched interests. With his experience of the
aborted land reforms in Andhra Pradesh, Rao did not want economic
reforms to be sidetracked by outcries that foreign companies were being
favoured over domestic Indian industry.

Economic Reforms

India and China started out at about the same per capita income around the
mid-twentieth century. Even in 1990, the per capita incomes in these two
countries were not that different. India was at US $385 and China at US
$349. In the subsequent decades, the Chinese economy grew faster and
consistently as compared to India. Deng Xiaoping had started on economic
reforms in China by the late 1970s. By the early 1990s, China was starting
to become a source for exports of competitively priced garments and
consumer goods to the developed West. It took more than a decade for the
reforms to yield results in China. By 2016, the per capita numbers for India
and China were at $1749 and $8116 respectively.7 As Rao was probably
more widely read than IG or Rajiv Gandhi, he had a better grasp of the
changes in China and the desperate need for economic reforms at home.
The stifling controls on industrial and import licensing in India go back
to the late 1950s of the Nehru era. However, it was through the first phase
of the years, when Indira Gandhi was PM from 1966–77, that a
combination of licensing and bureaucratic controls reached their zenith.
After she came back to power in 1980, she did try to open up the country to
better communications technology, but no systemic reforms were
undertaken, and the complex web of bureaucratic permissions continued.
Rajiv Gandhi did want change, but his thinking was inchoate, and he was
soon overwhelmed by Bofors and the unnecessary involvement in Sri
Lanka. Despite these distractions, Central government committees during
the Rajiv Gandhi years did examine how to dilute the inefficient
stranglehold government had on every aspect of industry, foreign trade and
investment.8 In the early 1980s, relaxations were granted on the capital
account for NRIs to invest in Indian stock markets which also became a
route for round-tripping of unaccounted income of resident Indians, who
were able to thus evade tax.
Unlike Indira Gandhi in 1980 or Rajiv Gandhi post-1984, Rao did not
have an absolute majority in the Lok Sabha. However, he did have the help
of two significant events which concentrated the minds of the influential in
India’s political and bureaucratic circles. One was the airlifting of Indian
gold to the UK and Switzerland in exchange for hard currency credit lines
to avert a default on India’s hard currency debt repayments. The other was
the collapse of the Soviet Union. Since Independence, the political elite in
India has worried about a break-up of India along communal, ethnic or
regional lines. It was clear that the Soviet Union had struggled to meet the
aspirations of its people for easier availability of consumer goods. Despite
some diehard opposition from the left,9 the middle-of-the-road Indian was
convinced about the need to open up the economy and free it of controls—
at least on industrial production.
As mentioned earlier, by mid-1991, India was on the brink of defaulting
on its hard currency debt. Overvaluation of the rupee during the 1980s had
contributed to making exports uncompetitive and imports attractive, leading
to sustained trade and current account deficits. Therefore, the first and
immediate action needed was a devaluation of the rupee which was done in
two steps. Till Rao took over in 1991, the RBI used to arrive at the rupee
exchange rate by pegging its value to a basket of currencies. Given the
various Indian lobbies which favoured a ‘strong’ rupee for jingoistic,
financial or private consumption reasons, the rupee’s trade-weighted
REER10 was substantially overvalued against hard currencies by 1991.
Consequently, on 1 July 1991, RBI announced a 9 per cent reduction in
the value of the rupee. And on 3 July 1991, the rupee was devalued by a
further 11 per cent. This two-step devaluation of the rupee was consistent
with an overall strategy to bring the rupee down to realistic levels. It is
worth noting that the devaluation of the rupee was effected within ten days
of Rao taking office as PM and before Dr Manmohan Singh’s budget
speech on 24 July 1991. In subsequent years, the RBI started monitoring the
REER of the rupee on a systematic basis, and its value was also targeted.
In 1989–90, the department of industry headed by A.N. Verma had
examined ways to abolish industrial licensing, excluding those areas
covered by specific legislation for strategic reasons or reserved for the
small-scale sector. This preparatory work proved extremely useful, and Rao
was convinced that the prevailing stringent controls on industrial licensing
had to go. Accordingly, he chose to retain the Ministry of Industries
portfolio himself, and sweeping changes in industrial policy were quietly
announced by P.J. Kurien, the minister of state for industries, in Parliament
on the morning of 24 July 1991. To tactically divert attention from the
momentous changes announced by Kurien, the budget speech was delivered
the same day in the evening.
As Rao had anticipated, there were howls of protest from the old guard in
the Congress. However, once the reforms were described as a logical sequel
to what the party had embarked on during the 1980s, the discordant notes
were quietened. Rao was at his best in managing the political-economy
aspects of containing opposition to the reforms within the Congress-led
coalition government of that time and with the public at large. Despite the
hard currency shortage crisis and the need to mortgage the country’s gold, it
is quite possible that if one of the other Congress contenders had become
PM, the government may have resorted to patchwork interim solutions.
That is what previous governments had done.
 In the evening of 24 July 1991, Finance Minister Manmohan Singh
presented the Central government’s budget announcing several reforms.
The norms for FDI were liberalized, technology tie-ups with foreign firms
were made easier, and the list of industries reserved for the public sector
was reduced from eighteen to eight.11 Rao did not try to introduce reforms
in labour law or change policies on reservations for small-scale industries.12
Another less talked about yet important reform was in indirect taxes. The
MODVAT introduced during the years that Rajiv Gandhi was PM was
extended to nearly all commodities. At the same time, excise duty rates
were reduced.
Overall, the emphasis was on reducing internal and external imbalances
that included fiscal and current account deficits. Although foreign trade was
liberalized, imports of consumer goods was not. The explosion in the
exports of IT services starting in the late 1990s would not have been
possible without the trade liberalization initiated during the RG years and
accelerated in the Rao years.
A tax reforms committee (TRC) headed by Raja Chelliah submitted its
interim report in December 1991 and two final reports in August 1992 and
January 1993. The recommendations included reducing personal income tax
down to 20 to 40 per cent and corporate tax to 40 per cent. The Chelliah
recommendations also included doing away with the needless distinction
between closely and widely held companies. For indirect taxes, Chelliah’s
sound suggestions included reduction in import duties, restructuring of
excise rates and elimination of end-use exemptions.13 These TRC
recommendations were gradually implemented through the 1990s by the
Congress-led government headed by Rao, then Deve Gowda’s United Front
and the National Democratic Alliance (NDA) of Atal Bihari Vajpayee. With
P. Chidambaram as finance minister in 1997–98, personal tax rates were
brought down to three slabs of 10, 20 and 30 per cent. As a result, direct tax
collection went up to about 2.7 per cent of GDP by the late 1990s. Taxation
at 5 per cent was levied on three services in 1994.14
The civil aviation and telecommunications sectors were opened to the
private sector during 1991–95. For instance, Jet Airways started its air-taxi
operations on 1 April 1992, and regular operations began in 1995. The first
signs of loosening of government controls in the telecommunications sector
had begun in 1981 when Indira Gandhi was PM. Further steps were taken
under Rajiv Gandhi, such as the setting up of C-DOT. There was a demand
for additional loosening of government controls in the early 1990s. The Rao
government responded by deciding on a National Telecommunications
Policy which set out the road map for introducing private ownership, the
services to be provided and the regulatory structure. The first mobile and
Internet services started in India on Independence Day, 15 August 1995.
The Telecom Regulatory Authority of India (TRAI) was set up two years
later in 1997.
Rao was pilloried on the grounds that the reforms were introduced at the
prodding of the IMF and the World Bank. These two Bretton Woods
institutions were supportive of the reforms undertaken by the Indian
government. However, it would be unfair to those who had worked in the
PMO, the Ministry of Industry and the Ministry of Finance from 1989 to
1992, if pressure from the Bretton Woods institutions were to be interpreted
as the sole reason for economic reforms undertaken by Rao’s government.
The winds of change and relaxation of controls had been blowing, but very
gently, since the early 1980s.
After the Soviet Union broke up in 1991, the US was the sole remaining
superpower. Francis Fukuyama’s ‘The End of History’ essay, written in
1989 and converted into a book titled The End of History and the Last Man
in 1992, was widely read at the time. In the early 1990s, the US economy,
with few domestic economic controls, open capital account and a low-tariff
trade regime was held up as the model for developing economies. It is
likely that the failure of the Soviet economic model helped decision makers
in the Indian government to make the case for a less regimented economy.
In comparison to the attention paid to industrial policy, exchange rate,
foreign trade and investment reforms, the changes effected in the Indian
financial sector did not attract comparable levels of attention. This was
probably because these changes were less widely understood and also
because there were no immediate losers. The first M. Narasimham15
Committee (Committee on the Financial System) was set up by the finance
ministry on 14 August 1991 with broad terms of reference to identify ways
to improve the functioning of the financial sector. This committee’s
recommendations were tabled promptly in Parliament within four months
by December 1991.
The Union government and the RBI had agreed in 1955 to the issuance of
ad hoc ninety-one-day maturity T-bills. Over the decades, such issuance of
T-bills became a way for the government to monetize its deficits. The RBI
would necessarily purchase whatever volumes of T-bills were issued by
government to meet its financing requirements, and RBI’s credit to
government would increase accordingly. Around 1982, treasury bills added
up to 19 per cent of reserve money, and this number had risen to an
unhealthy 77.3 per cent by 1991. This steep rise in the T-bill component of
reserve money was an indication of the high dependence of the successive
governments of Indira Gandhi and Rajiv Gandhi on RBI for credit. On 9
September 1994, the Ministry of Finance concluded an agreement between
the government and RBI to phase out this self-serving government practice
by 1996–97.16
The Cash Reserve Ratio (CRR)17 and Statutory Liquidity Ratio (SLR)18
were high at 15 and 38.5 per cent respectively in the early 1990s.19 These
ratios were gradually reduced to enable banks to raise lending. In 1994 the
bank nationalization law was amended to allow government ownership to
come down to 51 per cent from 100 per cent. Public-sector banks continued
to be majority owned by government but that ownership did not any longer
need to be above 51 per cent. In 1995 the RBI introduced primary dealers20
and got them to participate in the auctioning of government securities.
RBI’s bank oversight function was also strengthened. Rao had no
appetite to make PSU (public sector undertaking) banks fully board driven.
However, he could have done more to reduce the unbridled discretion of the
Appointments Committee of the Cabinet (ACC) headed by the PM, in
appointing heads of PSU banks, and also in segregating government from
their lending decisions. Successive RBI governors too did not push enough
for greater transparency in the lending decisions of public sector banks.
Substantive changes were effected in the capital markets sub-sector with
far-reaching positive consequences for the economy. For instance, the
National Stock Exchange (NSE) was set up in 1992 with automatic order
matching rather than open outcry. And the National Security Depository
Limited (NSDL) was up and running by August 1996 and hard-copy share
certificates became a thing of the past.
The finance ministry should have reviewed the loopholes that the policies
of the Indira Gandhi government, with Pranab Mukherjee as finance
minister, had created for round-tripping of unaccounted Indian income via
tax havens. The 24 August 1982 India–Mauritius Double Taxation
Avoidance Treaty was ostensibly meant for attracting foreign capital. Such
capital from external sources could be invested in Indian stock markets or
as FDI and was taxed at the minuscule rates of taxation in Mauritius. A
dead giveaway of the round-tripping game was that a number of Indian
companies which received fund transfers via Mauritius had little or no
visible business activities in India. Conversely, it could be argued that but
for such treaties with Mauritius, Singapore and Cyprus, the volumes of
foreign investment would have been much lower.21
Reverting to the first few years of the 1990s, approval for FDI proposals
up to 51 per cent equity was made automatic. For higher than 51 per cent
cases, a Foreign Investment Promotion Board (FIPB) was set up. The
hitherto restrictive Foreign Exchange Regulation Act (FERA) was amended
to make the business environment easier for firms which had received
foreign equity. The investment norms for equity investments by foreign
institutional investors (FIIs) were designed to attract higher inflows.22
Within a year of the advent of widespread economic reforms in 1991,
Indian stock markets were hit in mid-1992 by the Harshad Mehta scam.23
Mehta’s methodology was to borrow from public, private and foreign
banks, and from financial institutions such as the Unit Trust of India (UTI)
by depositing bankers’ receipts (BRs) as collateral. Mehta used BRs issued
by the Bank of Karad (BoK) and the Metropolitan Cooperative Bank
(MCB), which had issued them without the support of adequate government
securities, as per normal practice. These large volumes of borrowed funds
were then invested in stocks. As the prices of specific stocks, and to that
extent stock indices, went up sharply, retail investors were lulled into
thinking that a bull run was on and they too could jump in and book quick
profits. The SENSEX went up from 1200 to 4500, that is 275 per cent
appreciation in one year, between April 1991 and April 1992.
Harshad Mehta was initially lionized as a discerning investor by the
doyens of Indian private and public-sector financial institutions, and his
access to capital increased accordingly. However, it soon became apparent
that some of the BRs against which Mehta was borrowing were not secure.
Estimates vary about the volumes of profits that Mehta made. With the
unveiling of Mehta’s methods and the fact that nothing magical was
happening to justify the sharp rise in stock prices, the markets took a steep
tumble in the first week of August 1992. The stock market came down
sharply by over 50 per cent in one day (there were no circuit breakers at that
time to limit stock price movements), and the bearish sentiment lasted till
about 1994–95.
Given the clamour from the Opposition, Rao’s government had to agree
to the setting up of a JPC to look into the Harshad Mehta episode. This JPC
was headed by Congress MP Ram Niwas Mirdha who was not known to
have any knowledge about financial markets. The JPC glossed over the
shortcomings in the practices of Indian and foreign banks, including of the
State Bank of India, accepting BRs issued by little-known banks.
The Harshad Mehta episode showed up the seamy, collusive nature of
wrongdoing which involved working and senior-level personnel employed
in Indian banks, stock exchanges, the UTI and other financial institutions. It
should not have been so easy for Mehta to run the racket that he did. Mehta
was jailed in 1992 on charges of fraud, and remained in prison till he died
nine years later, on 31 December 2001, of a heart attack.
It was surprising that more was not done by Finance Minister Manmohan
Singh and his officials of that time to reduce the risk of future financial-
sector scams of a similar nature. In retrospect, it appears that at senior levels
in the finance ministry, RBI and even SEBI, there was limited
understanding about stock markets in particular and financial markets in
general. In this context, it is important for the Ministry of Finance to
employ a chief financial adviser (CFA) in addition to the chief economic
adviser (CEA). Financial markets have become too complicated with the
use of derivatives and accounting dodges for even highly qualified
economists to unravel. This may not have been so obvious prior to 1992 but
it should have been, following the Harshad Mehta episode. It was because
of an absence of systemic reforms in the regulatory oversight of cooperative
banks that the next stock market scam took place about eight years later in
2000.
Reverting to 1992, a dubious practice in Indian stock markets called
badla was also used by Harshad Mehta. Under the badla system, stocks
could be traded on payment of margins agreed upon between individual
brokers without the oversight of stock exchanges, and settlement could be
deferred indefinitely. Badla trades created counterparty risks and defaults
leading to cascading problems in the settlement of regular trades in stocks.
Following the Harshad Mehta episode, badla trading was banned in 1993.
However, the finance ministry succumbed to lobbying pressure from
brokers and allowed badla trading to restart in 1996. The suspension of
badla trading should have been maintained till derivatives such as futures
and options were introduced. These derivatives transactions are traded on
stock exchanges which stand as guarantors of transactions, thus eliminating
credit risk exposure to individuals.
In the 1990s the Ministry of Finance did not pay sufficient attention to
sound accounting as a check on the health of the financial sector. The
financial sector cannot function efficiently if there are widespread
accounting malpractices, just as a car will stall if the lubricant for the
engine is not replaced at prescribed intervals. As the world discovered to its
cost in 2008, a lack of understanding about what is happening at a micro-
level in the financial sector can prove very costly for the macro-economy.
Financial-sector breakdowns take a long time to heal and for the
corresponding economies to recover.
Specifically, the Institute of Chartered Accountants of India (ICAI)
regulates the accounting profession in the country. Although ICAI is a
statute-based body, this is the equivalent to bankers setting up their own
institution to regulate banks. After 1992, a separate regulator should have
been set up for accounting. The Ministry of Finance did not take full
advantage of the public outcry about Harshad Mehta episode to set up a
separate regulator at arm’s length from practising accountants.
During Rao’s tenure, the Ministry of Finance did not move towards
reforming India’s insurance and pension sub-sectors. At that time, the
insurance space was dominated by fully government-owned companies
such as Life Insurance Corporation (LIC). The required changes to enable
private-sector entry would have brought faster growth to this important part
of the financial sector. This would have fostered competition with attendant
benefits of lower insurance premiums and better service. Separate
legislation to set up regulators for these segments of the financial sector
could have been enacted. The development of these sub-sectors was and
continues, even in May 2019, to be crucial to developing deeper long-term
debt markets. Funds accumulated by these sub-sectors are usually invested
in long-term debt to reduce asset-liability mismatches. Allowing FDI in the
insurance and pension sub-sectors could have been initiated during Rao’s
term.
Almost all the spadework for the amendments to the Indian Constitution
to empower panchayats in villages and municipalities in urban areas by
making them ‘institutions of self-government’ was done during the years
Rajiv Gandhi was in power. PM Rao’s government dug out the work done
and got the necessary legislation passed in December 1992. The 73rd
Amendment added a section titled ‘The Panchayats’, and the 74th
Amendment added ‘The Municipalities’. The panchayats amendment
provides for elections to these village-level bodies, and a significant feature
is that one-third of the seats are reserved for women. The municipalities law
envisages the setting up of district planning committees. Each state was
enjoined to set up state finance commissions for allocation of funds to
panchayats and municipalities. Although such commissions have been set
up, state governments have been tardy and wilfully negligent in making
these professional and competent enough. As a result, local bodies in
villages and urban areas have not received the required amounts of funds,
nor have they been helped to build capacity to meet their financing needs on
a sustainable basis.24
 On a separate note, the availability of power in Maharashtra and most
other parts of India was patchy and inadequate in the 1990s. In this context,
in 1992, the Dabhol Power Company was established to put up a power
plant in Maharashtra, with US companies GE and Bechtel responsible for
supplying equipment and getting the construction done, and Enron as the
project manager. The project was under implementation from 1992 to 2001
and was mired in charges of corruption. In 2001 Enron was charged in the
US for breaking the law on issues unrelated to Dabhol. The Maharashtra
State Electricity Board (MSEB) finally refused to purchase power from this
plant on the grounds that the tariff charged by Enron was too high. This
plant was taken over by Ratnagiri Gas and Power Private Limited (RGPPL)
in 2005.
The Dabhol power project is an example of precisely how not to increase
power production capacity. The emphasis was on guaranteeing a high US
dollar return for Enron which managed the project. The MSEB initially
guaranteed an assured tariff for the power project which was counter-
guaranteed by the Maharashtra government. A further Central government
guarantee was approved by the finance ministry. With the benefit of
hindsight, work should have started on cost-plus pricing and a national
power grid during Rao’s term.
As Table 7.1 in the Appendices shows, Rao’s government was able to
contain and reduce gross fiscal deficit and the net primary deficit while
steadily raising the economy’s rate of growth. The current account deficit
was kept below 2 per cent of GDP, foreign exchange reserves grew and so
did exports. However, there was double-digit inflation in four out of the five
years of Rao’s term. Inflation impacts the average Indian directly and would
have contributed to the inability of the Congress party to come back to
power in 1996.25
The economic reforms were essentially about reducing discretionary
decision making by government, and some progress was made towards this
goal. All PMs after Narasimha Rao have continued to reduce controls and
the direction, although halting at times, has been towards further economic
liberalization.26 Among the missing elements in the reforms, nothing
substantive and sustained was initiated in the agriculture sector. Further,
labour and land-acquisition reforms were not contemplated. No serious
attempt was made to address the fact that the cost of Indian labour,
factoring in its low productivity, was relatively high, even though India is a
labour-surplus country. The Rao government made no serious attempt to
address this problem by turning the spotlight on the efficacy of vocational
and skill development centres around the country. There was abundant
anecdotal evidence that competent electricians, carpenters, plumbers and
skilled masons were in short supply.
The reforms in the first half of the 1990s were not followed up
vigorously enough in the second half of the decade. However, the steps
taken during the years Rao was PM combined with those implemented post-
1998 have pushed India’s GDP growth rate above the global average from
the 1990s till 2019. Availability of televisions, phones, cars and two-
wheelers has increased. Telecom too has been a hugely successful story
since the late 1990s. India is now much more of a consumers’ market. This
is a substantial positive change from the pre-1990s era when products and
services were rationed to applicants waiting in interminable queues for a
scooter or a telephone connection. The wider and easier availability of
consumer items has made the sense of deprivation higher among the poor.27
By 1993 the important change for the Indian economy was that it had
shifted from industrial licensing and tight controls on imports and FDI to
one in which decisions which impacted domestic and foreign investments
and foreign trade were more determined by market signals. Within two
years of Rao taking over, India’s crisis in servicing its hard currency debt
abated and the pace of reforms also slowed down in tandem. Another factor
which reduced Rao’s appetite for reforms was that state-level electoral
results were negative for Rao. For instance, in the 1993 UP elections, the
Congress party was marginalized by a combination of the Samajwadi Party
and the Bahujan Samaj Party, and it lost in Delhi in the same year to the
BJP (see about Delhi’s special status act below). This reduced Rao’s writ,
which was limited to begin with, within the Congress and may have
contributed to his reluctance to continue with economic reforms.
Babri Masjid

The agitation for a temple dedicated to Ram in Ayodhya, Uttar Pradesh, was
supported by many in that state and around the country. Extreme elements
within Hindu communities did their bit to inflame passions. They felt that
the Ram temple should be built at the site of the Babri Masjid since this
mosque had allegedly been built over a temple site.28 The contrary view that
the mosque was not built over a temple is detailed in an article titled
‘Archaeologist Who Observed Dig Says No Evidence of Temple under
Babri Masjid’.29
The BJP had withdrawn its support to the Janata Dal government headed
by V.P. Singh when its demand that a Ram temple be built at Ayodhya was
not met. The Uttar Pradesh government headed by then BJP chief minister
Kalyan Singh too did not take any decisive action for the construction of the
temple. As large numbers of kar sevaks had gathered in Ayodhya in
December 1992 Rao must have been aware of the imminent danger of the
Babri Masjid being damaged or destroyed.
Under the Indian Constitution, law and order is a state subject. In order
for the Central government to take action, Rao would have had to convince
the then President Shankar Dayal Sharma (also from Congress) to declare a
threat to national security and then use the army or paramilitary forces. In
retrospect, it may be that UP authorities and the Central government felt
that the prudent course of action was to allow extremist sentiments to
prevail and plead later that they were unaware of the ground-level situation.
Rao probably weighed the political benefits and downside of siding with
either Hindu or Muslim sentiments. He is alleged to have retired to his
bedroom so that he could not be contacted as the masjid was being brought
down on 6 December 1992.30 This resulted in the Muslim community
feeling a sense of betrayal towards the Congress.
About three months after this depressing moment in India’s communal
and political history, on 12 March 1993, the Bombay Stock Exchange and
other locations in Mumbai were bombed. About 300 persons lost their lives
and the Indian mujahideen and other groups claimed responsibility.31 In the
communal riots that followed around the country, several thousand were
killed or seriously injured, and property worth up to Rs 90 billion was
damaged.32 As a consummate politician with over four decades of
experience in senior positions in government, Rao chose inaction which led
to the avoidable loss of so many lives.

Special Status for Delhi, Supreme Court and No-confidence Motion

The genesis of the current problems in administering Delhi can be traced

back to a Rao decision of 1992. Going back to the early post-Independence
years, Delhi became a part C state under the States Act of 1951. Land,
police and public order were placed outside the purview of part C states.
Subsequently, Jawaharlal Nehru felt that the Central government should be
fully responsible for Delhi, and accordingly, Delhi’s C state status was
revoked under the 1956 States Reorganisation Act. Thereafter, Delhi did not
have a CM, and the lieutenant governor was the senior-most authority in the
Delhi administration.
Supporters of statehood for Delhi felt the local citizens should have their
own legislature and mobilized for it over the next three decades. Finally, it
was on 2 January 1992, just six months after Rao had taken over as PM,
that the Government of National Capital Territory of Delhi (NCTD) Act
was passed. While full statehood was not granted to Delhi under this
legislation, a Delhi chief minister was then onwards empowered to share in
administering the national capital with the Central government. The BJP
won forty-nine out of seventy seats in the Delhi elections, and Madan Lal
Khurana became CM in 1993, thirty-seven years after Delhi’s statehood
was withdrawn in 1956.
Despite having an elected CM, Delhi continues to have a complex
administrative structure. An April 1958 Act of Parliament had set up the
Municipal Corporation of Delhi (MCD). This Act was amended in 1993
during Rao’s tenure to create three municipal corporations for north, south
and east Delhi, and elections are held for these three corporations. Central
Delhi (Lutyens’s Delhi) is administered by the New Delhi Municipal
Committee which is headed by a Central government appointee.
Other parts of Delhi are administered by the Cantonment Board under the
Directorate General of Defence Estates and the Delhi Development
Authority (DDA) which reports to the lieutenant governor. The 1992 NCTD
Act compounded the problem of multiple authorities in Delhi, leading to
each blaming the other for the city’s shortcomings. Official records in the
public domain do not provide any statement by Rao on this issue. Rao could
have gone to the court of public opinion and explained that, given that this
Union territory had been administered reasonably well by the Central
government since 1956, no change was warranted. He could have pointed
out that several major capitals around the world, such as Washington DC,
Beijing, Mexico City and Brasilia, are essentially under the administrative
control of the Central governments of those countries.
The collegium system of selecting judges for high courts and the
Supreme Court was instituted while Rao was PM. The senior judiciary was
probably concerned ever since the arbitrary action of the Indira Gandhi
government in 1977 overlooking H.R. Khanna, the senior-most judge at that
time, for the position of chief justice. The Advocates-on-Record
Association had filed a case against the Union of India about then existing
procedures which gave primacy to the Central government in approving the
names proposed as judges by the Supreme Court.33 Perhaps Justice J.S.
Verma’s recollection of the weakening of the judiciary during the
Emergency resulted in his 1993 judgment in favour of a collegium system
for appointments of judges to high courts and the Supreme Court.34
Under this collegium system, a panel of judges headed by the chief
justice of the Supreme Court is responsible for the selection of judges
instead of the Central government. It is likely that this change happened
because of the perceived weakness of Rao’s coalition government. To
assuage concerns in judicial circles about past government high-handedness
in the appointments of judges, Rao could have suggested that the selection
of judges be effected by a PM-headed committee out of names suggested by
a body consisting of Supreme Court judges and a few other prominent
personalities.
The Indian legal system is based on practices in the UK. In the UK,
judges are selected by a Judicial Appointments Commission (JAC). These
choices have to be approved by the Lord Chancellor and the PM, and they
have the right to accept or reject the nominations made by the JAC. In the
US, the President nominates Supreme Court judges who then have to be
approved by the Senate. By contrast, India has moved to a system in which
judges appoint judges. The larger point here is that the current Indian
practice of judges selecting judges is not followed in two developed
countries from where India has borrowed most of its legal system and
practices.
All through Rao’s term as PM, the Congress was irrelevant in UP, India’s
largest state. Rao’s inability to be a vote getter for the Congress party in
assembly elections around the country, combined with the challenges to his
leadership from within the Congress, encouraged the Opposition to table a
no-confidence motion against Rao’s government in mid-1993. The vote on
this motion was taken on 28 July 1993, and four Jharkhand Mukti Morcha
(JMM) MPs supported Rao’s government to defeat this no-confidence
motion. Allegedly, a sum of about Rupees 16 million was deposited in the
bank accounts of each of these MPs during 1–2 August 1993.35 Another
new low was reached in national politics. Although there were coalition
governments between 1977 and 1980 and from 1989 to 1991, the PMs of
those governments were not accused of trying to win votes of confidence by
bribing MPs.
Two years after Rao demitted office, on 17 April 1998, the Supreme
Court ruled that MPs who took bribes for voting in favour of one party or
the other were immune from prosecution since there is constitutional
immunity for voting in Parliament.36 Shailendra Mahato was one of the ten
accused in the JMM bribery case. On 29 September 2000, Rao was
convicted by a CBI judge in this same case. He was acquitted of all charges
before he passed away in 2004. The CBI’s investigations into corruption at
high political levels and inconclusive court cases added to cynicism about
Indian politicians. Rao bears some of the responsibility for this further slide
in the credibility of those in public life.

Kashmir, Neighbourhood and the Major Powers

The 1991 elections to the Lok Sabha could not be held in J&K due to the
state of unrest in this state. The dissatisfaction at a popular level can be
traced back to the alleged rigged state assembly elections in 1987. By the
early 1990s, the Soviet Union had crumbled, and the US had less reason to
supply weapons to the mujahideen in Afghanistan. In this confused
situation, Pakistan saw an opportunity to engineer infiltration of extremists
into Kashmir.
In 1990 Seymour Hersh wrote in the New Yorker37 that there was a
possibility of the use of nuclear weapons due to differences between India
and Pakistan over Kashmir. Twenty-eight years later, in June 2018, Penguin
Random House US published Reporter: A Memoir by Hersh. Hersh says
that he can now reveal that in 1990, based on confirmed CIA information,
Pakistan feared an Indian invasion and was preparing to retaliate with
nuclear weapons. The tone of this Hersh account describing India–Pakistan
relations in 1990 to be more ‘frightening than the Cuban missile crisis’ was
unconvincingly alarmist.
Relations between the two neighbours had deteriorated due to the
Pakistani government’s promotion of extremism in Kashmir. The Pakistani
assessment that the people of Kashmir were ready to side with infiltrators
was a throwback to Operation Gibraltar38 of 1965. At one stage in 1990 the
Indian High Commission in Islamabad had to stock food and other
provisions in the mission’s office building in case Indian personnel needed
to be moved into these premises prior to repatriation.
Rao had inherited a difficult situation in J&K, but he had to focus on the
balance of payments crisis after he took over and the challenges his
government faced later. Whatever may be the reasons, Rao was not able to
focus on longer-term solutions for Kashmir, including creation of
employment opportunities to give the local population a greater stake in
peace and order. However, despite his relative neglect of development in
Kashmir, Rao accorded high priority to relations with Pakistan. Ignoring
Pakistan’s role in fomenting extremism in Kashmir, he met Pakistani PM
Nawaz Sharif six times between 1991 and 1993. These meetings took place
in the two countries or on the sidelines of the UN in New York. It is likely
that due to Rao maintaining a steady dialogue with Pakistan, the latter’s
instigation of terrorist violence in India was less than what it might have
been otherwise.
Rao’s government looked for a closer relationship with the ASEAN
nations and coined the phrase ‘Look East Policy’ and India became a
dialogue partner with the ASEAN grouping in 1992. Later in 1996 India
became a full member of the ASEAN Regional Forum (ARF). Rao
understood that while India’s economic relationships with the West would
continue to be important, there was considerable potential for increasing
trade and investment ties with countries to its east.
To make headway in India’s relations with Bangladesh, Rao needed to
work out mechanisms for sharing of river waters between India and
Bangladesh. Shortage of water for farming is a controversial and often
emotive issue in most Indian states, including West Bengal. By 1991, Chief
Minister Jyoti Basu and the Communist Party of India (Marxist) (CPI[M])
were well entrenched in West Bengal.39 Rao did not have the political
ballast to arrive at a practical accommodation with Bangladesh and Jyoti
Basu’s West Bengal on sharing of Ganga water, particularly since the
CPI(M) was strongly opposed to Rao’s economic reforms.
To the discomfiture of Rao’s government, Alexander Rutskoy, a Russian
vice-president, referred to the use of the United Nations to resolve the
Kashmir issue during his December 1991 visit to Pakistan. Following the
break-up of the Soviet Union, with Boris Yeltsin in charge, there was a shift
in the Russian attitude on Kashmir. India had to be careful as it needed
continuity in the defence relationship with Russia. India and Russia agreed
that the latter would take on the responsibilities of intergovernmental
agreements that India had concluded with the erstwhile Soviet Union.
However, the defence equipment that India had bought from the USSR was
put together from parts made in separate Soviet republics. To maintain
continuity of access to spare parts and servicing over the remaining life of
Soviet equipment, India reached out to the former republics of the USSR.
For example, Ukraine as a centre of metallurgical excellence; Kazakhstan,
with its launching sites for space vehicles; and Kyrgyzstan’s Lake Issyk-Kul
for testing torpedoes, had linkages with their counterpart institutions in
India. India has historical ties with the Central Asian republics, and they are
rich in minerals and fossil fuels. Rao was presciently quick to establish
relationships with the former Soviet republics.
Payments for trade in goods and services between India and the Soviet
Union, and for India’s purchase of defence equipment, was under a rupee–
rouble arrangement at an exchange rate that was administratively
determined by the governments of the two sides. India paid for its imports
in rupees, and the USSR paid in roubles. With the break-up of the Soviet
Union, the rupee–rouble exchange rate needed to be modified since the
Russian rouble’s value fell sharply against convertible currencies. Russia
had substantial net balances of rupees because of India’s high-value defence
imports.
A rupee–rouble agreement was signed between the two countries during
Boris Yeltsin’s visit to India in February 1993. It was agreed that the cut-off
date for the exchange rate for all past debt, as of 1 January 1990, owed by
India to Russia (as successor state of the Soviet Union), would be Rs 19.9
to 1 rouble. For transactions from 1 April 1992, the new exchange rate
became Rs 31.57 to 1 rouble. This agreement, which specified the rupee–
rouble exchange rates for past Indian debt and for future transactions, was
heavily criticized on the grounds that several Indian business houses came
to know of the exchange rates in advance and made huge windfall gains. It
is not clear from publicly available records whether Russia got an unduly
favourable deal in the setting of these exchange rates. Irrespective of
criticisms about the government-mandated revisions in the rupee–rouble
exchange rates, the Rao government has to be complimented for closing
this issue which had become an irritant in bilateral relations. Going forward,
bilateral trade and purchases of military equipment and spares were based
on exchange rates which were transparent. To that extent, both sides could
henceforth compare prices of products and services with those of third-
party providers.
Rao reached out to the US despite the latter leaning towards Pakistan on
Kashmir during President George W. Bush’s tenure from 1989 to 1993.
Post-1993, there was pressure on India on non-proliferation when President
Bill Clinton was in office. With an eye to US sensitivities, and also because
pandering to anti-Israel sentiments in Arab quarters had run its course, Rao
gave the go-ahead for India to establish diplomatic relations with Israel in
January 1992. This was a much-needed injection of reality into India’s
foreign policy towards countries in West Asia and the Gulf region.
India had been a staunch supporter of the African National Congress
(ANC) through the long struggle against apartheid in South Africa. Nelson
Mandela was finally released after twenty-seven years in prison in 1990,
and he led the ANC to victory in the elections in South Africa in 1994. Rao
was quick to react to these momentous developments in a country with
which India had had a long association, and he established diplomatic
relations with South Africa in 1993.
On China, Rao took a practical step-by-step approach. One of the
complications about the India–China border issue is that McMahon’s
explanatory note describing the line named after him in the eastern sector of
the India–China border is not fully consistent with the depiction on
corresponding maps. There were several rounds of negotiations between
India and China during the Rao years, and an agreement was reached to
maintain peace at the frontier while the border issue was being resolved.
With this end objective, ‘A Border Peace and Tranquility Agreement’ to
‘maintain the status quo’40 was signed by Rao during his visit to Beijing on
7 September 1993.
Earlier, on 4 June 1989, Chinese troops had faced off with student
demonstrators in Tiananmen Square in Beijing. China’s economic reforms
over a decade since 1979 had created losers too. The protesters were upset
about inflation and changes in the economy, and sought greater freedom of
press and democracy. The protesters were put down with force and perhaps
thousands were jailed.41 It does not appear that in India’s exchanges with
the US government in the 1990s, there were any discussions about
coordinating efforts to contain China by slowing its accession to the World
Trade Organization. It may have been impossible anyway since those were
the years that US multinationals were profiting enormously by shifting the
production of consumer goods and garments to China.
To sum up, given the vulnerabilities of Rao’s coalition government, his
foreign policy performance was remarkable. According to Ambassador K.S.
Bajpai, Rao was the shrewdest PM ever. He did not have Nehru’s global
name recognition or Indira Gandhi’s charisma but played the international
relations game adroitly with a limited political hand at home and a
sputtering economy to start with in 1991.

Legacy

India was on the brink of defaulting on its external debt when Rao took
over as PM in July 1991. The economy needed life support because of the
high levels of government expenditure in the 1980s which ended with two
short-lived coalition governments focused only on their own survival. Some
analysts advance the argument that Rao had no option but to do what he
did. Similar arguments could be made for why India should have effected
economic course corrections in the early 1980s and definitely by the second
half of Rajiv Gandhi’s term as PM. However, it was Rao who took the bit in
his mouth and went ahead with sweeping economic reforms.
Rao’s tenure as PM was constantly under threat from within his own
party and from coalition partner parties. It was almost magical that he
managed the difficult political act of undertaking much-needed reforms and
remained PM for five years. At the same time, Rao’s reforms were
circumscribed by the extent of political consensus Rao could achieve within
his party and the coalition government.
An oft-repeated argument is that India goes close to the brink of disaster
and then somehow inevitably claws its way back, just before hurtling down
to its doom. There was nothing inevitable about India climbing its way out
of the economic pit it had dug for itself by 1991. The Soviet Union had
made many mistakes in how it had run its economy, and it was not just the
invasion of Afghanistan—expensive as it was in terms of lives lost and the
economic cost—that broke up the USSR. It was more the refusal to be
practical about its economic choices and the inability to empathize with the
discontent of its average citizens who craved for consumer goods and a
better standard of living.
It is conceivable that if the USSR had embarked on systemic economic
reforms, even by the early 1980s, it would still be one country. This is to
emphasize that there was nothing predestined about the reforms which were
implemented by Rao’s government. The tendency of subsequent
governments, particularly those led by the Congress party, has been to
downplay Rao’s contributions. Perhaps because that would be consistent
with the implicit Congress party stance that it was only Indira Gandhi and
subsequent generations of her family members who have the ability to lead
the country successfully.
Rao’s singular contribution was to seize the window of opportunity
created by the balance of payments crisis and the all too visible break-up of
the USSR to authorize far-reaching reforms. He was an able manager since
he delegated the formulation of policies to informed experts who had
decades of experience in government, RBI or the World Bank. Rao could
not have got the reforms done without the team around him and Manmohan
Singh as finance minister, who in turn was supported by knowledgeable
experts in the Ministries of Finance and Commerce and the RBI. The same
or other highly trained and motivated officials had worked with earlier PMs
but they could not initiate a break with the past.
India had gone through trying economic difficulties in the 1970s and
1980s. Systemic reforms did not happen because Indira Gandhi and later
Rajiv Gandhi did not have the understanding or the inclination to do so. In
Indira Gandhi’s understanding, less government control over the economy
meant she would be less in charge of the political processes at the Centre
and in interactions with state governments.
 Rao was better than most Indian PMs in dealing with administrative
crises. For instance, in 1993 there was a severe earthquake in Latur,
Maharashtra, which measured 8.2 on the moment magnitude scale.42 This
earthquake was estimated to have killed about 10,000 people and displaced
hundreds of thousands. Rao supported the Maharashtra state government to
provide immediate relief and also set up schemes to help in the economic
rehabilitation of the Latur region.
On foreign policy issues, Rao was perceptive about the short-term and
long-term requirements. An example of a near crisis was Pakistan’s attempt
to incite riots and create disaffection in Kashmir. Rao was regularly in touch
with his Pakistani counterpart and initiated steps which came to be called
confidence-building measures.
He responded with sound measures to the break-up of the Soviet Union.
And, although there are reservations in some quarters, Rao resolved the
rupee-rouble exchange rate issue and quickly established relations with the
former republics of the USSR. The opening up to China occasioned by
Rajiv Gandhi’s visit was followed up by the setting up of a mechanism to
work towards settling of border differences. Rao was mindful about keeping
relations with the US controversy-free. However, Rao did blink when asked
pointedly by the US if India was preparing to test nuclear weapons and he
chose not to do so in the face of possible US economic sanctions.
Rao was slow in reacting to issues which could have negative
implications for his tenure as a minister or PM. For instance, Rao did not
lift a finger to stop the killing of Sikhs in Delhi after the assassination of
Indira Gandhi when he was the Union home minister. The demolition of
Babri Masjid and subsequent violence will also remain a black mark against
his record. In this context, the recurrent Congress claim that if an Indira
Gandhi family member had been PM, the masjid would not have been
demolished sounds hollow.
A number of communal riots happened under the watch of Indira Gandhi
and Rajiv Gandhi. For instance, the Nellie massacre in Assam,43 in which
about 3000 were killed, took place on 18 February 1983 when Indira
Gandhi was PM and Assam was under President’s rule, that is, the Central
government was in charge.44 Rajiv Gandhi was PM when thousands of
Sikhs were killed in the nation’s capital. The Babri Masjid issue, in fact,
came to the fore because RG allowed the locks of the Ram Mandir at this
site to be opened. From December 1949 till 1986 the gates had been locked.
In 1986 a local judge ruled that Hindu worship would be allowed. RG’s
government should have sought a stay order on the grounds that allowing
access to worshippers of any religion could lead to clashes in the future.
Rao was said to be close to a ‘god-man’ called Chandraswami and used
to seek his advice.45 This proximity to a so-called tantric is the type of
weakness that many Indian politicians in high office have exhibited.
Notwithstanding this quirk, Rao had an inquisitive mind and kept himself
briefed about latest events and advances around the world. Another
inconsistency in Rao’s mental make-up was that the people he admired
behaved very differently from how he did when it came to making difficult
choices. For instance, in Rao’s thinly veiled autobiography called The
Insider,46 he expresses deep admiration for Swami Ramananda Tirtha. Rao
uses the following words to describe the Swami’s attitude towards the rich
and powerful: ‘This Sanyasi stood for the people and for Democracy, and
declared to the mighty and oppressive Nizam—I shall break, but not bend!’
Time and again, Rao chose to bend rather than break to further his own
career. Rao’s deliberate and exaggerated humility towards Indira Gandhi
and later Rajiv Gandhi was inconsistent with the quality of self-respect he
admired in Swami Ramananda Tirtha. It is likely though that in the
prevailing culture of the Congress party, he would not have progressed to
become PM if he did not have this element of self-effacement.
Unfortunately, Rao was not accorded the dignity of a state funeral in
Delhi after he passed away on 23 December 2004, even though he had held
the senior-most positions in Andhra Pradesh and the Central government.
He was a minister and chief minister of Andhra Pradesh, and in the Central
government had held the positions of foreign, defence, home, human
resource development minister, and finally prime minister.
Rao’s origins in a village in Andhra Pradesh, and his personal life which
was way to the side of Bharat on the India–Bharat scale, are well-
documented.47 Rao was comfortable speaking not just in Telugu and
Marathi, but also in Hindi and English. Although Rao did put on a
bandhgala coat and trousers on occasion, he was more often dressed in the
traditional dhoti and kurta.
Rao was extremely well read as political leaders go in India, or for that
matter, anywhere in the world. His wide reading and personal experience of
politics at the local level in Andhra Pradesh made him sensitive to the needs
and aspirations of Bharat as well as India. However, on the public cynicism
index, Rao did little to change the average voter’s considerable scepticism
about those who seek political office in India.
On the 3 Cs, Rao was high on Competence as he demonstrated through
the handling of the 1991 balance of payments and economic crisis. His
managerial excellence too was evident in his selection of PMO officers.
Rao’s compassion for the landless cost him the chief minister’s position in
Andhra Pradesh. However, he was low on Charisma, and despite his
multiple language skills, he was not an effective public speaker. As for
overall Character, this could vary for Rao depending on the occasion. He
did not show enough courage of conviction to stop the demolition of the
Babri Masjid. Rao was influenced by so-called god-men, and that too was
not a stirring example of Character.
All things considered, Rao deserves the nation’s gratitude for steering the
Indian economy out of grave trouble. His lasting legacy is that he left
behind an economically stronger and more stable India than the one he
inherited. He had the perspicacity and tenacity to set in motion an
irreversible reform process which has led India on to a path of sustained
higher economic growth.
 DEVE GOWDA AND I.K. GUJRAL
Prime Ministers of Wobbly, Short-lived Coalitions

In the general elections in 1996, P.V. Narasimha Rao–led Congress won 140
seats, and the BJP’s tally rose to 161. As the single largest party, the BJP
formed the government on 15 May 1996. This effort, with Atal Bihari
Vajpayee as PM, collapsed when the BJP could not cobble together the
required majority in the Lok Sabha and Vajpayee resigned just thirteen days
later on 28 May 1996.
The Janata Dal, with just forty-six seats, formed the United Front (UF) or
National Front government with the support of Congress. The UF consisted
of the Janata Dal, the Left Front and the Telugu Desam Party (TDP). A
combination of the Janata, regional and state parties supported by the
Congress came to power, and H.D. Deve Gowda,1 a long-standing
Karnataka leader, was sworn in as PM on 1 June 1996. Given the
experience of the Congress-supported governments of Charan Singh and
Chandra Shekhar, it should have been obvious to Deve Gowda even before
he took office that his government would not last long.
The media described the Gowda government’s budget of 1997 as a
‘dream’ budget because the highest income tax rate was brought down to 30
per cent from 40 per cent, and tax on dividends in the hands of shareholders
was dropped. The ceilings on FII investments in stock and debt markets
were raised, and a few import duties were lowered marginally.2
The reforms effected by Narasimha Rao’s government were path-
breaking, yet much remained to be done. After the Rao-led government was
voted out, there was concern whether Deve Gowda, with an unstable
coalition, would be able to stay the course. The chief ministers of the two
states with the most seats in the Lok Sabha were Mulayam Singh Yadav of
the Samajwadi Party in UP and Lalu Yadav of the Rashtriya Janata Dal in
Bihar. Harkishan Singh Surjeet of CPI(M) played the kingmaker in the
background.
The political backgrounds of the parties supporting Deve Gowda’s
government were incompatible, and hence this coalition was unstable.
However, it is to Deve Gowda’s credit that though he was only steeped in
Karnataka politics, he was able to maintain continuity and took small
incremental steps towards rational economic policies. Although gross fiscal
deficits continued to be elevated at around the same levels as during the
Narasimha Rao years, the current account deficit was contained, and the
rupee exchange rate was wisely allowed to adjust downwards. This despite
the constraints of coalition politics with CPI (M) supporting the government
without participating in it.
Deve Gowda had no experience of dealing with foreign policy issues.
Consequently, Foreign Minister I.K. Gujral had a relatively free hand to
manage India’s external relations. The so-called Gujral doctrine of that time
was not to insist on reciprocity with neighbours. Gujral felt that India, as the
largest South Asian country, should not insist on concessions in equal
measure, e.g., from Bangladesh on sharing of river waters or from Nepal for
granting its citizens free access to India.
The Congress claimed that Deve Gowda’s government was not keeping it
adequately informed. That was just a pretext to withdraw support. After the
Deve Gowda government was disbanded on 21 April 1997, the Congress
felt that it was not in a position to do better if general elections were to be
held immediately and decided to support a government led by I.K. Gujral3
again without participating in it. The Congress was not in a position to form
government with the help of coalition partners. This is because Narasimha
Rao had distanced himself from the Congress by this time, and Sitaram
Kesri, who was earlier the treasurer, was the Congress president from 1996
to 1998. Kesri was not known for his leadership qualities.
Most regional parties in the south were ideologically opposed to the BJP.
Consequently, it was a gloomy period in national politics since no coalition
could form a stable Central government. Finally, a group of parties with a
wide range of views somehow banded together and I.K. Gujral was sworn
in as PM on 21 April 1997. Prior to becoming PM, Gujral had been the
information and broadcasting minister in Indira Gandhi’s government when
the Emergency was declared in 1975. He was seen as incompetent in
administering the sweeping curbs that Indira Gandhi had imposed on the
print media and was replaced by V.C. Shukla. Gujral was packed off to
Moscow as India’s ambassador to the Soviet Union and was based there
from 1976 to 1980. Gujral resigned from the Congress in the mid-1980s and
contested the 1989 Lok Sabha election as a Janata Dal candidate and was
elected from Jalandhar. He was the foreign minister in the V.P. Singh
government.
Gujral remained PM of a coalition government till 19 March 1998. Deve
Gowda was PM for less than eleven months, and Gujral too was PM for a
little short of eleven months. In Gujral’s case, his government lost the
support of the Congress party in November 1997. Effectively, Gujral was
PM for seven months and caretaker PM for another four months.
The short-term considerations of the leaders in the Gowda and Gujral
governments led to a loss of valuable years in India’s quest to raise growth
and reduce poverty. The coalitions that supported Deve Gowda and Gujral
were avowedly motivated by the need to make India socially and
economically a more equal society. It is comically tragic that the two
principal leaders of UP and Bihar, Mulayam Singh Yadav and Lalu Prasad
Yadav, have ended up creating feudal legacies. The sons of these two
leaders have been CM in UP and ministers in Bihar respectively.
The politics of appeasement of caste-based groupings and subgroups was
further strengthened by the cynical politics during 1997–98. This had
already become glaringly apparent during the years that V.P. Singh and
Chandra Shekhar were PM, and this negative trend came even more to the
surface as self-serving arguments were made to justify the coalitions that
allowed Deve Gowda and Gujral to be PM for less than a year each.
 ATAL BIHARI VAJPAYEE
Decisive, Balanced Yet Susceptible

Hone, na hone ka kram,

Issi tarah chalta rahega,
Hum hain, hum rahenge,
Yeh bhram bhi sada
Palta rahega

The cycle of being and not

Being shall continue as ever,
We are and shall remain
—this illusion too will be nurtured forever1

From the poem ‘Yaksha Prashna’ by Atal Bihari Vajpayee

Atal Bihari Vajpayee2 was an eloquent and fiery speaker in Hindi, whether
in public meetings or in Parliament. His powers of persuasion and oratory
are evident from the ten times that he was elected to the Lok Sabha. His
first victory was in 1957 and last in 2004, a span of nearly half a century.
He was said to have impressed Jawaharlal Nehru even though he was
critical of the government’s performance before and during the 1962 war
with China. Given his organizational skills, Vajpayee became the national
president of the Bharatiya Jana Sangh (BJS)in 1968. Since he was
prominent in national politics at that time, he was arrested by Indira
Gandhi’s government during the Emergency and put in jail along with a
number of well-known Opposition leaders from 1975 to 1977.
Following the Emergency, the Janata Party came to power in 1977 with
Morarji Desai as PM. Vajpayee joined Desai’s government as the foreign
minister. Earlier, Vajpayee was often a member of the all-party delegation
of MPs that visited New York annually to attend UN General Assembly
meetings. Vajpayee was therefore well informed about foreign affairs by the
time he took over the external affairs portfolio. Vajpayee’s principal
achievement during the short tenure of the Janata Party government was his
visit to China in February 1979. This was the first high-level visit to China
since the 1962 war. While Vajpayee was in Hangzhou, the Chinese attacked
Vietnam, and Vajpayee cut short his visit and returned to India. Although
Vajpayee’s visit to China ended abruptly, it served to facilitate a return visit
by Huang Hua (Chinese FM) to Delhi in 1981. These exchanges created the
favourable atmosphere for Rajiv Gandhi’s visit to China in 1988. Vajpayee
continued border talks with China during his tenure as PM which had been
institutionalized by PM Narasimha Rao.
In 1977, the BJS contested under the combined banner of the Janata
Party, including Janata Dal, Congress (O) and others. The BJS separated
from other Janata Party constituents in the 1980 general elections and won
only thirteen seats in the Lok Sabha that year under the new name of
Bharatiya Janata Party (BJP). In 1984, at the height of Congress party
strength in the Lok Sabha, the BJP was down to just two seats. Vajpayee
was the acceptable public face of BJP leadership, and this enabled it to
steadily increase its share of seats from eighty-five in 1989 to 120 in 1991,
and 161 in 1996. In May 1996, a Vajpayee-led coalition government was
formed, but it lasted for just thirteen days. Thereafter, Deve Gowda and
later I.K. Gujral were PMs of two short-lived coalitions.
The BJP’s efforts, combined with those of its National Democratic
Alliance (NDA) partners, finally brought this coalition to power for an
extended period after the 1998 general elections. Vajpayee was sworn in as
PM on 19 March 1998 at age seventy-four. The NDA’s coalition partners
included the Shiv Sena from Maharashtra, Telugu Desam Party from
Andhra Pradesh and Akali Dal from Punjab. Vajpayee’s NDA government
fell in April 1999 after losing a no-confidence motion by just one vote
because Jayalalithaa’s AIADMK party withdrew support. Fresh elections
were held in October 1999, and the next NDA coalition government with
Vajpayee at its head lasted a full term till the general elections of May 2004.
One of the significant strategic achievements of Vajpayee’s government
was that India became a declared nuclear weapon power after it tested
nuclear devices in May 1998, within a few months of his assuming the
office of PM. By comparison, Indira Gandhi was ambivalent about the
purpose of the 1974 test, calling it peaceful, and she did not authorize
further testing even after she came back to power in 1980.
In the 1980s, the public posture of first Indira Gandhi and then Rajiv
Gandhi was that India’s first preference was to seek international consensus
on nuclear disarmament. It is in this context of drift about India’s nuclear
weapons policies that General K. Sundarji, chief of army staff of the Indian
Army from 1986 to 1988, made the following scathing comment, ‘. . .
between the mid-Seventies and mid-Eighties India’s (nuclear) decision
making . . . appears to have enjoyed something between a drugged sleep
and post-prandial siesta . . . the really big secret is that India has no
coherent nuclear weapon policy and worse still, she does not even have an
institutionalized system for analyzing and throwing up policy options in this
regard.’3
In 1989, Rajiv Gandhi had finally given the signal to the scientific
community that they could go ahead with plans for testing nuclear weapons.
Though P.V. Narasimha Rao was preoccupied with domestic economic and
political issues, he provided the required support to the scientists and
engineers who were preparing for further testing of nuclear devices. It is
rumoured that Rao almost gave the go-ahead for testing in 1995 but backed
down in the face of US pressure.4 In the two subsequent short-lived
governments of Deve Gowda and I.K. Gujral, Mulayam Singh Yadav was
the defence minister. Despite Yadav’s bravado about how he was ready to
authorize testing, these two governments did not have the coherence or
appetite to bite the nuclear bullet.
 The developed countries were sharply negative about India’s first nuclear
test in 1974. Immediately thereafter, the Western countries led by the US set
up the London Club, which later became the NSG, to deny India access to
nuclear technology, fuel and equipment. Consequently, it must have been
abundantly clear to Vajpayee that the West could react to further nuclear
testing by India with economic sanctions, including imposing a moratorium
on loans to India from multilateral institutions such as the World Bank. In
1998 the Indian economy was much more dependent than in 2019 on below
market cost and long maturity loans from multilateral development banks.
At the same time, India was not a signatory to the nuclear NPT of 1968.
Further, India had consistently maintained that this treaty is discriminatory
since it allows the declared five nuclear weapon powers to retain such
weapons while ignoring the security concerns of non-signatory countries.
Almost immediately after Vajpayee took charge as PM in March 1998,
Vajpayee and Principal Secretary Brajesh Mishra were briefed about the
country’s preparedness to test nuclear weapons by the relevant experts. It
was reasonably certain that the USA and other nuclear weapon powers
including China and Russia would react adversely to India going ahead with
the tests. Nevertheless, three successful nuclear tests were conducted on 11
May 1998—one fission, another fusion and one low yield. Two low-yield
tests were again conducted on 13 May 1998. The Vajpayee government was
able to conduct these tests within two months of coming to power,
indicating that the scientific community was ready and waiting for the
political green signal.
The US was caught unawares, and President Bill Clinton was reported to
have learnt about the first test from the media. Irrespective of the arguments
for and against nuclear weapons, it was quite an achievement for the
fledgling Vajpayee government to have kept the final decision and
preparations for these tests secret from prying foreign eyes. India explained
its decision to test on the grounds of national security.
Vajpayee set up the first National Security Advisory Board with defence
expert K. Subrahmanyam as the convener. This group developed the
doctrine of no first use of nuclear weapons, and the Indian government
announced that it would abjure first use in any future conflict. India’s
nuclear weapons would act only as a deterrent, and if deterrence against a
nuclear attack failed, these weapons would be used for a retaliatory strike.
This was another example of a holier than thou sentiment which tends to
creep into India’s foreign and security policy pronouncements. To date, the
US and Russia have not relinquished the first-use option. Vajpayee need not
have announced no first use of nuclear weapons, and it was up to
subsequent Indian governments to revise this position.
In situations of extremely tense relations with any country which is
actively pursuing, say, a policy of ‘a thousand cuts’ to hold India back, it
could be useful to leave the adversary guessing at what point India would
use nuclear weapons. Clearly, it has to be an existential threat for India to
use nuclear weapons first since the ‘enemy’ would counter-attack with
nuclear weapons. In practice, India could follow the principle of no first use
yet not affirm that it is India’s inflexible position, no matter what the threat
or provocation.
Pakistan conducted its nuclear weapon tests within a fortnight on 28 and
30 May 1998. Clearly, they were well prepared too and waiting for an
appropriate moment. The subsequent commentary in some Indian and
foreign quarters was that India had gained little since Pakistan had now
overtly demonstrated that it had nuclear weapons, which neutralized India’s
conventional superiority. But by the same logic, India had demonstrated
that it had a force equalizer vis-à-vis China.
The larger the number of countries which possess nuclear weapons, the
higher the risk that nuclear weapons may be used intentionally or through
human error. However, the responsibility for nuclear proliferation rests with
the five declared nuclear weapon powers which are also the five permanent
members of the UNSC. Although the NPT enjoins them to move towards
nuclear disarmament, there has been no perceptible movement towards this
desirable goal on their part. This is also because in a world full of mutual
suspicion, it is currently impossible to set up transparent mechanisms to
verify universal nuclear disarmament.
 The US and other developed nations, particularly Australia and Ireland,
criticized India’s nuclear tests sharply. Bilateral aid from developed
countries to India had already shrunk to small numbers by 1998, and
ongoing discussions on future aid froze. The US, using its largest
shareholder status in the World Bank, pushed through a board decision for
this multilateral bank to not make any fresh loans to India except for
‘humanitarian’ purposes. According to the Articles of Agreement of the
World Bank, political issues cannot determine any of its lending decisions.
India’s nuclear weapons tests were driven by political-strategic
considerations, and hence should not have influenced the World Bank’s
lending decisions. It was not a surprise for the Indian government that the
US used its status as founder and dominant shareholder to wilfully violate
the principles on which the World Bank was set up.
Pakistan and India, two undeclared nuclear weapon powers in South
Asia, became known nuclear weapon powers. Did this enhance or reduce
India’s security? This is not a question that can be answered only in the
context of India–Pakistan relations. In Vajpayee’s letter to the US President,
the threat from a militarily powerful China was cited as one of the reasons
for India going nuclear.
India’s policies about deployment of nuclear weapons took some time to
think through after the May 1998 tests. India’s nuclear doctrine was that it
would aim at acquiring the capability to launch nuclear weapons from land,
air and sea. The sea-based platform included nuclear-powered submarines
carrying nuclear-tipped ballistic missiles, namely SSBN (ship, submersible,
ballistic, nuclear) capability. These submarines can be underwater for
months at a time. Out of the public eye, Vajpayee’s government worked on
setting up nuclear weapons command and control structures.5

Rapprochement with the US and Others

The US took the lead to isolate and punish India after the nuclear tests. The
first three paragraphs of the UNSC resolution 1172, which was
unanimously adopted on 8 June 1998 were worded as follows:
 The Security Council this morning condemned the nuclear tests conducted by India and
by Pakistan in May, demanded that those countries refrain from further nuclear tests and
urged them to become parties to the Treaty on the Non-Proliferation of Nuclear Weapons
(NPT) and to the Comprehensive Nuclear-Test-Ban Treaty (CTBT) without delay and
without conditions.
Endorsing the Joint Communique issued by the Foreign Ministers of China, France,
Russian Federation, the United Kingdom and the United States at their meeting in Geneva
on 4 June, the Council, by adopting unanimously resolution 1172 (1998), expressed its
firm conviction that the international regime on the non-proliferation of nuclear weapons
should be maintained and consolidated. It recalled that in accordance with the NPT India
and Pakistan cannot have the status of a nuclear-weapon State.
Expressing grave concern at the negative effect of those nuclear tests on peace and
stability in South Asia and beyond, the Council urged India and Pakistan to exercise
maximum restraint and to avoid threatening military movements. They were also urged to
resume their dialogue on all outstanding issues, particularly on all matters pertaining to
peace and security, in order to remove the tensions between them. They were encouraged
to find mutually acceptable solutions that address the root causes of those tensions,
including Kashmir.

Boris Yeltsin was the Russian President at that point of time. Russia, and
earlier the Soviet Union, had sided with the other four members of the
UNSC on matters related to nuclear proliferation. Hence it was no surprise
that Russia did not veto this UNSC resolution number 1172. However, the
hyphenation with Pakistan and reference to Kashmir was unwelcome and
disturbing.
Vajpayee sent a small delegation led by Brajesh Mishra6 including
Rakesh Sood7 to Moscow in June 1998 to reason with the Russians. The
two-member team was joined by Ronen Sen, the Indian ambassador to
Russia. The atmosphere at the meeting with Yevgeny Primakov, the Russian
foreign minister and later prime minister, was icy even though it was
summer in Moscow. Primakov was frank which is ‘diplomatese’ for rude.
After listening to Mishra explain the compulsions that had led to India’s
decision, Primakov brushed all of that aside and remarked bluntly that India
had achieved nothing by carrying out the tests. Mishra was taken aback and
asked what Russia wanted India to do at that stage. Primakov responded
that they expected India to sign the NPT. India has consistently maintained
since the NPT came into force in March 1970 that it was discriminatory and
India could not be a signatory. Given India’s long and well-known
opposition to the NPT, Mishra was puzzled and asked Primakov how
exactly India could sign the treaty now. Primakov pulled out a pen and
signed on a piece of paper with a flourish and said ‘like this’. Mishra got up
abruptly and led the Indian side out of Primakov’s office, remarking as he
left that he had taken too much of Foreign Minister Primakov’s valuable
time.
Since it was clear that Russia was not going to be of any help to reduce
India’s isolation, Vajpayee entrusted the task of starting a dialogue with the
then unchallenged superpower US to Jaswant Singh. Singh was first
appointed deputy chairman of the Planning Commission and later minister
for external affairs. Jaswant Singh enjoyed a relationship of trust with
Vajpayee and thus engaged with confidence with Strobe Talbott,8 the US
deputy secretary of state, over many rounds of talks. These discussions
were crucial to the two governments’ understanding of each other’s
concerns.
Following Pakistan’s armed incursion in Kargil in June 1999, the US had
delivered a stern message to that country. This did not go unnoticed in
Delhi. Unlike Indira Gandhi’s left-leaning posture, Vajpayee’s government
did not have any such background to overcome with the US. Given the
security preoccupations about China and Pakistan, and that the US was the
pre-eminent economic and military power at that time, India needed to
mend fences with the US.
The official US position moved gradually, and finally accepted the fait
accompli of nuclear India and Pakistan. The lesson, if there was one, was
that India should have declared itself a nuclear weapon power after its test
of 1974, instead of waiting for twenty-four years till 1998. Of course, in
1974 India’s economic situation was far more fragile and dependent on
bilateral and multilateral hard currency loans and grants. However, this was
due to the short-sighted, populist economic policies of Indira Gandhi and
crowd-pleasing anti-West postures. A cautious approach to Western
sensitivities and gradual opening up of the economy would probably have
precluded sustained Western economic sanctions if India had declared itself
a nuclear weapon power in 1974. A first-past-the-post approach may have
also shut the nuclear door in Pakistan’s face. The fact is that Indira Gandhi
was too busy countering the challenges posed by the agitation led by
Jayaprakash Narayan; she chose to allow her personal political priorities to
distract her from declaring India a nuclear weapon power. Of course, it
would have been a slow and difficult grind out of the isolation India would
have faced, and the USSR too may have withheld military technology and
spares. Well, all things considered, this was one of the important inflection
points in India’s nuclear and strategic history.

Pakistan

Given Vajpayee’s long-standing interest in foreign affairs, he retained this

portfolio when he became PM in March 1998, and his government pushed
hard for better relations with Pakistan from the time it took office. As a
result of Vajpayee’s efforts, on 23 September 1998 the two governments
agreed to resolve bilateral differences through negotiations. By the end of
1998, the two countries had agreed to start a bus service between Delhi and
Lahore via the border check post at Wagah. It was officially announced that
the first such bus would reach Lahore on 21 February 1999. Vajpayee’s
schedule included a function in Amritsar on 19 February. On learning that
Vajpayee was to visit Amritsar just two days prior to the bus arriving in
Lahore, Nawaz Sharif was reported to have said to Vajpayee that since he
‘was coming to his doorstep he could not let him go back without visiting
his home in Lahore’.
Vajpayee accepted the invitation and was accompanied by a large Indian
delegation which included business leaders, Kuldip Nayar, Dev Anand,
Mallika Sarabhai, Javed Akhtar, Kapil Dev, Satish Gujral and Shatrughan
Sinha. Nawaz Sharif received Vajpayee and his delegation at the Wagah
border with an open display of warmth. Subsequently, Vajpayee spoke at a
public function, and his message of peace and a desire for a fresh start is
recalled by many as having touched their hearts.9
Officials on both sides worked overtime to put a bilateral agreement
together which came to be known as the Lahore Declaration. The two
leaders signed this joint declaration on 21 February 1999. A memorandum
of understanding pertaining to confidence-building measures (CBMs) on
nuclear and conventional weapons was signed by the two foreign
secretaries. The joint declaration included precautions for the two sides to
not use nuclear weapons against each other accidentally.10 There was a
televised news conference which was relayed in both countries, and the
atmosphere of warmth augured well for the future.
Since 1989, no Indian PM had visited Pakistan, and Vajpayee appeared to
have broken fresh ground. Narasimha Rao had tried to mend relations with
Pakistan. However, right through Rao’s term from 1991 to 1996 Pakistan
was fomenting trouble in Kashmir, believing that the time was ripe to help
separatist elements in that state. If Pakistan had not been perceived to be
actively fomenting terrorism in Kashmir, Rao may have visited Pakistan.
A negative element during Vajpayee’s visit to Lahore was the attitude of
the top brass of the Pakistani armed forces. The Pakistani chief of army
staff General Pervez Musharraf and the Pakistani air and naval chiefs P.Q.
Mehdi and Fasih Bokhari were not present at some important functions at
this summit. It was evident that the Pakistani military leadership was not on
the same page as Prime Minister Nawaz Sharif. The inimical intentions of
the Pakistani military leadership became evident just three months later in
May 1999 when the Pakistani Army moved across the LoC into Kargil in
Kashmir. The two-month Kargil conflict claimed the lives of hundreds of
soldiers on both sides.
Five months later, in October 1999, army chief Pervez Musharraf seized
control of Pakistan’s government, deposing Nawaz Sharif, and he was
formally declared President on 20 June 2001. The Western nations ignored
yet another overthrow of an elected leader in Pakistan by an army general.
Strobe Talbott of the US was in regular touch with Jaswant Singh, then
Indian foreign minister, and this contributed to the Clinton administration’s
attitude of mild, even hypocritical, censure towards Pakistan in the last
three months of 1999. The US was more concerned that Musharraf should
not execute Nawaz Sharif on the lines of Zia-ul-Haq having Zulfikar Ali
Bhutto hanged in 1978.11 By January 2000, a Republican administration
with George Bush Jr as President and Dick Cheney as vice-president took
over in the US, and Pakistan’s instigation of the Kargil conflict was
downplayed.
On 24 December 1999, Indian Airlines flight 814 with 176 passengers
and fifteen crew was hijacked by five masked gunmen while it was flying
from Kathmandu to Delhi. The aircraft was first made to land in Amritsar to
refuel and stood on the tarmac for as long as forty-five minutes. The
terrorists on board the aircraft indicated that they would kill all passengers
and crew members if Indian security forces tried to board the aircraft.
Indian counterterrorist agencies did not act in time, and the aircraft left
without refuelling. The hijacked plane next landed in Lahore, was refuelled
there and flew on to Dubai. In Dubai, the hijackers released twenty-eight
passengers, and among them was one who had been stabbed and had
succumbed to his injuries.12
India first sought the help of the Pakistani and then UAE authorities
while the aircraft was on the ground in Lahore and subsequently in Dubai
but were refused permission to access the aircraft. The aircraft finally
landed in Kandahar, Afghanistan, which was under the control of the
Taliban. India had no diplomatic relations with the Taliban regime, and the
Indian Embassy had been shut down in September 1996 when the Taliban
reached the outskirts of Kabul. In exchange for the hostages, the terrorists
demanded the release from Srinagar jail of: (i) Maulana Masood Azhar
(who later founded the terrorist group Jaish-e-Mohammed); (ii) Mushtaq
Ahmed Zargar (militant belonging to the Jammu Kashmir Liberation Front
[JKLF]); and (iii) Ahmed Omar Saeed Sheikh (linked to several Islamic
terrorist organizations such as Jaish-e-Mohammed, Al-Qaeda, Harkat-ul-
Mujahideen and the Taliban). The three extremists whose release was
sought were flown to Kandahar by the Indian government, and Jaswant
Singh was in that flight along with senior Indian foreign office and
intelligence officials. The same plane brought back the remaining hostages
to Delhi on 31 December 1999.
Vajpayee’s government was perceived in several quarters as weak-kneed
because it surrendered to the demands of the terrorists. The counter to that
accusation was that, of the hostages, only one person was killed and the
others came back to India safely. However, the three who were released
from jail in Srinagar were later involved in the attack on the Indian
Parliament in December 2001, the killing of the US journalist Daniel Pearl
in Pakistan in 2002, and probably the terrorist attack on Mumbai in
November 2008 as well. The subsequent cost in lives lost was higher due to
this decision, but at the time this hostage dilemma took place that was
difficult to anticipate.
Indian governments have to pick their way carefully through a range of
domestic and international media pressures to engage or break with
Pakistan. At times, Indian media’s prima donnas try to get directly involved
in making foreign policy. They engage in ostensibly secret confabulations
with senior Indian ministers and the Pakistani High Commission in Delhi to
mediate an understanding on Kashmir. The Western media, on its part, often
unhelpfully points to Kashmir as a potential nuclear flashpoint, and does
not have the time to educate itself about the long and difficult history of this
Indian state. The BJP-led NDA government of A.B. Vajpayee did manage
with a combination of firmness and discussion to keep hope and optimism
up in those quarters in Kashmir who view the relationship with the rest of
India with a measure of realism and hope. Vajpayee’s call for ‘Insaniyat,
Kashmiriyat and Jamhooriyat’ (humanity, Kashmiri-ness and democracy)
was welcomed by a broad spectrum of political opinion in Kashmir.13
Despite Musharraf’s role in the Kargil conflict which took place soon
after Vajpayee had visited Pakistan in 1999, Vajpayee suspended disbelief
to meet President Musharraf in New Delhi in July 2001. Vajpayee spoke of
conciliation, and wisely called for the views of all peace-loving Kashmiris
to be taken into account. However, as could have been anticipated, the talks
broke down after Musharraf gave a hard-hitting press conference in Agra.
CNN reported on 17 July 2001 that ‘Musharraf again and again held
forth on his favourite theme—Kashmir—squarely blaming the Indians for
their intransigence on the issue’.14 Of course, there were hardliners in the
Indian foreign office as well, and the then home minister L.K. Advani was
reported to be sceptical about Pakistani assurances. In press and other
interactions after he was out of power, Musharraf has blamed ‘hardliners’
on the Indian side for sabotaging the talks. This is not credible coming from
a general who was responsible for the hostilities in Kargil, and that too just
a few months after Vajpayee had visited Lahore.
A couple of months later, on 13 December 2001,15 extremists entered the
compound of the Indian Parliament in Delhi. The five terrorists, allegedly
belonging to Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM), were
shot dead by Indian security forces. In the crossfire, eight Indian security
personnel and a gardener were also killed. Two months earlier, on 1
October 2001, in a similar incident, about thirty-one persons had lost their
lives in a terrorist attack on the state assembly in Srinagar, Kashmir.16
Vajpayee’s government was under pressure from several quarters,
including Opposition political parties, for not taking pre-emptive action to
prevent these recurring acts of terror against the Indian state. The finger of
suspicion for high-profile acts of terrorism, including the hijacking of the
Indian Airlines plane and the attack on the Indian Parliament, pointed to
elements in Pakistan. In retaliation, the Indian government mounted the ill-
advised Operation Parakram to mass half a million Indian troops along the
LoC with Pakistan from December 2001 to June 2002. There were reports
that India was also considering strikes against training camps for extremists
in Pakistan.
Vajpayee should have known better than to have allowed the ferrying of
such a large number of Indian troops to the border with Pakistan. Nothing
was achieved except that the government had to pick up a big fat bill.
Vajpayee could have explained to everyone with his customary flair that
mindless muscle flexing would achieve little for Indian security. It was
clear to all thinking people that when two neighbouring countries possess
nuclear weapons, conventional military build-ups are counterproductive.
The US decided to categorize JeM and LeT as terrorist organizations, and
Musharraf too described the attack against the Indian Parliament as an act
of terrorism. US public opinion was highly inflamed about Islamic
extremism following the 11 September 2001 terrorist attacks on the World
Trade Center in New York and the Pentagon in Washington DC. For the last
few years of Musharraf’s tenure, even though he was probably the principal
force behind Pakistan’s misadventure in Kargil, there was less shelling on
the border and there were signs of reduced Pakistani encouragement of
extremist violence in Kashmir. Unfortunately, some constituencies in
Pakistan’s army and intelligence circles continue to hope that if India were
to be racked by terrorist violence, it may be pushed into giving up Kashmir.
The hard-boiled in Pakistan’s ‘deep state’ need fellow Pakistanis to
perceive India as an existential threat to justify high military expenditures.
Vajpayee, as a perennial seeker of consensus and accommodation with
Pakistan, visited that country again in 2004. It is not clear why Vajpayee
continued to hope for a significant breakthrough in Pakistan’s attitude on
issues related to Kashmir or towards India even after the two grievous
experiences of 1999 and 2001. It is logical for India to persist with
discussions at the level of officials and through unofficial channels to keep
jingoistic elements on both sides in check. However, interactions at the
level of heads of government need to be preceded by sufficient groundwork
for lasting agreements to be reached. The reality was and is that there is no
option but to wait for at least a few more decades or even more to pass so
that memories of past conflicts fade with the passage of time. In the interim,
the best that India can do is to ring-fence contentious issues, and prevent or
at least significantly reduce border conflicts with Pakistan and violence in
Kashmir.

Afghanistan

Vajpayee’s government was able to reopen the Indian Embassy in Kabul

after the US-led forces had driven the Taliban regime leaders Mullah Omar
and Osama bin Laden into hiding by about mid-November 2001. India
contributed human resources and funding to help build roads and
subsequently over several years the local parliament building. These
gestures of support from India were welcomed by most ethnic and political
groups in Afghanistan. During the Taliban years extremist elements in
Afghanistan had supported the infiltration of terrorist elements into
Kashmir.
Afghanistan continues to be riven even in 2019 with competing
jealousies across rival clans and the machinations of great powers.17
Vajpayee and his successors have been careful not to be identified with any
one faction and to be seen as helping to improve living conditions across all
communities in that war-ravaged country.

Iraq and Weapons of Mass Destruction (WMDs)

The consensus in India was that the bombing of Iraq, which started in
March 2003 without UN approval, was unjustified. Further, there was no
tangible evidence that Iraq had any so-called weapons of mass destruction.
Later in the same year, the US wanted India to send troops to Iraq, and
given US pre-eminence at that time, this request could not be rejected
offhand. As per whispers in South Block, when Vajpayee was pushed hard
from within the BJP to agree to the US request, he asked the following
question: Will Indian troops retaliate with deadly force when they are
sniped at by poorly armed Iraqis who are against US occupation? This
question is said to have silenced the supporters of Indian armed
involvement in Iraq.
Over a decade later in July 2016, John Chilcot’s report18 titled ‘The Iraq
Inquiry’ stated that Tony Blair’s government had exaggerated the threat
from Saddam Hussein, and any plans that the UK had for the aftermath of
the war were ‘wholly inadequate’. Vajpayee was thus prescient; he was able
to pull off the balancing act of not rushing Indian troops to Iraq without
antagonizing the US.

Revival of Economic Reforms

Improvements in Macro Indicators

The Vajpayee government had inherited a difficult fiscal situation from the
shaky, short-lived coalition governments of Deve Gowda and I.K. Gujral.
The gross fiscal deficit as a fraction of GDP was gradually brought down
from 6.3 per cent to 4.3 per cent over the six years that Vajpayee was PM.
The net primary deficit also decreased, and gross capital formation went up
from 23.5 per cent in 1998–99 to 26.1 per cent in 2003–04. To the extent
that fiscal deficits were reduced, government freed up capital for private
investment.
Table 9.1 in the Appendices indicates that GDP growth rates were
initially up and then down for the three years between 2000 and 2003. It is
only in 2003–04 that growth rose to almost 8 per cent in Vajpayee’s last
year in office. Consumer price inflation was tamed significantly and went
down from 11 per cent at the start to 3.9 per cent at the end of his term. The
higher growth would have enhanced employment opportunities, and lower
inflation provided a measure of relief to the poor. The exchange rate was
allowed to depreciate gradually, and exports were actively promoted which
went up from 8 per cent of GDP in 1998–99 to about 12 per cent by 2003–
04. The current account deficits in the first two years of Vajpayee’s term
changed to surpluses in the last three years, and this number was a positive
2.3 per cent of GDP in 2003–04. Coupled with portfolio capital inflows,
this resulted in foreign exchange reserves going up sharply to almost 19 per
cent of GDP by 2003–04.
Vajpayee’s government passed the Fiscal Responsibility and Budget
Management (FRBM) Act in August 2003. Under this Act, legally
mandated fiscal deficit targets and ceilings were established for the first
time. The FRBM Act also prohibited the RBI from purchasing government
debt securities in the primary market. The objectives included elimination
of revenue deficits and bringing overall fiscal deficit down to 3 per cent of
GDP by 2008.19 Through the six years that Vajpayee’s government was in
power, it had to overcome the consequences of the lower risk appetite
among developed country investors following the 1998–99 Asian financial
crisis.20
 The relatively low number of personal income tax returns filed has been
a matter of concern for successive Indian governments. To enable better
direct tax compliance and bring greater transparency and ease in filing of
tax returns, the Ministry of Finance set up a task force on direct taxes
chaired by former finance secretary Vijay Kelkar. Dr Kelkar’s task force
submitted its report in December 2002, and its recommendations led to
enhanced use of individual specific PAN cards and easier filing of tax
returns online.21

Financial Sector Reforms, World Bank Loans, Scams and Appointments

Made by MoF

A number of far-reaching financial-sector reforms were implemented

during the Vajpayee years. The banking sector was plagued with cases of
default which were languishing in the BIFR or in courts for decades. After
considerable discussion and examination within government, the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Securities Interest (SARFAESI) Act was approved by Parliament in 2002.
This Act provides for the setting up of Debt Recovery Tribunals (DRTs).
However, over time, defaulting borrowers were again able to postpone
accountability by clogging DRTs and courts with numerous cases.
In the late 1990s, the Indian insurance sector’s life, accident and old-age-
related coverage was limited to a small fraction of the population compared
to even moderately developed countries.22 Vajpayee’s government took the
initiative to open up the sector to domestic private entities and to foreign
investment. The NDA government’s initial proposal was for foreign
investors to own up to 74 per cent of equity in Indian insurance companies.
That proposal was vehemently opposed in Parliament as a sell-out, and it
was finally decided that foreign investors could hold up to 26 per cent. The
Insurance Regulatory and Development Authority (IRDA) was set up in
1999 and the Pension Fund Regulatory and Development Authority
(PFRDA) in 2003. In the decade after Vajpayee left office in 2004, the
coverage of the insurance sub-sector has grown, and now offers a richer
menu of options to policyholders.
Separately, the then finance minister Yashwant Sinha brought in a fuller
version of a value added tax, and in 1999 it was called central value added
tax (CENVAT). This was another step forward in the long journey since the
1970s to rationalize indirect taxes. The following year, in 2000, the
Vajpayee government started discussions with state governments on this
topic. This gradually led to the adoption of VAT by several states for their
sales taxes. In 2004, towards the end of Vajpayee’s tenure, Dr Vijay Kelkar
proposed a comprehensive Goods and Services Tax (GST) for the entire
country.23
Since Independence, India has taken substantial loans from multilateral
institutions, such as the World Bank (IBRD). The importance of these long-
maturity hard currency borrowings has diminished with time as the size of
the Indian economy has grown and so have foreign trade and direct and
portfolio investments. Prior to the mid-1990s, all IBRD loans were offered
as currency pool loans (CPLs).24 India’s foreign exchange earnings from its
exports were and are principally denominated in US $—the globally
dominant reserve currency.25
Thus, there was a significant currency mismatch between India’s reserves
and the CPLs from the IBRD and SDR-denominated IDA loans. This was a
huge disadvantage for India since the yen, Deutschmark and Swiss franc
components of CPLs and IDA loans increased in US $ terms as these
currencies steadily appreciated against the dollar. For India the principal
amounts due on CPL loans kept increasing in US $ terms, and that was the
currency in which India’s exports and other hard currency inflows were and
are invariably invoiced. The Ministry of Finance and the RBI needed to
coordinate their efforts to hedge against currency risk by contracting
currency swaps out of the non-US $ debt components of the CPLs.
For the same reasons of sharp, hard currency appreciation against the
rupee, India needed to better manage its Japanese yen official development
assistance (ODA) loans. The benefit from low yen interest rates was
overwhelmed by the appreciation of the yen. Prepayment of such loans in
the early 2000s and replacing these even with loans from commercial
sources would have resulted in considerable savings.
Following the nuclear weapons tests of May 1998, there was concern
within government circles in India that there might be a shortage of foreign
exchange going forward. This was because Western donor governments and
multilateral banks such as the World Bank and Asian Development Bank
were reluctant to provide fresh loans except for so-called humanitarian
purposes. Consequently, in 1998 the Indian government raised US $4.8
billion through Resurgent India Bonds (RIBs) marketed to NRIs at higher
interest rates than those offered on government bonds of developed
countries. The same stratagem was adopted to raise US $5.5 billion in 2000.
The second time the bonds were called India Millennium Deposits (IMDs),
to overcome any shortage in foreign exchange inflows because of the so-
called Year 2000 problem for systems to migrate to the new millennium.
These hard currency bond issues were prudent anticipatory steps to avoid a
situation similar to what India went through during the balance of payments
crisis of 1990–91.
During the Vajpayee years there were substantial reforms in India’s
capital markets.26 Badla had been reintroduced in the second half of the
1990s. The stockbrokers in Mumbai were strongly in favour of continuing
with the non-transparent practices of badla. However, they could not
logically oppose the proposal to introduce derivatives,27 namely futures and
options, since these instruments can provide the same elements of
speculation as badla but without counterparty credit risk. This is because
these two forms of derivatives are traded on stock exchanges, effectively
ensuring that contracts are honoured.
At that time, I was working in the Ministry of Finance and pushed for an
amendment of the Securities Contracts (Regulation) Act (SCRA) 1956. The
proposal was to expand the definition of securities in the SCRA to include
derivatives. The CCEA gave the go-ahead for this change after the secretary
(economic affairs) and the finance minister (FM)28 approved the proposal.
During those years, Dr Vijay Kelkar and then Dr E.A.S. Sarma in that
sequence held the charge of finance secretary/secretary, economic affairs. It
was a privilege to report to them. I was also fortunate that in my years in the
MoF, first Dr Shankar Acharya and then Dr Rakesh Mohan were CEA. The
persons named above were highly knowledgeable in their respective areas
of specialization and men of unimpeachable integrity. Several Indians who
have excelled in the private sector, academia, the medical profession or
other areas of work have a tendency to generalize and tar those who work in
government as financially corrupt or incompetent. While this may be true of
some, I can assert without any hesitation that the professionals named
above were among the best examples of sound judgement and probity.
Reverting to the day the amendment was to be approved by Parliament, I
received a call that I should rush to FM Sinha’s office. When I reached
there, he asked me to explain what derivatives were and exactly what had
led to the collapse of Barings in 1995. Nick Leeson had bankrupted the
venerable British bank by taking highly leveraged and unhedged positions
in derivative transactions. I explained the errant conduct of Leeson and the
refusal of Barings senior management to rein in this rogue trader. Since
Leeson had initially recorded large profits, the bank allowed him to trade
and also do the settlement of his own trades, contrary to established
practice. As I was warming up to get into further details, the FM put up a
hand to tell me to stop. He smiled and said that he did not need to know as
much about derivatives as me, and he was convinced that he now already
knew more than any other MP.
Badla was banned and the amendment to the SCRA was passed, and
futures and later options were introduced on Indian stock exchanges by
2002. The NSE was quick off the block to corner overwhelming fractions in
the markets of these new instruments. The introduction of derivatives
trading overcoming the resistance of badla operatives was another feather in
the cap of the MoF led by Yashwant Sinha and the government headed by
Vajpayee. Another major stock market reform, namely the separation of
ownership of Indian stock exchanges from broking services through
demutualization was also effected by 2002.
In 1999 pensions were under the purview of the Ministry of Labour as
the Employees’ Provident Fund Organization (EPFO) fell under its
administrative jurisdiction. I put up a note to then secretary (economic
affairs) Dr E.A.S. Sarma suggesting that pensions should logically be dealt
with by the MoF since decisions related to pensions of government
personnel had implications for government’s finances. After MoF took on
this responsibility, Dr Sarma remarked with a laugh that no good idea goes
without being punished, and ‘pension reforms’ was added to my charge.
Thus began the struggle to convert government pensions from a fully
defined pay-as-you-go benefit system to defined contributions.
If benefits are defined, pensioners receive retirement benefits which are
known in advance. The norm at that time for government pensioners was 50
per cent of last pay drawn with periodic revisions for increases in the cost
of living. By contrast, for pensions based on defined contributions, each
month a government or parastatal employee puts in a specific proportion of
his/her pay into a fund that is topped up by the government or public-sector
employer up to a prescribed proportion of the salary of the employee. These
contributions can then be invested in schemes pre-approved by the
regulatory authority concerned in government bonds, other AAA-rated debt
securities or stocks, depending on the risk appetite of the employee. Over
thirty to forty years, which is usually the longest possible period of
employment in government, such defined contribution investments in
government debt plus other debt and equity market securities should result
in annuities for retiring employees which would be higher than 50 per cent
of last pay drawn. Vajpayee’s government has to be credited for starting this
process of reforms in government pensions.
On 1 November 2000, Dr E.A.S. Sarma, the secretary (economic affairs),
was informed that he had been moved from the Ministry of Finance to the
Ministry of Coal. Dr Sarma had done only about a year in the department of
economic affairs. When I met Dr Sarma on 2 November, he said that he had
been moved five times in the last few years, and this latest transfer out of
the MoF was the last straw for him. It is because our political leadership
finds it difficult to accommodate upright and qualified officers such as Dr
Sarma that projects in the infrastructure space or in human resource
development involving long gestation periods do not get implemented
honestly. Vajpayee’s government was not fair to Dr Sarma.
In 1999 the SEBI Act prescribed a minuscule amount of a few thousand
rupees as penalty for market transgressions. Such a low penalty was no
deterrent for brokers and others engaging in fraudulent transactions in
Indian capital markets. Consequently, I obtained approval of the FM to
amend the SEBI Act to raise the penalty to at least three times the profits
the guilty were estimated to have made. The Ministry of Finance also
proposed to the Cabinet Committee on Economic Affairs (CCEA) that
government should not follow the Appointments Committee of the Cabinet
(ACC) approach to select the SEBI chairman, and that a five-member jury
headed by eminent retired or serving professionals from the government,
regulatory bodies and the private sector should shortlist three candidates. If
for any reason none of these candidates was acceptable to the government,
it could ask this group to go back to the drawing board and suggest fresh
names. However, government would not come up with new names on its
own.
The then secretary (economic affairs) happened to be on tour when this
cabinet note came up for discussion in the CCEA, and the FM asked me to
attend in his place.
The discussions in the CCEA are still vivid in my memory. Only one
minister supported the amendment of the SEBI Act to revise the way future
chairpersons for this regulator would be appointed. Another cabinet
minister commented that this was a devious way for officials to take away
the power that the electorate had given to the political executive to make
crucial appointments. Despite a lone minister’s exhortation that government
should not only do the right thing but also be seen to be doing so, the
majority of ministers objected to this proposal. FM Yashwant Sinha gave up
when his colleagues would not listen. However, he did so only after
challenging his cabinet colleagues to confirm that they had never rung him
up to recommend names even for junior positions such as executive
directors of public-sector banks.
 Unfortunately, Vajpayee seemed to be asleep most of the time through
this cabinet meeting. It is likely that he was listening attentively but did not
want to intervene. The fact is that this particular part of the amendment to
revise the way the chairman of the SEBI would be selected did not go
through. It could have been copied for appointments to the heads of other
regulatory, investigation and constitutional bodies and PSUs. Nevertheless,
I was relieved that CCEA did approve the hiking of fines for fraud.
In the 1990s, external commercial borrowings (ECBs) were rationed out
to individual borrowers within an overall annual ceiling. Reliance Industries
Limited (RIL) had borrowed over US $1 billion in instalments in the first
half of the 1990s, and a substantial portion of the proceeds had not been
brought back to India. This violated the provisions of the relevant
legislation and MoF rules that governed ECBs. When I joined the MoF, one
of the outstanding issues that needed to be resolved was whether the
withholding of tax exemption benefit to bond-holders, on interest paid by
RIL on its ECBs, should be withdrawn. It was obvious in the Ministry of
Finance that a deputy governor in RBI was strongly inclined to excuse RIL
and he had proposed that no action be taken except for a reprimand. Finally,
in 2001 MoF took the view that RIL had denied other potential borrowers
the opportunity to access funding from external commercial sources since
there was an annual ceiling on the total volume of ECBs that could be
contracted by all borrowers. Consequently, the withholding of tax
exemption benefit was withdrawn and RIL was asked to pay this sizeable
tax to government.
RIL contested the government’s stand, and the case went to court. I was
surprised that former finance minister P. Chidambaram and former Chief
Justice of India Y.V. Chandrachud represented RIL. It seemed incongruous
that, having worked in the public space, they chose to represent a company
which was clearly in the wrong. Attorney General Soli Sorabjee represented
MoF, and I remember briefing him repeatedly about the details. The
government won the case in Delhi High Court.29
The finance ministry under Yashwant Sinha took the initiative to propose
the setting up of a public debt office independent of RBI. The logic was that
both government and the central bank should not be involved in the
issuance of government debt or its management. And over time this would
help establish a market-based government yield curve. RBI resisted this
initiative, and was able to convince the Ministry of Finance that as long as
government ran large fiscal deficits, it was not in the interest of the country
to set up a separate public debt office. This was a counterproductive
argument. One of the ways of making government wary of running large
deficits is for interest rates on its debt securities to be based on investor
appetite.

Unit Trust of India

The Vajpayee government was compelled to agree to a Joint Parliamentary

Committee (JPC) investigation into allegations about wrongdoing in the
Unit Trust of India (UTI) in 2001. Set up under a 1964 Act of Parliament,
UTI was a public-sector mutual fund whose seed capital came from RBI,
LIC and SBI. The heads of major public-sector financial institutions such as
the Industrial Development Bank of India (IDBI), LIC, SBI and an RBI
deputy governor were on its Board. While the chairman was appointed by
the government, the Ministry of Finance had decided that it was an
independent mutual fund to be run by professional asset managers. It
appeared though from media reports and questions in Parliament that
average investors felt that UTI had some form of government backing. The
MoF tried to dispel this notion, and as far back as May 1997, MoF
withdrew its only board member from UTI.
After the general elections in 1998, Vajpayee needed the support of
Jayalalithaa’s AIADMK to form the first NDA coalition government. It was
rumoured in North Block that P.S. Subramanyam had to be appointed
chairman UTI30 as this was one of the nine conditions for AIADMK’s
support. Other deserving candidates, including Dr P.J. Nayak, an IAS
officer, an executive director in UTI at that time, and who was a joint
secretary in MoF earlier, were passed over.
 In 1999–2000, UTI was the market leader by far among Indian mutual
funds. It had the largest volume of assets under management and offered
several investment schemes targeted at different groups of investors. UTI
got into liquidity and near-insolvency problems in the 1990s because it
offered assured return schemes while a disproportionately high percentage
of its assets were invested in stocks. About 70 per cent of UTI’s assets were
invested in equity, while its assured return schemes were similar to debt
liabilities. This was a classic asset–liability mismatch, and a government-
appointed committee headed by Deepak Parekh31 had recommended that
UTI should replace its investments in equity with highly rated debt to
achieve a better balance between assets and liabilities.
P.S. Subramanyam procrastinated in moving UTI to a sound financial
footing despite being prodded to do so by expert committees and by MoF. It
was increasingly evident from end 2000 onwards that Subramanyam had
ignored the MoF’s suggestions on vital issues of UTI’s liquidity and
solvency and instead raised peripheral issues in his letters to MoF, e.g., pay
increase for UTI staff.
US-64 was UTI’s flagship scheme mutual fund, and Subramanyam
ignored written suggestions from MoF when the stock market was doing
well in mid-2000 to convert US-64 to a net asset value (NAV) basis. The
NAV of each US-64 unit was at Rs 17, that is, 70 per cent above the par
value of Rs 10 at that time. If UTI had done so, US-64 assets would have
marked to market daily, and investors would have known how this scheme
was faring. By June 2001, assets under US-64 amounted to about Rs 128
billion. And, Subramanyam continued to keep US-64’s asset–liability
mismatches secret from unitholders.
On Friday, 29 June 2001, at about 5 p.m., Subramanyam came to my
office in the Ministry of Finance without an appointment or prior
information. He informed me that at the UTI board meeting which was
going to take place on Monday, 2 July 2001, in Delhi, he was going to
recommend that redemption of US-64 units be temporarily stopped or that it
be moved to a NAV, which was by then below the par value of Rs 10. I told
him that I had no authority to tell him what UTI should do, and also that
MoF considered UTI to be a board-driven institution. It was, therefore, to
the UTI’s board members that he should turn. I did tell him though that my
own sense was our stock markets would react adversely to such an
announcement. I also requested him to immediately write to Finance
Secretary Ajit Kumar with copies to the FM’s office and adviser to FM Dr
Rakesh Mohan with full details of our discussion.
After Subramanyam left, I went up from my ground-floor room to
Finance Secretary Ajit Kumar’s room on the first floor and briefed him
about Subramanyam’s irresponsible proposals. Subramanyam had an
explanatory letter delivered to the residences of the finance secretary and
adviser to the finance minister two days later on Sunday, 1 July. This letter
said that UTI management would propose at the board meeting which was
scheduled to take place at noon on 2 July 2001 that UTI felt compelled to
stop redemption of US-64 units. Ajit Kumar explained the situation fully to
FM Yashwant Sinha by the morning of 2 July 2001.
At about noon on 2 July 2001, the UTI board went ahead with its
meeting, and, surprisingly, the board members approved Subramanyam’s
proposals. Once the news spread that UTI needed to stop redemption of US-
64 units, the stock markets took a beating. MoF was concerned about
systemic risk and reassured market participants that government would do
whatever was required to protect the legitimate interests of investors and
maintain market stability.
Going back in time, from June 2000 to June 2001 UTI’s board members32
chose not to insist that UTI urgently implement the Deepak Parekh
Committee’s recommendations and take cognizance of the multiple
communications from MoF to the same effect. Additionally, the UTI board
failed to get UTI management to keep financial-sector regulators, SEBI and
RBI, informed about the extent of the incomprehensibly high market risks
embedded in several of its investment schemes.
The blame game began in earnest by 2 July 2001 evening. Opposition
parties found it convenient to pillory the government for not having averted
the sense of crisis which understandably gripped US-64 unitholders. The
insinuation was that members of one or the other political party in the NDA
coalition were secretly in touch with the chairman UTI to further their
personal financial interests.
Taking the irresponsible and motivated conduct of Subramanyam into
account, MoF decided by 3 July morning that he and another senior UTI
manager M.M. Kapoor who was an executive director, had to be
immediately relieved of their responsibilities. It helped that Jayalalithaa was
no longer part of the NDA coalition. MoF felt that the sacking of
Subramanyam needed to be done when markets were shut, and with speed
and confidentiality. For this formal approval of the Appointments
Committee of the Cabinet (ACC) was required.33 A cabinet meeting was to
be held at the residence of Vajpayee at 7, Race Course Road (now called
Lok Kalyan Marg) on 3 July, and both finance minister and home minister
(L.K. Advani) were to attend. Ajit Kumar also needed to be present. I
requested Ajit Kumar to personally carry the file for Subramanyam’s
dismissal—in case he chose not to resign—to the FM first, the home
minister (HM) next, and finally to Vajpayee for their signatures. This was to
prevent any information about the decision to sack Subramanyam leaking to
the press. To keep the matter confidential, I wrote the note in my own hand
for Ajit Kumar, who obtained the approval of the ACC.
At about 10 p.m. the same evening, Ajit Kumar came to my residence,
located off Satya Marg in New Delhi, and handed me the file with the
signatures of FM, HM and PM. I called up Subramanyam and told him that
he could resign or the government would have no option but to dismiss him.
Subramanyam’s first reaction was that he could not send a resignation letter
since he was at home in Mumbai and his office was closed. I informed him
that the office of chairman IDBI had been kept open for him to send a fax to
my office. My own office was also kept open without explaining the nature
of the emergency. At about 11:30 p.m., I received a fax in my office from
Subramanyam saying he was resigning from the post of chairman UTI with
immediate effect. Within the next five minutes, I sent back a fax to him
stating that the government had accepted his resignation. I called up Ajit
Kumar at that late hour to inform him that Subramanyam had chosen to
resign.
 The next day, 4 July 2001, G. Vassal, the senior-most among UTI’s
executive directors, became acting chairman of UTI. I have always been
surprised when the government procrastinates on personnel decisions
related to appointments or dismissals. This particular dismissal
demonstrates that if the government takes a firm line, immediate action can
be taken against those who game the system.
LIC and SBI were under the jurisdiction of the banking and insurance
division within MoF. Inexplicably, the role of the high-powered UTI board
in the disappointing and possibly criminal behaviour of some in UTI’s
senior management was not investigated by MoF. In fact, the LIC chairman,
G.N. Bajpai, was appointed chairman SEBI in February 2002.
Subsequently, when he visited me in North Block, I asked him bluntly
about his role in the UTI board meeting on 2 July 2001. My specific
question was why the board did not stop Subramanyam. Bajpai’s hesitant
reply was that he was under the impression that the MoF had approved this
course of action. I asked him whether he had received this information from
the finance secretary or from someone else since it was not from me. Bajpai
mumbled something to the effect that Subramanyam had led the board
members to understand that his proposals had been approved by MoF.
Effectively, what Bajpai was saying was that he, as LIC chairman and a
UTI board member, did not consider himself competent enough to assess
the proposals submitted by UTI management with professional
independence. All he needed was a nod from someone he thought was close
to political power centres to agree to UTI’s proposals, even if they made
little financial sense.34
At that critical board meeting on 2 July 2001, the members should have
asked for some time to consider the matter. If they felt MoF needed to be
consulted urgently, they could have done so since they were all in Delhi.
Later, when the FM was asked by the media about UTI’s decisions, he was
reported as having said that he was not aware of the details. This may well
have been true, but the FM could have explained that MoF does not get
involved in UTI’s day-to-day administration. And that, in the first instance,
UTI’s board members needed to explain why they did not heed MoF’s
advice for over a year. Unfortunately for FM Yashwant Sinha, the
impression after that first press interaction was that MoF did not know what
was going on and was asleep at the wheel. Subsequently, Yashwant Sinha
was moved to the Ministry of External Affairs, and Mr Jaswant Singh
became FM.
Incidentally, on page 214 of Yashwant Sinha’s book titled My Years as
Finance Minister, Penguin-Viking, 2007, he mentions that he did not know
if I had informed the then finance secretary Ajit Kumar of my informal
conversation with Subramanyam on the evening of 29 June 2001.35 On the
same page of his book, Yashwant Sinha mentions that after his discussion
with Finance Secretary Ajit Kumar on the morning of 3 July, he left for a
meeting with the prime minister. According to Mr Sinha, he ‘was certain
that the UTI Board would not accept such an outrageous suggestion [about
the US-64 units]’. Mr Sinha adds, ‘In retrospect, it appears to me that I
committed a mistake by not cancelling my meeting with the Prime Minister
and calling an emergency meeting of my officials in order to act before the
UTI Board took its final decision.’
Former finance minister Yashwant Sinha is correct in his ex-post
assessment that he should have called a meeting of MoF officials and UTI
board members. Subramanyam and UTI officials should have been
excluded from that meeting. UTI could have been advised to push back the
board meeting to a later date at which measures could have been announced
to anticipate concern about UTI’s financial health.
In the wake of the UTI crisis, a number of meetings took place in MoF
chaired by the FM to consider ways of government providing financial
support for UTI to meet its obligations to its unitholders. A so-called ‘cash-
neutral’ suggestion was for government to provide UTI with government
bonds. UTI would use the government bonds as collateral to raise capital
from private sources. Senior officials in MoF who suggested this
mechanism reasoned that no fresh cash would need to be allocated, and
government would need to ‘merely’ service the bonds. The obvious
question here was that at some point in the future, the government would
need to return the principal to bondholders.36 I made so bold as to suggest in
the presence of the FM, RBI governor and others that if cash outflow was
government’s concern, it could issue zero-coupon bonds, and it would be
for future governments to service such bonds. This was to point out the
absurdity of this cash-neutral mechanism which the Indian government
often tends to turn to in distress situations.
At its root though, the problem was that the government had been
imprudent in giving Subramanyam the charge of India’s largest mutual fund
at that time. This was definitely not one of Vajpayee’s better decisions.
Over the decades after Nehru and Shastri passed away, India’s political
leadership has often taken blatantly politically motivated decisions in
appointments of heads of public-sector financial institutions and regulatory
bodies. Upright officials are then expected to somehow ‘manage’ the
situation so that none of the mud from financial scams sticks to ministers
and other political leaders. This has been a growing trend at state
government and Central government levels since Indira Gandhi’s prime
ministership.37

Infrastructure—Roads, Electricity, Railways, Telecommunications, and

Disinvestment

Vajpayee launched important programmes in the infrastructure sector which

were designed and funded innovatively. Transportation infrastructure was
given a boost through the National Highway Development Project’s
(NHDP) work on the Golden Quadrilateral Highway which started in 1999.
The objective was to connect the four major Indian cities—Delhi, Kolkata,
Chennai and Mumbai. The underlying rationale, in addition to the benefits
of surface connectivity, was to raise economic activity on both sides of the
arterial roads. Another major road initiative, the Pradhan Mantri Gram
Sadak Yojana (PMGSY or the Prime Minister’s Village Roads Project) was
launched by the Central government in December 2000.38 Funding for these
projects was raised by levying a fuel cess of Re 1 per litre of petrol/diesel.
This road initiative has been continued by successor governments and has
raised rural incomes through improved connectivity to sales centres.
PMGSY has also led to easier access for villagers to nearby semi-urban
areas with better educational and health facilities. See Table 9.2 in the
Appendices for PMGSY road length completed since 2000–01
Turning to the power sector, India’s consumption of electrical power in
per capita terms at 0.9 megawatt-hours40 in 2016 was very low compared to
major economies. The same number for China is 4.3 megawatt-hours, and
for the US it is 12.8 megawatt-hours. This is to be expected, given that
China and the US have much higher per capita incomes. The numbers
illustrate the considerable distance India will eventually have to cover in per
capita energy consumption levels to reach those of countries such as China.
The Indian Central and state governments tend to subsidize power
consumption for targeted groups depending on their electoral weight. This
is natural in India’s ‘one person, one vote’ multiparty democracy. Assured
availability of power is not just conditional on adequate power generation
but also on a national grid which delivers power in a cost-efficient manner
to every corner of the country. These issues have been well-understood
within the Indian government and the relevant public sector bodies such as
Power Grid Corporation of India for decades.
It is to the Vajpayee government’s credit that a systematic review of the
power sector was conducted and a new Electricity Act adopted in 2003.
Electricity regulation under existing state and Central government
legislation was subsumed under this new Act. Prior to this, the power sector
was governed by three separate Electricity Acts—of 1910, 1948 and 1998.
The State Electricity Boards were responsible for generation, transmission
and distribution of power. The new 2003 Act was aimed at separating
generation from transmission and distribution, along with arm’s-length
determination of tariffs. It was well known by the beginning of the twenty-
first century that a substantial fraction of what was categorized as
transmission losses was actually theft of power. Since power producers
were invariably publicly owned, the loses due to theft of power were often
ignored or even connived with. Separating production from distribution did
not make state-owned power producers more efficient. However, having
private companies bid for distribution licences meant that greater care was
taken to reduce so-called transmission losses and ensure that consumers
paid what was due from them promptly and regularly. Tariffs for power
were invariably subsidized heavily and varied depending on consumer
category. The rates for power consumption needed to be raised to a cost-
plus basis to make power production economically viable, and that again
was done to an extent for urban consumers.
Similarly, it was known for long that Indian Railways, the largest public-
sector body in the country, needed to be reformed. The accounts of this
giant organization do not correctly estimate profits/losses as they do not
fully take into account the depreciation of fixed assets. Further, not enough
investment has been made to increase track length and to make
transportation by rail easier to schedule, safe from theft, and cost-effective
compared to road transportation.
Nitish Kumar was the railway minister during 2001–04. During those
years, a measure of transparency was brought about when the Rakesh
Mohan Committee report on railway reforms was released in August 2001.
The report recommended corporatization of Railways, rebalancing of
passenger fares, and making accounting in Indian Railways similar to that
of any registered company.41 Although several expert groups were set up
subsequently to focus on implementing the Rakesh Mohan Committee
recommendations, Vajpayee’s government did not move towards
corporatizing Indian Railways.42
The Vajpayee government made an impressive start in divesting public-
sector assets. Even before economic reforms were initiated by Narasimha
Rao, past governments had recognized that there would be efficiency gains
from government divesting its equity stakes in public-sector companies that
are not critically important or central to national security. Despite the many
naysayers, Vajpayee’s government was able to reduce to minority status, or
bring to zero, government equity in several public-sector undertakings
including Modern Foods, Bharat Aluminium Company Ltd, Hindustan
Zinc, Indian Petrochemicals and Centaur Hotels. The most significant of the
government’s divestment decisions was to reduce its equity share in Maruti
Udyog Ltd.
 In May 2002, the government allotted its share in a rights issue to Suzuki,
giving this Japanese company majority control. At the same time, the
government also sold its existing Maruti shares through a public issue
which was underwritten by Suzuki. Gaining of majority holding in the
Maruti company encouraged Suzuki to bring in technology and capital, and
this has resulted in Maruti Suzuki becoming the largest car producer in the
country today. The disinvestments effected during Vajpayee’s tenure were
effective privatizations, unlike the variants which have been attempted by
successor governments.
By the mid-1990s, the mobile phone revolution was under way in
developed countries. Earlier, during Rajiv Gandhi’s tenure, the network
efficiency of landlines in smaller towns was improved. This process
continued through the 1990s, and it became easier to make calls to and from
remote parts of India. A telecom regulator was set up in 1997, and
Vajpayee’s government gave this sector a boost by the corporatization of the
public-sector telecom company Bharat Sanchar Nigam Limited (BSNL)
which offered its services at low fees. This enabled the government and
TRAI to pressure private players into reducing user charges, which led to a
snowballing rise in the number of mobile phone owners. Telecom licences
were issued on a profit-sharing model rather than upfront licence fees, and
there were no major allegations of corruption in the allocation of licences.43
By 2016, it was estimated that there were close to a billion mobile phone
numbers in India.44 This has to be one of the notable success stories of
independent India since mobile phone connectivity has led to instantaneous
diffusion of news to all corners of the country and economy-wide efficiency
gains.

Tax and Trade Reforms

A significant reform process initiated during the Vajpayee years was the
setting up of a three-tiered structure for excise taxes. Excise taxes were
simplified to just three rates of 8, 16 and 24 per cent, with an overwhelming
percentage of the excise revenue collected from items that were taxed at the
16 per cent rate. This simplification was accompanied by the setting up of
an empowered group of state finance ministers. This move to involve state
governments was a throwback to the Nehru era when meetings of the NDC,
which included chief ministers and the ministers in Delhi, were taken
seriously. The Vajpayee government’s initiative to set up this empowered
committee led to a state VAT system, which was subsequently implemented
by the government of Dr Manmohan Singh. This was an important step
towards GST since it was incrementally easier for indirect taxes due to be
assessed and collected.
On the trade front, the Vajpayee government reduced quantitative
restrictions on most imports by 2004. Customs duties were steadily
reduced, although this was resisted by elements in the Indian private sector
which continued to have apprehensions about their ability to cope with
foreign competition. It is a measure of Vajpayee’s political acumen that he
was able to build allies across a broad spectrum of political opinion to
improve India’s competitive abilities by selectively opening up the
economy to the rest of the world. The consequences were positive since
software exports and exports of goods rose steadily between 1998 and
2004. Specifically, software exports went up five times, and exports of
goods as a percentage of GDP went up from 8 to 11.9 per cent of GDP. (See
Tables 9.3 and 9.4 in the Appendices.)45
Legacy

Vajpayee has left a lasting impact on Indian politics. He and L.K. Advani
built up the BJP and made it the national party that it is today. It is natural
for a country of India’s size, with its many languages and differences, to
have regional parties which represent state-level interests. At the same time,
India needs national parties which can combine regional with national
interests. For a long time till 1996, the Congress—although Indira Gandhi
converted the party into a personal/family fiefdom—was the only party
which could call itself national. It is to Vajpayee’s credit that he was able to
widen the BJP’s appeal from the Hindi heartland to become more of a
national party. Unfortunately for the country, the Congress party has lost
most of its cadre base around the country, and the BJP has not been able to
widen its appeal in south India.
On the economic front, the Vajpayee government had to deal with the
fallout of the East Asian crisis of the late 1990s and the sanctions imposed
by the US after the nuclear tests. Despite the dot-com bust of 2001–02,
India’s software exports increased steadily. In overall terms, the economic
performance of Vajpayee’s government was a substantial improvement over
that in the preceding three decades, except for the Narasimha Rao years
from 1991 to 1996. Vajpayee’s economic policies were designed to learn
from the experiences of the Rao period, build on those gains by opening up
the economy and enhance competition. Rao and Vajpayee, both headed
coalition governments and found ways to push systemic economic reforms.
On the downside, just as Rao had done, Vajpayee shied away from the
politically difficult yet vital task of reforming land and labour markets.
Some Vajpayee appointments of regulators and heads of financial-sector
institutions were questionable. However, Vajpayee was by no means unique
in this respect. Progressively, since the sloganeering about committed
bureaucracy during the Indira Gandhi years, the Central and state
governments often appoint pliant officials to positions which have
constitutional, administrative, regulatory or financial clout.
The hijacking of Indian Airlines flight IC 814 could have been handled
better by Vajpayee’s government. All the passengers and crew of that flight
except one returned safely to India. However, three terrorists were released,
and they were subsequently responsible for a number of deaths in India and
elsewhere. Additionally, India came to be seen as a ‘soft’ state that
capitulates to terrorist blackmail.
A significant Vajpayee failure was the Central government’s inability to
contain the 2002 communal riots in Gujarat in which about a thousand
people—mostly Muslims—were killed. It is likely that following the 27
February 2002 Godhra train burning tragedy in which fifty-nine kar sevaks
were killed, there were IB reports that trouble was brewing in Gujarat. As
the senior-most BJP leader and prime minister, Vajpayee should have acted
in coordination with the Gujarat government to contain the violence. As
was true of the 1984 riots in which Sikhs were killed in Delhi, and the Babri
Masjid demolition in Ayodhya, the Central government has the final
responsibility to maintain not just external but also internal security in every
part of the country.
Vajpayee was the first non-Congress party leader to complete a full term
as PM. He was PM for six years, including the short-lived coalition
government which collapsed in April 1999. Just two months after coming to
power in March 1998, Vajpayee went ahead with the nuclear tests in May
1998. This was one of the boldest decisions taken by any Indian PM. The
negative economic and other repercussions were contained, and Vajpayee’s
government engaged shrewdly with the US to bring relations gradually
back to normal. Patching up with the US yet keeping India out of the Iraq
war was also a significant foreign policy success.
Vajpayee was mindful of the sensitivities of India’s neighbours, and with
Pakistan, he was remarkably patient. In the border state of Kashmir,
Vajpayee was ever the statesman, willing to walk that extra step if it helped
to calm tensions and bring those who were alienated from the Indian state
back to believing in a peaceful resolution of differences.
Vajpayee was invariably dressed in the common dress of Bharat, namely
dhoti, kurta and sandals. At times, on foreign visits, Vajpayee wore a
bandhgala and trousers, but he looked uncomfortable in this dress. Vajpayee
was the most outstanding public speaker in Hindi at the level of PM since
Independence. He had an uncanny ability to relate to the audience, and his
sympathy for the average Indian was evident from his personal simplicity.
Although Vajpayee was not that comfortable in English, those who belong
more to India, as distinct from vernacular-speaking Bharat, were
comfortable with his leadership. This was because Vajpayee was inclusive
by nature.
Turning to the 3 Cs, Vajpayee’s sterling quality of Character was evident
from the fact that for the most part, he selected officers with high levels of
integrity for his own office. His Charisma was widely acknowledged as he
was always amiable, good-natured and accommodating. Although Vajpayee
gradually spoke less and less and looked sleepy in official meetings, he was
cleverly Competent since he delegated responsibility to those with proven
abilities. Vajpayee’s strength of Character was called into question at the
time of the hijacking of the Indian Airlines flight and during the killings in
Gujarat.
Vajpayee’s ability to empathize with an opponent’s point of view made
him widely acceptable across India’s fractious political spectrum, and as
PM, he led an unwieldy and politically disparate coalition of parties. He
was always prepared for dialogue, even if the probability of a breakthrough
or thawing of relations was negligible. Vajpayee’s wide appeal across party
lines was evident for a final time from the outpouring of grief and praise
when he passed away on 16 August 2018.
The BJP-led NDA coalition did not come back to power in 2004. The
Congress and others commented that the BJP had overdone the ‘India
Shining’ slogan during the election campaign for the 2004 general election.
Be that as it may, Vajpayee did raise optimism levels in and about India.
 Manmohan Singh
Long-lasting Achievements Yet PM in Name

No! I am not Prince Hamlet, nor was meant to be;

Am an attendant lord, one that will do
To swell a progress, to start a scene or two,
Advise the prince; no doubt, an easy tool,
Deferential, glad to be of use,
Politic, cautious and meticulous
Full of high sentence, but a bit obtuse;
At times, indeed, almost ridiculous—
Almost, at times, the Fool

The Love Song of J. Alfred Prufrock—T.S. Eliot

Dr Manmohan Singh is the only prime minister to date with a doctoral

degree.1 He had a long list of achievements before he was sworn in as PM
on 22 May 2004. At various stages of his career, he has worked as
economic adviser in the Ministry of Commerce, chief economic adviser in
the Ministry of Finance, governor RBI, deputy chairman of the Planning
Commission and finance minister. As the finance minister from 1991 to
1996, Dr Singh had the full support of Prime Minister P.V. Narasimha Rao
to launch reforms which unshackled India’s economy.
The Congress and BJP won 145 and 138 Lok Sabha seats respectively in
the 2004 general elections.2 The Congress was able to cobble together a
United Progressive Alliance (UPA) which included M. Karunanidhi’s DMK
and Lalu Prasad Yadav’s Rashtriya Janata Dal among others. The left
parties chose to support the UPA government without participating in it.

After it was clear that the Congress-led UPA coalition would be able to
form a government, there was high drama about who would be the prime
minister. The family loyalists in the Congress party wanted their party
president, the Italy-born Sonia Gandhi (SG), to be the next Indian PM.
Although the Indian Constitution does not bar a naturalized Indian from
becoming the PM,3 there were adverse commentaries against her
candidature for the post in the Indian media. Sushma Swaraj, a senior BJP
leader, announced that she would shave her head in protest, if SG became
PM. In stark contrast, some Congress leaders demonstrated their loyalty by
literally weeping on live television and worshipfully demanding that she be
PM.
For practical political reasons, and to avoid giving the Opposition a
rallying point, SG chose not to be PM and anointed Dr Singh for the post.
Since 1947, Dr Singh was the first person with little political capital, even
within his own party, to become the PM. PMs who were in office for short
terms, including Charan Singh, V.P. Singh, Chandra Shekhar, I.K. Gujral
and Deve Gowda, had all won Lok Sabha or state assembly elections, and
(barring Gujral) had political bases of their own. Cabinet ministers of the
Central government have often been Rajya Sabha members. However, all
Indian PMs with political stature have been repeat members of the Lok
Sabha. From SG’s point of view, Dr Singh was the ideal candidate for PM
since as a former academic with a retiring nature, he would never challenge
her politically or stand in the way of Rahul Gandhi emerging as a future
PM.
Dr Singh had contested only one Lok Sabha election in 1999 from the
South Delhi constituency which he lost by a huge margin. He has been a
Rajya Sabha member from Assam continuously since 1991. As required by
the prevailing law in 1991, Dr Singh established his resident status in
Assam by renting housing space in Guwahati. The in-state residency
requirement for membership of the Rajya Sabha was dropped in 2003. The
change in the law was challenged in the Supreme Court by prominent
journalist Kuldip Nayar because it negated the objective of providing
representation from the states in Parliament embedded in the Representation
of the People Act for the Rajya Sabha. However, the Supreme Court upheld
the amendment.
In the thirty years from 1947 to 1977, during which period the Congress
party was continuously in power at the Centre, the country had a Congress
PM but the president of the Congress party was someone other than the PM.
It was only after Indira Gandhi returned as PM in 1980 that she also
assumed the role of the Congress party president. In the years that Dr Singh
was PM, several cabinet ministers used their closeness to the Congress
president Sonia Gandhi to take decisions independently of him.4 A National
Advisory Council (NAC) with SG as its president was set up to counsel and
even restrain the PM. The NAC was, on occasion,5 more crucial to decision
making than the PM or the cabinet committees. This was an aberration, and
the de facto position was that the Congress party president and the NAC
reserved the right to overrule the government if and when it felt it was
politically necessary to do so.
I.G. Patel commented after the UPA came to power in 2004: ‘I do not
think there is much difference between Sonia Gandhi being the Prime
Minister or Manmohan Singh occupying the post. Either way, Gandhi will
take care of the larger political picture. It hardly makes a difference in terms
of division of labour and nature of work . . . So, do not judge Singh too
severely on the macro-economic front. And do not underestimate his
savviness on the political front.’6

Foreign Policy

Dr Singh was given a freer hand on foreign policy issues by SG than on the
domestic economy or political issues. The finance, defence, home and
commerce ministers in Dr Singh’s cabinet were power centres on their own
and reported to the Congress president rather than to the PM.7 It follows
that Dr Singh preferred to spend time on India’s external relations.
India was a nuclear weapon country by the time Dr Singh became PM.
He continued with Atal Bihari Vajpayee’s policies of repairing India’s
relations with the developed West. In this context, the most significant
foreign policy achievement of Dr Singh’s government was the breakthrough
that India achieved through the India–US Civil Nuclear Agreement.8 Under
Dr Singh’s overall guidance, India took careful steps to appease the non-
proliferation lobbies in the West without compromising core Indian
interests. The relationship with the US had been somewhat restored by the
Vajpayee government, and Dr Singh built on this inheritance. He took the
initiative to visit the US early in his first term in July 2005 and established a
close working relationship with the then US President George W. Bush.9 Dr
Singh’s efforts were greatly helped by the US administration’s view that
India needed to be supported as a potential counterweight to China.
Condoleezza Rice, who was the US national security adviser (NSA) from
2001 to 2005 and later Secretary of State in the second term of Bush Junior,
was a consistent proponent of this line of thinking. Brajesh Mishra,
principal secretary in Prime Minister Vajpayee’s office and the first Indian
NSA, had established close working relations with Rice. J.N. Dixit took
over as the NSA in Dr Singh’s government, but he passed away abruptly in
January 2005 and was replaced by M.K. Narayanan. Given Narayanan’s
lack of exposure to foreign affairs,10 the foreign secretary in the Ministry of
External Affairs took the lead in negotiations with US interlocutors to get
India out of its nuclear isolation.
Dr Singh and his government worked cautiously to persuade the US to
relax the NSG’s rules for India. The NSG works on consensus, and several
NSG members persisted with their objections. India was patient in its
diplomacy to get the US to wear down the objections of difficult NSG
members. The US had to finally use the full weight of its economic and
military stature to get China, Austria and Ireland to drop their objections.
The proponents of the India–US Civil Nuclear Agreement also had to get
around suspicions within India. The fear in several circles in India was that
the country would compromise on the independence of its strategic nuclear
capabilities by agreeing to intrusive inspections. The solution agreed to with
the US, after prolonged and difficult negotiations, was for India to separate
its military nuclear installations and activities from civilian nuclear power
facilities. It was also agreed that only India’s civilian nuclear facilities
would be under International Atomic Energy Agency (IAEA) safeguards.
As part of this arrangement, India was exempted from the earlier NSG
prohibition of the supply of any nuclear materials including fuel to India.
The CPI (M), led by General Secretary Prakash Karat, made it clear from
the outset that they were totally against the 123 Agreement. For the CPI
(M), the potential benefits for India’s atomic energy programme were
subordinate to the political significance of India leaning towards the West
by collaborating with the US. It was fortunate that the Ministry of External
Affairs (MEA) had two successive foreign secretaries, first Shyam Saran
and then Shivshankar Menon, who were highly knowledgeable, superbly
gifted in the art of diplomacy and masterful in their drafting skills. The
other secretaries in the MEA, Nalin Surie and N. Ravi, played their
supporting roles to perfection. They were deputed by Dr Singh to convince
counterparts in the five countries which are permanent members of the
UNSC and officials of NSG member countries.
The Congress party was apprehensive about losing CPI (M)’s support in
Parliament. As I watched from within South Block,11 it appeared
preposterous that knowledgeable individuals could be so ideologically
coloured in their thinking that they could not separate their personal
political preferences from national interest. The BJP opposed this
agreement due to political differences with the Congress rather than any
significant shortcomings in the proposed agreement.
It is to Dr Singh’s credit that he did not change course, and in July 2008,
he sought a vote of confidence in the Lok Sabha on the 123 Agreement. Dr
Singh was probably able to convince SG once the Samajwadi Party led by
Mulayam Singh had confirmed that they would support the government.
The final tally in the vote of confidence was 275 votes for UPA and 256 for
the Opposition. The Samajwadi Party’s thirty-seven votes were crucial to
the UPA winning this vote. The Left Front, with fifty-nine members, all
voted against the government. After the Opposition lost this vote, the Left
Front withdrew support for the UPA government.
The 123 Agreement was finally signed between India and the US in
Washington DC in the last week of September 2008. At about that time, in
an awkward interaction between Dr Singh and Bush Junior which was
covered on US television, Dr Singh observed, ‘India loves you, Mr.
President.’ These gushing expressions of friendship are common in the US
but it was grating when it was replayed on Indian television. Well, if that is
what it took for the US to push NSG members to agree to a waiver for
India, so be it.12
In the mid-1980s, when I was deputed to the Department of Atomic
Energy (DAE) in Bombay, the target for nuclear power production was
10,000 MW to be achieved by the year 2000. In May 2019, India’s nuclear
power plants produce about 6000 MW. India has fallen far short of its
targets, and currently the slogan is for the country to produce 20,000 MW
of nuclear power by 2020. It is unrealistic, to say the least, to expect that
this objective will be achieved.
If the extent of financial and other liabilities in the case of accidents had
been clarified well, the India–US Civil Nuclear Agreement would have
motivated international companies to bid aggressively for setting up nuclear
power plants in India. Foreign companies need a measure of certainty about
potential liabilities to obtain adequate insurance cover. It was under the
watch of Dr Singh’s government that the Indian Parliament passed the Civil
Liability for Nuclear Damage Act (CLNDA) in 2010. This Act was
consistent with relevant International Atomic Energy Agency (IAEA)
precedents. However, it also brought in the concept of vendor liability,
based on amendments introduced by Opposition parties, led by the BJP.
These amendments are ambiguous and have created uncertainties for
foreign vendors such as Areva, Westinghouse and General Electric (GE).
Under CLNDA, the potential financial liabilities for companies which set
up nuclear power plants in India have been deemed by insurance companies
to be unquantifiable and hence unacceptable. Comparatively, local operators
of plants are less exposed to potentially huge financial liabilities in the
event of an accident. The discussion in the Indian Parliament when this Act
was passed was coloured by the fact that Union Carbide’s foreign owners
had not paid adequate compensation to the victims of the December 1984
Bhopal gas tragedy.13 Dr Singh’s government should have better explained
the distinction between the Bhopal case and the reasonable levels of
compensation for potential accidents in nuclear power plants included in
CLNDA. In the Bhopal gas tragedy case, there was no international
comparator provision for compensation when the initial permission was
granted to Union Carbide to set up this plant. The facility had come up
under Indian domestic law which did not envisage an accident in which
over 3000 people could be killed and over half a million affected by the
poisonous methyl isocyanate that was released into the atmosphere. Hence
compensation was woefully inadequate in what has come to be regarded as
the worst industrial accident anywhere in the world.
Currently, Russia is the only country which is collaborating with Nuclear
Power Corporation of India Limited (NPCIL) to set up nuclear power plants
in India. This cooperation with Russia has been feasible because of a
bilateral agreement with the Soviet Union dating back to 1988,14 under
which liabilities will be borne by the Indian public-sector companies
involved and ultimately the Central government. As of May 2019, no other
foreign or Indian private-sector company has concluded an agreement with
NPCIL to produce nuclear power in India. Dr Singh’s government did not
take timely steps to counter the negative implications of the CLNDA for
private suppliers of nuclear power equipment and technology.

Russia and Eurasia

In April 2005, I returned to India from the World Bank and joined the
Ministry of External Affairs as joint secretary (Eurasia division). At that
time, the Eurasia division in MEA was responsible for Russia and other CIS
(Commonwealth of Independent States made up of the former republics of
the USSR) countries, the Shanghai Cooperation Organisation (SCO) and the
BRIC (Brazil, Russia, India and China)15 grouping. India and Russia have
annual summit meetings at the level of heads of government alternately in
the two countries. This practice was followed scrupulously by Dr Singh,
and I attended three such summits during 2005–07 as a member of the
Indian delegation. I was the MEA officer responsible for coordination
within the government in preparing the background papers and notes for
these summits. The briefing sessions took place at Dr Singh’s residence at
7, Race Course Road (now called Lok Kalyan Marg). I often found the
inputs from the various ministries to be fairly indifferent. However, Dr
Singh was always alert, read all the briefs sent to him and was detail
oriented. My assessment from these briefing sessions was that Dr Singh
wanted us to be thorough but did not favour any out-of-the-box thinking.
 As of 2006, about 70 per cent of the stock of India’s military equipment
by value had come from Russia or the erstwhile Soviet Union, and this high
fraction underlines India’s strategic dependence on Russia. Since then, India
has been diversifying its arms purchases and has been buying more from
the West, particularly the US and France. In my meetings with India’s
uniformed services during 2005–07, I would often hear about their
dissatisfaction with the increasing costs and delays in the deliveries of
spares from Russia. The Russian explanation was that some of the
equipment still in use in India had long since been discarded in Russia, and
Russia had to incur high costs to restart old facilities to produce spares. The
acrimony over this and time delays for spares underscores the need for
India to be self-reliant for its military hardware. However, all things
considered, Russia continues to sell or lend to India highly sophisticated
military equipment and technology which would not be available from the
developed West. For instance, Russia has leased nuclear-energy-powered
submarines to India. Dr Singh was acutely conscious of the need to
maintain close relations with Russia even as India improved ties with the
US.
In June 2005, Congress president Sonia Gandhi travelled to Russia for a
four-day private visit at the invitation of President Vladimir Putin. The then
external affairs minister Natwar Singh joined her in Moscow even though it
was billed as a private visit. SG travelled to Russia in a Reliance India
Limited (RIL) aircraft.16 A little after that visit, during a briefing session in
South Block, Natwar Singh turned to me and in an aside remarked that the
Congress party had paid for the use of the RIL plane. I figured Natwar
Singh wanted the word put out that the Congress president had not taken
any favour by using the RIL plane.
During 2005–07 India was an observer in the SCO,17 and Natwar Singh
as external affairs minister and then Murli Deora as the petroleum minister
represented the Indian PM at SCO summit meetings in Astana (Kazakhstan)
and Bishkek (Kyrgyzstan) in July 2005 and August 2007 respectively.
China linked India’s upgrade to SCO member status to Pakistan’s
membership of SCO. Both countries became full members a decade later in
June 2017. This was another instance of China equating India with
Pakistan.
Even as an observer, India would have benefited by cosying up
somewhat more to the four Central Asian members of the SCO. Central
Asian countries feel hemmed in between the Russian ‘bear’ to the west and
the Chinese ‘dragon’ to the east and see India to the south as non-
threatening. However, because of a lack of cost-efficient transportation
linkages between India and Central Asian countries, trade ties have
remained muted. Central Asian countries are oil and gas rich, but trade
between them and India has to be through third countries as they are
landlocked. Ironically, surface connectivity was not an issue in the early
sixteenth century when Babur came to India probably on horseback from
the Fergana Valley in Uzbekistan. With today’s heavy machinery and
engineering technologies, road and rail routes could be built between India
and Central Asian countries if it were not for the troubled regions of
Afghanistan and Pakistan that are literally in the way. The opportunity cost
for India of not insisting, in Shimla in 1971, on a trade and transit corridor
to Afghanistan through what is called Pakistan Occupied Kashmir has been
enormous.

Pakistan, China and Other Neighbouring Countries

During his years as PM, Atal Bihari Vajpayee had reached out repeatedly
and unsuccessfully to Pakistan. And, during the first term of Dr Singh
between 2004 and 2008, there was talk about a PM-level visit to that
country. Dr Singh was born in what is Pakistan today, and his mother
tongue is the same as that of the dominant Punjabi community there.
However, during those first four years, Dr Singh’s government was focused
mostly on concluding the 123 Agreement with the US, maintaining
relations with Russia, the EU and China, at least at the same level as in the
past, and in raising the level of economic interaction with Japan.
At the end of October 2008, I called on the then king of Belgium in
Brussels to present my credentials.18 I was allowed to jump the queue of
other ambassadors who had been waiting longer than me as the Belgian
king was to visit India in early November 2008. On 26 November 2008,
barely two weeks after that royal visit, the Oberoi hotel in which they had
stayed, the Taj hotel and other prominent locations including the
Chhatrapati Shivaji Terminus in Mumbai came under attack by ten terrorists
who had been trained in Pakistan. About 166 people were killed and
another 300 injured in south Mumbai. Only one among the ten terrorists,
Ajmal Kasab, was captured alive. Kasab confirmed later that he was a
Pakistani national and that the organization behind the attack was Pakistan-
based Lashkar-e-Taiba. This terrorist attack became a highly negative game
changer in India’s relationship with Pakistan.
Although several US and European nationals were killed, there was little
sympathy expressed for India by the developed West. If any persuasion was
at all needed, this attack made it abundantly clear that when it comes to
matters of national security, each country is on its own. In this case, the less
said the better about the European Union (EU). As the Indian ambassador in
Brussels, I met with European Commission, Belgian and other officials.
There was next to no mention in any EU official statement about this
monstrous act of terrorism, but the Belgian government was somewhat
more forthcoming. Europe and the rest of the developed world was too
preoccupied with the global financial crisis and climate change to take any
substantive notice of the terrorist attack on India.
Soon after this attack, the MEA sent out circular messages to Indian
ambassadors around the world. These multiple messages directed us
ambassadors to meet with local government officials to get them to
understand the gravity of what had happened and to stress that the terrorists
were Pakistani nationals who were trained in that country. Accordingly, I
briefed the ambassadors to the EU from the five permanent members of the
UNSC and other politically and economically significant nations. It was
soon obvious to me that local officials and ambassadors accredited to the
EU and Belgium felt that India, as a large country aspiring to be a
permanent member of the UNSC, should be able to look after its own
security. There was a weary look on the face of Kim Darroch, the UK’s
ambassador to the EU,19 as I briefed him, that conveyed all too clearly we
have heard India complaining about Pakistan and vice versa much too
often. In fact, the Dutch ambassador to the EU laughed in my face when I
explained that this particular terrorist attack could not have happened
without the full support of the Pakistani establishment.
The United States–India Nuclear Cooperation Approval and Non-
Proliferation Enhancement Act was signed into law on 8 October 2008 by
the then US President George W. Bush. This agreement was preceded by a
consensus approval of the NSG to allow its members to collaborate with
India in using nuclear energy for peaceful purposes. The Pakistani nationals
who attacked Mumbai in November 2008 must have been trained by the
Pakistani Army for several months. However, it is possible that the India–
US agreement for nuclear cooperation may have been the proverbial last
straw for the Pakistani Army. The visible improvement of relations between
India and the US may have persuaded the deep-state elements in the
Pakistani Army to launch a terrorist attack on Indian soil, even though it
could be traced back to them.
Former NSA Shivshankar Menon writes that ‘I myself pressed at that
time for immediate visible retaliation of some sort’.20 Menon goes on to say
that on ‘sober reflection the decision not to retaliate militarily and to
concentrate on diplomatic, covert and other means was the right one’. The
emphasis was on getting Pakistan’s government to accept the overwhelming
evidence made available to them by Indian authorities that this terrorist
attack originated from Pakistan.
Given the tortured history of India’s relationship with Pakistan, it should
have been obvious that Pakistan would keep stalling and not take any
tangible action. The danger was that absence of an effective and sustained
reaction from India would embolden Pakistan to persist in initiating and
supporting terrorist atrocities in India. The next Indian general election was
in May 2009; it is possible that Dr Singh’s government was reluctant to take
explicit action against Pakistan because of the unpredictable fallout on the
electoral fortunes of the Congress party.
 India could have started supporting Baloch autonomy openly at
international forums by end 2008. Further, Pathans who inhabit eastern
Afghanistan have family, language and societal links with Pathans across
the Durand Line21 in western Pakistan. Some among the Pathans in
Afghanistan have never accepted the Durand Line as the border. This is
despite landlocked Afghanistan’s dependence on access to Pakistani ports
for transit trade. India could have explored the possibility of supporting
those Pathans who want Pathan-majority regions in western Pakistan to be
ceded to Afghanistan. Although Pakistan has close government, people-to-
people and religious ties with the West Asian and Gulf countries, India
could have worked actively from November 2008 onwards with these and
Western countries to stem financial support for terrorist groups based in
Pakistan.
India also needed to examine other ways to pressure Pakistan. For
instance, India is not using its full share of waters of the eastern rivers Ravi,
Beas and Sutlej, under the 1960 Indus Water Treaty. To do that, India needs
to build irrigation canals which take years to construct. Dr Singh’s
government could have shown its seriousness of intent by starting to build
these canals. India needs to tread carefully in this matter though, since the
sources of the Indus and Brahmaputra rivers are in Tibet which is under
Chinese occupation.
In 2012, during a visit of the then foreign secretary Ranjan Mathai to
London where I was based as the Indian high commissioner, I hosted a
dinner at the Athenaeum Club to which Mark Sedwill,22 Kim Darroch and
others were invited. During the course of this dinner, the topic of Osama bin
Laden and how he was killed in Abbottabad came up. Mr Sedwill quipped
that if Pakistan knew that Osama was in Abbottabad, ‘then it is a rogue
state’. If, however, Pakistan did not know that Osama was hiding in
Abbottabad, a kilometre from the Pakistani Army’s main training centre,
‘then Pakistan is a failed state’. Discounting the obvious element of
pandering to Indian sentiments in Mr Sedwill’s comment, I found that in
private conversation, other UK Foreign and Commonwealth Office
professionals agreed with the substance of what Mr Sedwill had said.
 The issue then is why UK policy downplays and ignores the promotion
of terrorism in India and Afghanistan by the Pakistani ‘establishment’? The
answer lies in the fact that the UK’s economic—including that of
investment advisory services—and military engagement with the Middle
East and Persian Gulf Arab countries (Pakistan has close relations with
these countries) outweighs that with India. For example, the GDP per capita
in purchasing power parity terms in 2018 for the Gulf Cooperation Council
(GCC) countries was US $68,194 while that of India was US $7873.23 The
GCC defence budget is expected to be above US $100 billion in 201924 and
the same number for India in 2019–20 is budgeted at US $61 billion. Unlike
India which spends a significant fraction of its defence budget on salaries
and pensions, a much higher proportion of the GCC’s defence budget goes
towards purchase of defence equipment from the West.
Globally, Islamic banking assets amounted to about US $1.5 trillion in
2018. The sovereign wealth funds of Saudi Arabia and the United Arab
Emirates were around US $700 billion and $800 billion respectively at the
end of 2018. Substantial proportions of these funds are invested via
financial intermediaries based in London and New York.
Ambassadors of some European countries based in Delhi suggest
privately that India should show greater understanding in its dealings with
Pakistan since the latter is smaller. This is factually true, and India needs to
show not just understanding but also generosity towards Pakistan and other
smaller neighbours. In this context, it is useful to compare Pakistan’s size
with that of major European countries. Pakistan is larger in surface area
than France, Germany or the UK, and its population is about the same as
that of these three countries combined. Pakistan’s standing army and
reserves, at 1.1 million men, is 2.6 times that of these European countries
put together.25 The UK and France are nuclear weapon powers but so is
Pakistan. Thus, it grates a bit to hear gratuitous advice about patience with
India’s smaller neighbour, Pakistan. Pakistan is much smaller than India but
definitely not a small country.
Dr Singh paid a bilateral visit to China in January 2008 and again to
attend the Asia–Europe (ASEM) Summit meeting in October 2008.
Congress president Sonia Gandhi attended the 2008 Summer Olympics in
Beijing with her family. Border talks continued, and the agreement forged
for this purpose during the tenure of P.V. Narasimha Rao was the template.
India did not progress much on the border talks with China during Dr
Singh’s tenure, and it would have been unrealistic to expect any significant
forward movement. China would like to keep India confined to South Asia
even as it chips away at India’s natural predominance in this region.
In overall terms, which are just as relevant in 2019 as they were when Dr
Singh was PM, China is wary of India’s example as a functioning
multiparty democracy and the acceptability this brings with affluent
Western democracies. However, as China’s labour costs rise along with its
per capita income, it could be persuaded to invest in India in mutually
acceptable sectors. This is particularly pertinent in the context of its large
surplus in trade of goods with India. The exports of Indian information
technology services to China have not gone up to the extent expected, but
that is also because China has remarkable capabilities of its own in this
sector.
India has a long history of close relations with landlocked Nepal. There
are strong bonds of kinship through marriage between the people living
close to the border on either side, and the linguistic, social, cultural,
religious and economic linkages between the two countries are many and
varied. The two countries have an open border, and Nepal depends on India
for supplies of fuel and medicine. In recent years, and particularly after K.P.
Sharma Oli became the prime minister in February 2018, Nepal has tried to
reduce this dependence on India by reaching out to China.
In the overall context of India–Nepal relations and in India’s own
interest, as the much larger country, it needs to be generous and flexible in
its dealings. It is of particular importance to give a sense to the Nepalese
people and its ruling elites that India does not take Nepal’s concerns lightly.
Given its proximity, it is mind-boggling26 that Dr Singh did not visit Nepal
even once during his entire tenure of ten years.
Over the ten years 2004–14 that Dr Singh was PM, Nepal was going
through political difficulties as the communists and left extremists gradually
came around to participating in elections. At the same time, diehard
monarchists made a last-ditch effort to carve out political space for
themselves. The Nepalese army was affected by the cleavages in domestic
politics and was sceptical of the Maoists. The Nepalese army felt that the
leftist cadres needed to be fully disarmed before they could be welcomed to
participate in Nepal’s electoral process. Notwithstanding the difficulties in
India–Nepal relations due to these developments, it was important for Dr
Singh to have visited Nepal to underline India’s support for the pro-
democracy elements in that country and to promote closer cooperation in
the irrigation and hydropower sectors.
On the eastern flank, India’s relations with Bangladesh were on an
upswing since Sheikh Hasina became PM because she is less tolerant of
India-baiters in her country. Assam and the other states in the North-east
were denied access to Chittagong port shortly after Partition, and India’s
north-eastern states became progressively landlocked as India’s relations
with Pakistan deteriorated. It was an opportune time for Dr Singh while he
was PM to further improve surface linkages between north-eastern India
and the rest of the country via Bangladesh.
On a positive note, Dr Singh did resolve the long-standing ‘Tin Bigha’
Corridor issue by signing an agreement to this effect with Bangladesh PM
Sheikh Hasina in September 2011. The two countries conceded small pieces
of land to each other and India leased a tiny strip of land in perpetuity to
Bangladesh to allow free movement of its nationals between the two
enclaves that belong to Bangladesh. This concession by India was
welcomed in Bangladesh and improved the environment for discussions on
closer economic, trade and transit ties between the two countries.
At the same time, Dr Singh could have handled the sharing of the Teesta
waters with Bangladesh better by first working out an understanding with
Mamata Banerjee, the chief minister of West Bengal. Water is an emotive
issue in India, and it would not have been easy to placate Banerjee. One
possible way to get West Bengal’s cooperation was reduce its debt burden
which had grown to unsustainable proportions during the thirty-four years
that CPI (M) was in power. The problem perhaps was that Dr Singh did not
have Sonia Gandhi’s permission to make financial concessions to Banerjee-
ruled West Bengal.
The Indian and Sri Lankan governments have a history of having to
periodically resolve issues related to fishing rights in the waters between the
two countries. Indian and Sri Lankan fishermen are frequently apprehended
by coastguards for straying into each other’s waters and are released after
mediation between the two governments. Over centuries, Tamils of Indian
origin have migrated to the northern and eastern regions of Sri Lanka. Some
Tamils went as bonded labour in the nineteenth century to work in the tea
gardens in the Nuwara Eliya region. The Anuradhapura area is a world
heritage site and was the centre of Theravada Buddhism. It is also famous
for Buddhist carvings and works of art.
Given the civilizational linkages and strategic interests, the history of
India’s involvement in the Sri Lankan civil war, and that India has
permanent interests in securing its southern coastlines, it is surprising that
Dr Singh chose to not pay an exclusively bilateral visit to Sri Lanka during
his tenure. He did visit Sri Lanka in the first week of August 2008 to attend
the fifteenth SAARC Summit. However, Dr Singh did not attend the
Commonwealth Summit in that country in November 2013. While the
Canadian PM chose not to attend this Summit, the British PM David
Cameron was present.
The two major Tamil Nadu parties, DMK and AIADMK, compete with
each other to show their concern for Sri Lankans of Tamil origin. Mahinda
Rajapaksa, the Sri Lankan President from 2005 to 2015, was perceived in
Tamil Nadu as too harsh on Sri Lankan Tamils in his drive to crush the
LTTE.27 The DMK party’s support for the UPA coalition government was
crucial, and that probably explains Dr Singh’s decision not to visit Sri
Lanka on a bilateral basis while Rajapaksa was the President in that
country.

Developed Countries in Asia and Europe

In his ten years in office, Dr Singh injected considerable energy into India’s
economic relations with Japan. He successfully sought Japan’s technical
and financial assistance to complete high-visibility Indian infrastructure
projects. The Delhi Metro, Nizamuddin bridge over the Yamuna and the
Delhi–Mumbai Industrial Corridor (DMIC) are examples of projects that
were either completed or started with Japan as a partner during these years.
Given the combination of technical support provided by Japanese
companies and long-maturity financing at lower than market cost that
Japan’s official agencies have provided, it is easily India’s most valuable
partner in conceiving and completing long-gestation development projects.
During Dr Singh’s tenure, the two countries scrupulously held annual
bilateral summit meetings alternately in India and Japan. Given Japan’s
troubled history with China, it is seeking to counter China’s widespread
influence in Asia by bolstering India. Be that as it may, Dr Singh’s
government nurtured the relationship and gave it the time and attention it
deserved.
Over the decades, India–UK economic relationship has steadily
atrophied. In anticipation of the visit of the UK PM David Cameron to India
from 18 to 20 February 2013, I worked with Oliver Letwin, a junior
minister of state in the cabinet office, on a proposal for an industrial plus
information corridor. The suggestion was for this corridor to be built
between Mumbai and Bengaluru with British technical and financial
support. Mr Letwin was enthusiastic and convinced all concerned; the
British government was ready to provide about £2 billion per annum for up
to three years for the project. The proposal was for British private firms to
work with Indian agencies to crowd in funding and technology from private
and public-sector companies around the world. The expectation was that
about £1 billion each year would be the British government’s equity
investment in the project, and another £1 billion would come from a reserve
pool which was dedicated to promoting clean energy solutions. The Indian
High Commission in London and British government agencies did a
detailed study on the locations through which the freight corridor would be
built and how real estate development along the route would pay for the
development of ‘smart’ cities along this corridor. The thinking was that as
the corridor was built freight and transport connectivity would improve and
the real estate on both sides would become more valuable. Chunks of real
estate could then be auctioned to fund development of townships along the
corridor to which surplus low-skilled agricultural labour could migrate for
employment, for example, in the construction sector.
The proposal was discussed with the foreign secretary in MEA and was
brought to the attention of Dr Singh and the commerce minister. I took care
to explain that the project would develop rural areas along the route of this
Mumbai–Bengaluru corridor and increase formal-sector employment
opportunities. However, the proposal was vetoed by the department of
industrial policy and promotion (DIPP) without providing any convincing
reason. A secretary-level officer in DIPP was negative on the grounds that
other projects like the Delhi–Mumbai industrial corridor needed to be
completed first. DIPP did not have to choose between projects because the
sources of funding for this corridor were different from those for other
projects. Unfortunately, Dr Singh was too distracted by the end of 2012 by
the need to counter several allegations of corruption against his government
to be able to focus on long-term projects and intervene in the matter.
India and several EU countries have a history of close relations from well
before Independence. Post-1971, the EU allowed imports of Indian textiles
at lower than prevailing import tariffs under its Generalized System of
Preferences (GSP). The two sides coordinated their interaction and
cooperation on a range of economic and political issues, including climate
change, through regular exchanges of visits at the highest levels of
government. One of the central themes of discussions between the EU and
India has been how best to promote trade in goods and services. In this
context, a Broad-based Trade and Investment Agreement (BTIA) has been
under negotiation between the two sides since 2007. The discussions were
suspended in 2013 and restarted in 2017–18. However, despite high-level
meetings, this agreement is nowhere near finalization.28
During my tenure as the Indian ambassador to the EU, the ninth summit
between India and the EU took place in Marseille, France, on 29 September
2008. The then President of France Nicolas Sarkozy was the head of the EU
delegation, and Dr Singh led the Indian government team.
Dr Singh arrived in Marseille from New York on 28 September 2008, on
an Air India Boeing 747 as per the norm. When an Indian PM arrives at a
foreign destination, the Indian ambassador receives her/him at the airport.
In this case, both Ranjan Mathai, as the Indian ambassador to France, and I
were present. Immediately after we met Dr Singh in the holding area in the
front part of the aircraft, Ranjan Mathai blurted that in addition to the
India–EU meetings, Nicolas Sarkozy had requested a one-on-one meeting
with Dr Singh. Apparently, Sarkozy wanted to seek the Indian PM’s views
about the ongoing financial-sector meltdown. This was just thirteen days
after the New York–headquartered investment bank Lehman Brothers had
folded up.29
Dr Singh smiled and replied, ‘Sarkozy should speak to Jaimini as he
would be better able to explain what is happening in international financial
markets.’ Ranjan looked startled as he was not sure whether Dr Singh was
serious or not. It was apparent to me that Dr Singh had made that remark in
a lighter vein.
In the many meetings I have attended either in a group or individually
with Dr Singh, I do not remember him ever smiling as broadly as on that
day. It was clear he was more relaxed than usual. By the time Dr Singh was
in his car and we took our positions in the convoy of cars, I received a
phone call that Dr Singh had decided to have a meeting in his suite in the
hotel immediately on arrival and that I was required to attend.
Others at this meeting included Foreign Secretary Shivshankar Menon,
National Security Adviser M.K. Narayanan and Secretary (West) Nalin
Surie from MEA. The meeting began with Dr Singh asking me for a note,
within the hour, on the ongoing financial-sector meltdown and the
implications for India and for international financial markets. To keep the
contents of the note confidential, I went to Nalin Surie’s hotel room and
worked with an India-based typist and finalized the write-up.
Subsequently, after I was back in Brussels, I received requests for follow-
up notes on developments in the international financial sector and related
topics and their possible impact on India. It was surprising and gratifying
that Dr Singh asked me for these notes when he had the finance ministry
and the RBI at his disposal. Sometime later, on a visit to India, during a
one-on-one meeting with Dr Singh, I requested that perhaps government
could transfer me back from Brussels to any position in the Indian financial
sector. Dr Singh responded that there were no vacancies. I almost fell off
my chair in surprise. It became evident that for all financial-sector positions
at a senior level, the final call was made by those close to the Congress
president and not by the PM.
Reverting to the India–EU Summit of 2008, Sarkozy was peremptory in
his dealings with senior French and EU officials around him, even when the
Indian delegation was in the room. For instance, at the delegation-level
talks, Peter Mandelson, European commissioner for trade, and Kamal Nath,
commerce minister, got into an argument about the proposed BTIA. It was
embarrassing for us on the Indian side to hear Sarkozy cutting off the EU
commissioner for trade so abruptly. The tenth India–EU Summit in Delhi in
2009 was far too focused on climate change issues, and there was no
progress on the BTIA.
Dr Singh pushed for trade and investment agreements between India and
major trading partners, and he let the negative lists (items excluded from
tariff reductions) be long, if necessary, to conclude an agreement, as was the
case with the India–ASEAN free trade agreement. The unstated logic was
to get Indian industry to be competitive by lowering India’s high import
tariffs. Indian industry understood this tactic of Dr Singh well and
invariably fought back for continued protection. The same could have been
done with EU BTIA, but the EU side refused to agree to a long negative
list.
Dr Singh visited Brussels for the eleventh India–EU Summit on 10
December 2010. The EU delegation was headed by Mr Herman Van
Rompuy (former PM of Belgium) as the president of the European Council,
and Mr José Manuel Durão Barroso, as president of the European
Commission. The two sides were on the same page on issues such as
working towards eliminating terrorism and agreed on the principles to
mitigate climate change. However, on the topic which could change India–
EU relations qualitatively, namely the BTIA, again there was no forward
movement. From 2013, even the pretence of BTIA negotiations was
abandoned.
Jairam Ramesh, as the minister for environment, was the head of the
Indian delegation to the United Nations Climate Change Conference held in
Cancun, Mexico, from 29 November to 11 December 2010. At a briefing
session for Dr Singh in Brussels on 9 December 2010, Dr Singh looked
preoccupied and asked me to get in touch with Jairam Ramesh immediately
and seek a report on the ongoing climate change conference. Dr Singh was
concerned that Jairam Ramesh was straying from the Indian government’s
point of view and getting too close to that of the US. This episode
demonstrated the lack of coordination within the Indian government and of
ministers striking out on their own, at times at variance with the position of
the Indian PM.
Looking back, the Indian government seemed to spend more time than
warranted in parsing every word and comma in international climate change
documents. Perhaps this was because environment was an issue on which
Dr Singh enjoyed full autonomy from his party president. The bottom line
for India is that it needs to better conserve the environment within the
country. Dr Singh’s government did a competent job of spreading the word
that India needs to be mindful of environmental issues, not because of
international pressure but in its own long-term interest.
Dr Singh made a few errors in handling matters related to the setting up
of new multilateral development banks (MDBs) and the United Nations. In
the context of MDBs, in January 2008, I was based in Delhi as the
additional secretary (economic relations) in MEA. I was struck by the fact
that capital-deficient developing countries such as India had little option but
to accumulate foreign exchange (FX) reserves denominated in hard
currencies, particularly in US dollars. By then, China was no longer a
capital-deficient country, and had invested a substantial fraction of its huge
current account surpluses in US government bonds and bills since these
securities are among the most liquid in secondary debt markets.
 I proposed in a note to the then foreign secretary Shivshankar Menon that
India should consider consulting with like-minded countries in Asia
including China about setting up an Asian Investment Bank (AIB). The
proposal was for Asian countries to use some of the capital which was
being invested in debt instruments of developed countries to fund long-term
infrastructure and other projects in Asia. Menon felt that this was an idea
worth exploring and offered to bring it to the attention of the PM.
As there was no reaction from the PMO about this suggestion, I
published the proposal in my monthly column in the Business Standard in
January 2008.30 In April 2009 a Chinese think tank suggested that such a
bank needed to be set up. Another four and a half years later, in October
2013, Chinese President Xi Jinping proposed the setting up of an Asian
Infrastructure Investment Bank (AIIB) during a state visit to Indonesia.
AIIB became operational from January 2016 and is headquartered in
Beijing. China holds about 30 per cent of the equity, and India holds 8.4 per
cent.
India would have had a greater say in shaping the priorities of the AIIB if
it had taken the lead, and perhaps this institution would have had its
headquarters in Delhi. While it can be argued that the location of the AIIB
headquarters does not matter, the learning in setting up a multilateral
financial institution would have been considerable.31
The BRICS bank32 is headquartered in Shanghai and has an Indian
national as its first president. India should have requested for the AIIB or
the BRICS bank to be headquartered in India, even though the possibility of
that coming to pass was limited.
My suggestion for India to take the initiative to set up an AIB was drawn
on the experience of the European Investment Bank (EIB) headquartered in
Luxembourg. EIB’s bond borrowings which are marketed to private
investors are guaranteed by member European governments, and according
to its charter, almost all of its lending is to private European companies. I
urged Philippe Maystadt, EIB president, when I met him in Brussels in
2009, that EIB should lend to Indian private-sector companies. He
responded that as a rule, EIB only lends within Europe, and it had disbursed
a few loans in the poorest African and Asian countries at the specific
request of member countries. My prodding led to discussions within EIB,
and within 2009 this multilateral bank loaned €100 million to Volkswagen
to set up a car manufacturing plant in Pune. Since then, EIB has supported
renewable energy projects in India. Specifically, it has disbursed loans via
the SBI for wind energy projects. As of end 2018, the total EIB portfolio of
loans in India amounted to about €2 billion, half each in renewables and
urban transport.
Towards the end of 2005, a former UN official, Shashi Tharoor, was
proposed as India’s candidate for the United Nations Secretary General
(UNSG) position. Before this decision was taken by Dr Singh, he had
directed the then foreign secretary Shyam Saran to check if the five
permanent members of the UNSC would support Tharoor’s candidature.
Saran’s British counterpart Michael Jay informed him that the UK, the US
and France, three among the five permanent members of the UNSC, had
decided to back the candidature of Ban Ki-moon, the former foreign
minister of South Korea, and hence could not support Tharoor. China and
Russia, who were contacted separately by Saran, were non-committal.
Shyam Saran conveyed this information to Dr Singh. Despite the obvious
impossibility of Tharoor becoming the next UNSG, Prime Minister
Manmohan Singh’s office directed India’s permanent mission to the UN in
New York to announce that Shashi Tharoor would be India’s candidate for
the UNSG position. Shyam Saran was not informed about these
instructions. This episode shows Dr Singh in an extremely poor light. It is
possible that, left to himself, Dr Singh may have gone by the foreign
secretary’s information, but possibly he had instructions from the highest
level of the Congress.
Thereafter, the Government of India spent a considerable amount of
money and time in sending officials and Tharoor jetting around the world to
convince countries to support this stillborn candidature. The five permanent
members of the UNSC have never sought the position of Secretary General
for one of their nationals. The convention since the UN was founded in
1945 has been for a national from a smaller country to be appointed to the
UNSG position. As the joint secretary in charge of the Eurasia division in
MEA, I was asked, as were other joint secretaries, to speak to the
ambassadors of the countries under their charge. I spoke to the Russian and
Central Asian representatives in Delhi. It was apparent from the half-smiles
on the faces of the ambassadors that they found the whole exercise amusing
as it was common knowledge that Tharoor did not stand any chance of
winning enough support to be the next UNSG. It was an awkward
contradiction for India since it was simultaneously also trying to become a
permanent member of the UNSC along with Germany, Japan and Brazil.
Predictably, the most active opponents to the candidature of these four
countries were Pakistan for India, China for Japan, Argentina for Brazil and
Italy for Germany.
In 2005, I had come back from the World Bank, and it seemed that
several of my colleagues kept their disbelief about India’s negligible
chances of becoming a permanent member of the UNSC well hidden. The
then external affairs minister Natwar Singh exhorted us in the MEA to work
hard at convincing countries within our charge to support India. When
Natwar Singh asked for feedback, I mentioned that the permanent members
were unlikely to support India in the near future. My esteem for Natwar
Singh went up a notch that day as he must have been annoyed with my
observation but did not express any irritation and smiled indulgently. This
was a prime example of MEA frittering away the valuable time of its
limited Indian foreign service personnel on highly premature pursuits.
Although Dr Singh took a close interest in foreign policy matters, he did not
suggest course correction on this issue to his cabinet colleague Natwar
Singh.

Macroeconomic Management

Table 10.1 in the Appendices shows that from 2004–05 till 2010–11 India’s
GDP growth rates33 were high and touched 10.3 per cent in 2010–11. The
fallout of the global financial crisis of 2008–09 impacted India adversely,
and the growth rate came down to 3.9 per cent in that year. Growth was
over 6 per cent in two out of the remaining three years from 2011 to 2014
but did not bounce back to the levels achieved in the pre-financial-crisis
years. The high GDP growth rates of 8 per cent or more in seven of the first
eight years of Dr Singh’s government was unprecedented.
The Ministry of Statistics and Programme Implementation (MOSPI) has
since announced a new series on national income data with 2011–12 as the
base year instead of the earlier base year of 2004–05. The change of the
base year to 2011–12 has been used by the Central Statistical Office (CSO)
to go back in time and recalculate GDP growth rates. According to the
revised numbers which were made public on 28 November 2018, GDP
growth rates during 2004–14 were significantly lower than those estimated
earlier.
One of the suggested causal reasons for the downgrading of growth rates
during the Dr Singh years is that growth in services was overestimated. For
instance, growth in telecommunications was based on the rise in mobile
numbers and was recalculated using minutes of usage. It would be more
accurate to estimate the value added in the telecom sector by adding up
revenues earned rather than minutes of usage. In November 2018, the NITI
Aayog34 created a controversy by taking the lead in providing revised GDP
numbers. This responsibility had earlier been shifted to the CSO by the
Planning Commission which was later replaced by the NITI Aayog. It is
unclear as of May 2019 whether the revised growth numbers announced by
NITI Aayog are accurate. Hence Table 10.1 lists the growth numbers as
reported earlier by RBI.
Irrespective of the technical and political arguments about India’s GDP
growth numbers in the twenty-first century, it is reasonable to conclude that
growth rates during the first ten years of this century were high. The high
growth rates were driven by reforms carried out during the six Vajpayee
years, the impetus received from the upswing in the global economy
including the US, Europe and China, and Dr Singh’s government’s efforts
to raise investment. Over the ten years of Dr Singh’s government, exports
went up from 11.8 per cent of GDP to 17.2 per cent. This was achieved
despite the real effective exchange rate (REER) of the rupee going up by 13
per cent between 2004 and 2014.
At the same time, the current account deficit was volatile and reached a
dangerously elevated level of 4.8 per cent of GDP in 2012–13. India has a
perennial adverse balance in its trade in goods; it was exports of IT services
and remittances from NRIs which prevented the current account from going
even deeper into the red. As has usually been the case, the rate at which FX
reserves were accumulated depended on net foreign portfolio investments in
Indian equity and debt securities.
Consequently, India became more vulnerable to changes in foreign
investor sentiment about India’s growth prospects during Dr Singh’s second
term between 2009 and 2014.35 In the summer of 2013, the US Federal
Reserve (central bank) announced that it would gradually ‘taper’ off its
purchases of government and mortgage-backed securities issued by private
financial institutions.36 This announcement meant that US interest rates
could rise, and the hitherto higher interest rates on Indian government debt
securities became less attractive for foreign investors. Large volumes of
what are called ‘carry’ trades to convert US dollar into Indian rupees to take
advantage of higher rupee interest rates were reversed in August–September
2008. Foreign portfolio investors sold their holdings of Government of
India debt securities and Indian stocks, resulting in a sharp net outflow of
FX amounting to nearly US $30 billion.
By July 2013, Dr Singh’s government had been in power for over nine
years. Dr Singh and RBI were complacent that the unusually low interest
rates in developed countries would persist and were not prepared for FX
outflows. This was surprising since Dr Singh, as the finance minister in
1991, had to deal with a full-blown balance of payments crisis. Ironically,
given that this has never worked anywhere in the world, RBI governor
Subbarao tried to stem the outflow of foreign exchange by raising rupee
interest rates.
With the change of the RBI governor in September 2013, about US $35
billion was raised in the last quarter of calendar year 2013 through deposits
from NRIs. The country had to pay higher hard-currency interest costs
because RBI had to guarantee these returns on fresh inflows. The RBI and
the Ministry of Finance were remiss in not ensuring adequacy of the
country’s FX reserves. In 2007–08, India’s FX reserves to GDP ratio was
25.8 per cent, and this number came down to 16 per cent by 2012–13.
Following the global financial crisis of 2008 RBI should have purchased
hard currency at every opportunity. If necessary, RBI could have sold rupee
debt securities to soak up liquidity to contain inflation. Since 2007, China’s
foreign currency reserves have hovered around 30 per cent of GDP. RBI
should have maintained India’s FX reserves to GDP ratio at least at about
25–26 per cent.
The overall fiscal deficit number, which was between 3 and 4 per cent of
GDP for the first few years of Dr Singh’s government, rose irresponsibly to
between 5 and 6.6 per cent of GDP for the last six years from 2008 to 2014.
Towards the end of Dr Singh’s first term, the fiscal deficit went up to 6 per
cent even before the global financial crisis in 2008. This was because the
government pushed up spending with an eye on the general elections of
2009. The fiscal deficit number remained high, between about 5 and 6 per
cent, till the end of Dr Manmohan Singh’s premiership. The net primary
deficit also went up between 2008 and 2013. These official finance ministry
numbers do not tell the full story. If off-budget liabilities such as petroleum
and fertilizer bonds are taken into account, the Central government’s fiscal
deficit went over 8 per cent.37 It is possible though that Dr Singh had little
say in deficit-related decisions taken by Finance Ministers Pranab
Mukherjee and P. Chidambaram.
On a positive note, Dr Singh’s government pushed the Goods and
Services Tax (GST) proposal to consolidate indirect taxes for the country.
State governments were unwilling to cede their right to revenues from taxes
on fuel, alcohol and real estate. Despite such exceptions, the empowered
group of state finance ministers made considerable progress towards a
unified GST under the leadership of Union finance minister P.
Chidambaram. Unfortunately for the country, the BJP, for partisan, short-
sighted political reasons, did not cooperate to have the required GST
legislation passed in Parliament. The concept of a countrywide GST had
been launched earlier by the BJP-led government of Atal Bihari Vajpayee.

Systemic Achievements and Missteps

During Dr Singh’s premiership, several forward-looking systemic policy

changes were aimed at ensuring minimum levels of employment,
improvements in governance and for benefits to reach the economically
marginalized. Under the Right to Information Act, which came into force in
October 2005 replacing the Freedom of Information Act of 2002,
individuals can seek information from government and public-sector
bodies. This legislation has introduced higher levels of transparency and
improved governance. All governments prefer to maintain a discreet silence
about decisions driven by political considerations. It is creditable that Dr
Singh’s government went ahead with this law. Although the Central and
state governments can seek exemption from the purview of this Act on
grounds of national security, it has made the functioning of officials more
transparent.
Another forward-looking legislation adopted by Dr Singh’s government
was the National Rural Employment Guarantee Act, 2005, now known as
the Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA), which came into effect in February 2006. MGNREGA has
been criticized for its inadequacy since it guarantees just 100 days of work
per annum at prescribed wage rates, and the implementation has been
patchy in several states. However, given the abundant evidence of misery in
several rural areas around the country, this was an important step towards
alleviating poverty.
Some economists have suggested that India should provide a universal
basic income (UBI) to all Indian citizens. An important difference between
UBI and MGNREGA is that the latter is paid for work done rather than as a
dole which could create a dependency syndrome among able-bodied
workers. It is debatable whether UBI can be implemented any time soon in
India, even if exceptions are made based on ownership of cars and tax
returns to exclude higher-income earners. The potentially high cost of
making UBI a reality means the government has to take the politically
difficult step of reducing fertilizer, electricity, tax and other non-merit
subsidies.
The personal identity card Aadhar, with biometrics registration as a
precondition, was conceptualized by Nandan Nilekani, the former CEO of
one of India’s largest information technology companies. Despite obstacles
created by the Ministry of Home Affairs, the project was undertaken by Dr
Singh’s government. Nilekani mentioned to me during a conversation at his
residence in Delhi that he had sought Dr Singh’s intervention to resolve turf
issues between ministries. It soon became clear to him that Dr Singh had
limited authority with his cabinet colleagues, and it was up to Nilekani to
convince all concerned. It is fortunate that he persisted, and with the
support of the subsequent NDA government, Aadhaar is an extremely
useful reality today. Aadhaar’s data integrity is not perfect, but it is a step
forward in helping government to get its cash assistance to intended
beneficiaries in a reliable manner. Of course, India has some distance to
cover in providing uninterrupted Internet connectivity in rural and remote
parts of the country.
The Right of Children to Free and Compulsory Education Act was passed
by Parliament in August 2009. On paper, this Act is a belated step in the
right direction. However, it is in the sincere and steady implementation of
the numerous schemes for primary and secondary education that state and
Central governments have been found wanting. One of the consequences of
this Act has been the promotion of children up to grade eight irrespective of
their performance in basic tests of literacy and numeracy. The proximity of
this legislation to the general elections of 2009 gives the impression that
this was another of the several steps that Dr Singh’s government took with a
view to garnering support during the impending elections.
Prior to the general elections of May 2014, the National Food Security
Act was passed in September 2013. The implementation of numerous
Central and state government laws and schemes to subsidize foodgrains and
ensure their availability needs to be consistent across the country. Dr Singh
made the right to food justiciable without the means for government to
make standardized implementation possible in a cost-efficient manner.
An institution which was and continues to be in desperate need for
reform was the Food Corporation of India (FCI). FCI does not have
adequate storage space for the grains it acquires at minimum support prices
(MSPs). Dr Singh’s government did not have time to set up the mechanisms
for consistent implementation of the Food Security Act since it was voted
out of power seven months later. However, it did little in the ten years it
was in power to reduce the alleged corruption associated with FCI or to
overhaul it.
High MSPs are usually politically determined and cannot be fiscally
sustained by several states. Dr Singh’s government would have done better
to examine MSP programmes for foodgrains which has resulted in
unsustainable budget deficits in states such as Punjab. Dr Singh’s
government also did little to push for honest implementation of assured
irrigation schemes around the country and particularly in states in which the
UPA was in power. It is painfully evident that Indian farmers, and hence the
economy, were and continue to be overdependent on fickle monsoons.

Funding for Infrastructure

The Indian Central and state governments are invariably short of funds to
finance large, long-term infrastructure projects and seek funding from
multilateral financial institutions such as the World Bank and ADB (Asian
Development Bank) to complement government spending for such projects.
Significant volumes of bilateral financing are difficult to source except for
specific projects such as those supported by Japan. West Asian and Gulf
countries exporting oil and gas have large trade surpluses parked in their
sovereign wealth funds, and Dr Singh’s government felt that these could be
tapped to fund projects in India.
Accordingly, around mid-2007, Dr Singh authorized a four-member
delegation led by Montek Singh Ahluwalia to visit Saudi Arabia. The other
three members of the team were Amit Mitra (then Secretary General of the
Federation of Indian Chambers of Commerce and Industry and now the
finance minister of West Bengal), Rajiv Lall, then managing director of the
Infrastructure Development Finance Company (IDFC), and me. I was the
additional secretary (economic relations) in the MEA at the time. During
our visit to Riyadh, we first met the chairman of the Saudi Arabian
Monetary Authority, Hamad Ibn Saud Al Sayari. Al Sayari’s response was
that the Saudi side could consider funding infrastructure projects in India,
but the Government of India would have to provide a sovereign guarantee,
and the return on Saudi capital, in hard currency terms, would need to be
considerably higher than on the yields on US government debt securities.
Indian public-sector banks accept hard currency term deposits from NRIs at
interest rates which are higher than the rates of return available in countries
such as the US or Germany. Effectively, the Saudi central bank governor
asked for even higher interest rates than on NRI deposits and with an
explicit guarantee from the Indian Central government. The Indian
government was unwilling to provide such a guarantee since the volumes
involved would have been high and the execution of projects would
necessarily involve the private sector.
Our next port of call was Prince Al-Waleed bin Talal bin Abdulaziz al
Saud, one of the wealthiest individuals in Saudi Arabia with a private
business empire which extends to most developed countries. A similar pitch
was made to Al-Waleed to interest him in investing in India. His response
was direct and succinct. He said that he employed investment managers
based in London and New York, and the Government of India had to
convince them.
Our final major meeting was a farce. We went to the residence of a Saudi
royal. He was about eighty-two years old and was seventh in the line of
succession to the Saudi king. He was the Saudi defence minister at one
point of time and was stripped of this responsibility because he had shot one
of his aides in a fit of anger. However, he had the important responsibility
of keeping track of the line of succession. The Indian ambassador to Saudi
Arabia, M.O.H. Farook,38 accompanied us for this meeting. At the
beginning of the meeting, the Saudi royal thanked Ambassador Farook for
sending him Ayurvedic oil. He added, with a lascivious smile, that his
twenty-four-year-old Bedouin doctor wife did the massaging and this had
reduced his knee-joint pains. The Saudi royal went on to embarrass Mr
Farook by suggesting that since the ambassador was a widower for several
years, he could find him a young Bedouin wife. He then subjected us to a
long lecture about the huge investments the Saudi government was going to
make in its own country. All in all, this was a waste of time for our
delegation but an interesting glimpse into the lifestyle and thinking of a
high-ranking Saudi royal family member.
Given the limited interest from foreign investors in funding infrastructure
in India, Dr Singh’s government had to rely more on the Indian private
sector to part-finance and execute these projects. Financing raised by Indian
private-sector companies on their own was limited, and in the power and
transmission, road and steel sectors, funding support came mostly from
Indian public-sector banks (PSBs). Over time, the large volumes of lending
by PSBs resulted in what was described as the ‘Twin Balance Sheet
Problem’ in the Economic Survey of 2015–16. PSBs and private companies
ended up with huge amounts of impaired assets and unserviceable liabilities
(debts) on their balance sheets.
It now seems that PSBs received signals from government that speed in
disbursement of funds was of the essence, and they did not need to carry out
rigorous scrutiny for financial viability to extend credit. Irrespective of
whether this allegation is correct or not, Dr Singh’s government was not
proactive enough in pushing the required concomitant government
approvals through, including for environmental protection and land
acquisition. On the contrary, between 2005 and 2006, the Planning
Commission prevented executors of projects, even public-sector ones such
as the National Highways Authority of India (NHAI), from issuing new
contracts on the grounds that a new Model Concession Agreement was
required.39
Due to higher government spending combined with MGNREGA and
more than usual spending on subsidies by the Central government, the
deadlines for the implementation of the targets of the Fiscal Responsibility
and Budget Management Act (FRBMA), 2003, were first postponed and
subsequently suspended in 2009. In 2011, the prime minister’s Economic
Advisory Council was compelled to advise Dr Singh’s government to
reduce fiscal deficits as required by the FRBMA.40 It is surprising that Dr
Manmohan Singh as PM and Montek Ahluwalia as deputy chairman of the
Planning Commission did not pay sufficient attention to keeping fiscal
deficits within safe upper bounds. After all, they were the finance minister
and finance secretary respectively during the reform years of 1991–96. The
only logical explanation is that they had less than the required influence on
decisions taken by the finance ministry.

Land and Labour (Factor) Markets

Although it may have been politically unrealistic, more was expected from
an economist PM in reforming India’s factor markets—in land acquisition
and labour rights. In October 2008, four years into Dr Singh’s first term, the
Tata group had to move the Nano small car project out from Singur in West
Bengal due to the agitation of farmers against acquisition of their land.
Even the Left Front government led by CPI(M), which was in power for
over three decades by then, could not convince farmers that setting up a car
manufacturing plant would lead to jobs and development of Singur.
Later, the Tata group announced that the Nano project had been moved to
Sanand in Gujarat. The then chief minister of Gujarat, Narendra Modi, saw
an opportunity and moved with alacrity to meet the requirements for the
Tata Nano car project. As was evident from the sharp confrontation between
the Tata group and farmers, land acquisition was and remains a highly
charged issue.
This confrontation should have convinced Dr Singh’s government that
the 1894 Land Acquisition Act needed to be amended so that land
purchases to set up industries was made easier while remaining fair to those
who sell their land. Unfortunately, the ground reality in many states is that
the politically well-connected have acquired farmland and changed land-use
norms to make windfall profits. The Robert Vadra41 episode in the
acquisition of land in Haryana is such an example. When Dr Singh’s
government passed a revised Land Acquisition Act in September 2013, it
abjectly surrendered its responsibility to make land acquisition easier. This
legislation was piloted by Jairam Ramesh, the minister for rural
development, and the new law, called the Land Acquisition, Rehabilitation
and Resettlement (LARR) Act, 2013, made purchase of land for industrial
or other purposes even more difficult than in the past. Along with other
requirements, a ‘social impact assessment’ was stipulated in the LARR Act.
The objectives of preventing acquisition of multi-crop land or more land
than is required for stated end purposes are laudable. However, the balance
shifted further away from a reasonable compromise between farmers with
landholdings and those who need land for industry. The situation became
worse for the latter. Instead, a more practical piece of legislation should
have been adopted for land acquisition. It follows that Dr Singh needed to
do a better job in convincing farmers and left-wing activists that while
government has the eminent domain42 right to acquire land, it would ensure
that such acquisition would be done transparently, quickly and fairly.
As is said often, India has way too much legislation and limited
implementation of its laws. This is particularly true about labour laws in
India. Labour markets in India are governed by numerous rigid and onerous
regulations with the objective of protecting the interests of organized
workers. An illustrative list of the many pieces of legislation includes the
Workmen’s Compensation Act, 1923; Industrial Employment (Standing
Orders) Act, 1946; Employees’ State Insurance Act, 1948; Factories Act,
1948; Minimum Wages Act, 1948; Maternity Benefits Act, 1961; and the
Payment of Gratuity Act, 1972. The Contract Labour Regulation and
Abolition Act of 1970 is applicable to all firms with more than twenty
workers. Under India’s multiple labour laws, the numbers of workers which
trigger one condition or the other for firms to comply with are: seven, ten,
twenty, fifty and 100. In practice, these many laws work against the
interests of workers as employers try to limit the number of employees they
hire below threshold numbers in order to avoid the application of one or
other of the Acts mentioned above.
About 84 per cent of workers in India’s manufacturing sector work in
firms with forty-nine or less employees, and only 10.5 per cent of the
manufacturing workforce is employed in firms with 200 or more workers.
Comparatively, in China 25 per cent of the workforce is employed in small
companies while 52 per cent work in larger firms. In labour-intensive firms
such as those that produce garments, 92.4 per cent of Indian workers are
employed in firms with forty-nine or less workers, whereas in China about
87.7 per cent of apparel workers are employed in large firms. Labour costs
account for about 80 per cent of the cost of producing garments in India,
and the relatively small production units do not achieve economies of
scale.43
India is a labour-surplus country, and about 80 per cent of its workforce
is self-employed in low-productivity farming and related activities. For
landless farmers or those with landholdings below an acre, life is hard and
uncertain. Given a choice, many among the landless would readily move to
salaried jobs, even in locations far from their place of birth. Employment
opportunities in the formal sector could rise if the dozens of Central and
state government laws and corresponding regulations were to be reduced
and simplified. Dr Singh’s government could have paid greater attention to
simplifying and unifying labour-related legislation. This, coupled with
honestly supervised investments in the construction of infrastructure could
have started systematic, as distinct from episodic and unfair, processes of
weaning away surplus agricultural labour towards formal-sector
employment.
 The Sick Industrial Companies (Special Provisions) Repeal Act was
passed by Parliament in 2003 which was to do away with the Sick Industrial
Companies Act (SICA) of 1985. SICA harmed rather than helped workers
as company owners shied away from making investments in new businesses
because it made closing down any loss-making company virtually
impossible. The Repeal Act empowered the Central government to also
dissolve the Board for Industrial and Financial Reconstruction (BIFR)
which had been set up under SICA. BIFR had become an obstructionist
body which endlessly debated the consequences of shutting debt-laden
companies. Despite the obvious merits of proceeding with the abolition of
BIFR, Dr Singh’s government did not notify the Repeal Act to make it
easier for creditors to seek resolution in pending cases of insolvencies.44

Agriculture

At its core, the solution to the woes of the agriculture sector is to move the
hundreds of millions currently engaged in subsistence agriculture to the
production of value-added farm products or manufacturing.45 The efforts
being made to improve delivery of primary education and imparting of
skills to families of farmers need to be more than doubled. Instead, Dr
Singh’s government used the same tired and half-baked solutions of interest
rate subsidies and loan waivers for the agriculture sector.
The productivity and profitability of the agriculture sector vary widely
around the country. Each Indian state has its own specific difficulties. Crop
patterns have changed over the decades based on availability of assured
irrigation and MSPs for grains. A National Commission on Farmers was set
up by the Central government in November 2004. This commission, headed
by Professor M.S. Swaminathan, mentions in its report submitted in
October 200646 that the size of landholdings for about 40 per cent of
farmers is less than 1 acre. Clearly, this is way below an economically
viable size.
An agricultural debt waiver and debt relief scheme (ADWDRS) was
announced in June 2008, eleven months before the 2009 general elections.
In this scheme, a complete waiver of debt was provided to small and
marginal farmers (those with landholdings of up to 2 hectares) and a one-
time relief of 25 per cent was envisaged for other farmers (with more than 2
hectares), provided they paid the balance 75 per cent of the ‘eligible
amount’, which included interest and principal components. According to a
World Bank study, the ADWDRS ‘waived Rupees 71,500 crores of
agricultural debt issued by commercial and cooperative banks between
1997 and 2007. The programme covered all agricultural loans in India that
were overdue at the end of 2007 and remained in default until February 28,
2008.’ The target was to cover over 36.9 million small and marginal
farmers and around 6 million other farmers.47 According to this cross-
country World Bank study, this was ‘one of the largest household debt relief
programs in history. The volume of debt relief granted under the program
corresponded to 1.6% of India’s GDP.’
This policy of waivers for agricultural debt was not unique to Dr Singh’s
government. Over the last few decades, several state and Central
governments have agreed to farm loan waivers. This measure provides
relief to farmers with larger landholdings since it is mostly that category of
farmers which has access to loans from public-sector financial institutions.
Farmers with little or no land have to depend on informal moneylenders for
credit. A more sustainable course of action would have been for Dr Singh’s
government to increase opportunities for subsistence farmers to work for
salaried incomes in activities other than basic farming.
India’s experience in using genetically modified (GM) BT (Bacillus
thuringeinsis) cotton seeds which are pest resistant has been hugely
beneficial. Production of cotton has soared and so have exports. Yet during
Dr Singh’s time, India chose not to move forward with other genetically
modified seeds. The debate was overtaken by those concerned about the
longer-term consequences of using GM seeds for cereals and edible
products. A Tata Energy Research Institute (TERI) study provides details
about the nature of GM seeds and the extent to which these are used and for
what crops in several countries including India, China, Brazil and the
United States.48 Unfortunately, GM seeds became an issue in turf battles
within the Indian government which involved the departments of
biotechnology, agriculture, veterinary science and health, and the Ministry
of Environment, Forests and Climate Change. If not for food products, such
seeds could have been cleared for cultivation of cash crops. This issue of
using GM seeds became more about the extent to which Monsanto49 would
profit from the sales of its seeds than development of profitable agriculture
which would benefit Indian farmers.
When the CPI (M) withdrew its support in 2008 over a disagreement
about the 123 Agreement, it was a potential boon for Dr Singh’s
government as it could have from then on pushed for economic
liberalization. Unfortunately, Dr Singh’s government stuck to populist
policies with an eye to winning enough seats to form government again
after the next general election of 2009.

Corruption Scandals

Irrespective of the wisdom of the decision for India to host the

Commonwealth Games in Delhi in October 2010, the ground reality was
that preparations had to be completed in time. Although the amounts
involved were relatively small, allegations of corruption against Dr Singh’s
government started with accusations about blatant violations of norms in
buying of equipment and awarding of contracts for the Games. Congress
Lok Sabha MP Suresh Kalmadi, chairman of the Commonwealth
organizing committee, was accused of wrongdoing and finally arrested in
April 2011.50
During Dr Singh’s government’s first term from 2004 to 2009, there were
other allegations of wrongdoing, for example, about the allocation of coal
mines by the Central government in return for kickbacks. Dr Singh was the
coal minister when the controversial coal block allocations were made.51 In
March 2014 the office of the Comptroller and Auditor General (CAG)
suggested that the coal ministry’s allocations of mines were inefficient and
by implication suspect. On 1 December 2018, a special CBI court held that
H.C. Gupta, former coal secretary, and other senior officials were arbitrary
in coal block allocation decisions.52 The following day, on 2 December
2018, it was reported that the IAS Officers Association had put out a
statement which categorized the ‘conviction of honest IAS officers in the
coal scam’ as most unfortunate.53 At some stage in this lengthy process, I
had expected Dr Singh to make a statement that even if the decisions made
by the officers were subsequently determined to be suboptimal, they had
acted in good faith under his charge.
In January 2008, in another case which led to accusations of corruption,
A. Raja, the then telecommunications minister, allotted 2G spectrum on a
first come, first served basis. In November 2010, Vinod Rai, who was the
CAG, submitted his findings in this matter to Parliament.54 The CAG
estimated that the government had lost about Rs 1.76 trillion because the
licences were issued at way below market value. Dr Singh’s government’s
ministers and spokespersons insisted that the shortfall estimated by the
CAG was hugely overstated. Even if the estimated loss of revenue was
incorrect, it was apparent that the allocation of spectrum was unfair and
non-transparent.55
Taped conversations between A. Raja, the telecom minister, and Niira
Radia, the head of a public relations firm, which became public in May
2010, confirmed that bribes were paid for 2G telecom spectrum allocations.
In February 2011, A. Raja was sent to judicial custody in Delhi’s Tihar jail
for twenty months, and he was later released on bail. The Delhi High Court
set up a special court to hear 2G cases. A month after Raja, Ms Kanimozhi,
a DMK MP, and the then telecommunications secretary, Siddharth Behuria
were jailed under similar charges.56
Dr Singh offered no explanation or comment about the alleged
wrongdoing of A. Raja—one of the cabinet ministers in his government. At
a press conference on 16 February 2011, Dr Singh used the expression
‘coalition dharma’57 to explain the continued presence of A. Raja in his
cabinet. According to Dr Singh, the DMK, which was part of the UPA, had
insisted that Raja was the party’s choice for a ministerial position in Delhi.
On 22 February 2011, the late Ms Jayalalithaa, who was the AIADMK head
in Tamil Nadu, characterized Dr Singh’s comment as ‘weak-kneed’.58
 On 21 December 2017, almost nine years after former telecom minister
A. Raja and others were implicated, a special CBI judge acquitted all
nineteen accused in the 2G telecom case, including A. Raja and Ms
Kanimozhi. The CBI judge ruled that the prosecution had failed to prove its
case. The CBI’s credibility was tarnished yet again. All things considered, it
was an interminable and unedifying spectacle in which Dr Singh was
perceived to be soft about the wrongdoing of his ministers and coalition
partners, because their support was needed in Parliament. According to
multiple media reports, CBI officials appear to be politicized and partisan in
their investigations and they try to further the interests of the party in power
in Delhi.
The perception that Rajiv Gandhi’s government was involved in the
Bofors bribery case had hurt the Congress party in the 1989 general
elections. It is a sad commentary on the performance of India’s
investigating agencies that nearly two decades later, Bofors-related cases
were still meandering through Indian courts. After Dr Singh’s government
took over in 2004, the CBI was criticized for not opposing the de-freezing
of O. Quattrocchi’s bank accounts in London, and for informing the Crown
Prosecutor in the UK that there was no case against Quattrocchi. The chief
metropolitan magistrate in Delhi, Vinod Yadav, was reported to have said
on 6 January 2011 that ‘I agree that there are certain mala fide intentions in
the case’ when Supreme Court lawyer Ajay Agrawal submitted that the
probe agency and the Central government had tried to protect this Italian
businessman.59
Vodafone is a London-headquartered mega telecommunications company
which provides mobile phone, data and other services in India. Along with
Airtel and Jio, it is one of a few private telecom companies which has name
recognition internationally. In 2007, Vodafone’s Dutch subsidiary acquired
the India operating licence of Hutchison Whampoa’s wholly owned
subsidiary in the Cayman Islands for US $11 billion. At that time, Indian
tax authorities estimated that Vodafone was required to pay about Rupees
80 billion60 as capital gains tax since it had not withheld that amount while
paying Hutchison. The Indian government claimed that it had informed
Vodafone about this. Vodafone went ahead with the purchase on the
grounds that the transaction was between two entities which were non-
resident and hence not liable to pay any taxes in India.
Subsequently, Vodafone contested the Indian government’s tax claim and
finally won the case in the Supreme Court of India in 2012. The Ministry of
Finance, with Pranab Mukherjee as FM, had fresh legislation passed to
overturn the Supreme Court judgment and pressed tax claims on Vodafone.
This came to be later described as a case of ‘retrospective taxation’. As of
May 2019, the case is under consideration with an international arbitration
tribunal under the provisions of the India–Netherlands Bilateral Investment
Treaty.
I was the Indian high commissioner to the UK when the Indian
government decided to enact legislation to overturn the Supreme Court
judgment in the Vodafone case. It was abundantly clear from my
conversations with a number of chief executive officers of globally
significant companies headquartered in London that India was literally
being ‘penny wise and pound foolish’ in changing the relevant tax law with
retrospective effect. Although a lower court had agreed with the
government’s tax claim, the Supreme Court had ruled in favour of
Vodafone. Therefore, irrespective of the soundness of the Indian
government’s original tax claim, the MoF action to change the law
retroactively detracted from the country’s efforts to project India as a
destination friendly to foreign investments. This was a counterproductive
initiative of Pranab Mukherjee as finance minister, and Dr Singh was either
indifferent or helpless to do anything about it.
At the end of May 2017, the CBI filed first information reports (FIRs) on
cases related to the purchase of aircraft for Air India. The allegation was
that the number of aircraft bought was far in excess of what was necessary,
and that Air India’s profit-making routes had been surrendered to foreign
airlines for less than adequate compensation. These cases pertain to the
years that Dr Singh’s government was in power and Praful Patel was the
civil aviation minister. The CAG questioned the decisions taken by the civil
aviation ministry in 2011 and so did the Parliament’s Public Accounts
Committee in 2014.61
The central vigilance commissioner (CVC) is appointed by a three-
member committee consisting of the PM, the home minister and the leader
of the Opposition. In 2011, the members of the appointment committee
were Dr Singh, P. Chidambaram and Sushma Swaraj of the BJP when P.J.
Thomas, an IAS officer of the Kerala cadre, was selected as the CVC. This
appointment was opposed by Sushma Swaraj and also through writ
petitions which were filed by the Centre for Public Interest Litigation with
the Supreme Court. On 2 March 2011, the Supreme Court struck down the
appointment of P.J. Thomas.62 It was not clear why Dr Singh’s government
persisted with the appointment of Thomas in the face of objections from the
Opposition. Dr Singh should have changed their proposed appointee
because the subsequent Supreme Court verdict brought unnecessary
controversy to the appointment of the CVC.
In December 2012, the conduct of Ranjit Sinha as the director of the CBI
became controversial. CBI was investigating the so-called coal block scam.
Law Minister Ashwani Kumar asking the CBI Director Sinha to come to his
office on 5 March 2013 was seen as an attempt to influence the
investigation.63 As a consequence, the Supreme Court was constrained to
call the CBI a ‘caged parrot speaking his master’s voice’ during hearings in
the first week of May 2010.64 The criticism led to Ashwani Kumar’s
resignation on 10 May 2013. Ranjit Sinha was also alleged to have met
those who had been accused in several cases of financial wrongdoing,
which were under investigation by the CBI, at his official residence. It is
surprising, to put it extremely mildly, that Dr Singh’s government chose
Ranjit Sinha for the crucial position of director CBI.
Yet another case of alleged corruption at high levels of Dr Singh’s
government was that of the Railway Minister Pawan Kumar Bansal.65 Mr
Bansal resigned on 10 May 2013 after his nephew Vijay Singla was arrested
for trying to interfere in the promotion of a railway board member.66 There
were also rumours about a bribery scandal involving Bansal’s private
secretary.
The Lokpal and Lokayuktas Act, 2013

The high-profile nature of the many corruption cases which came to light
by 2011 led to an anti-corruption movement which mounted huge
demonstrations in Delhi. These eruptions of public anger against blatant
corruption were covered extensively by the visual and print media. Initially,
Baba Ramdev was in the news for demanding that money which had been
illicitly siphoned away from India should be brought back. This was a
vague and generalized accusation. The pressure tactic used most effectively
by Baba Ramdev and later Anna Hazare to press for their demands was to
go on fast. The followers of Anna Hazare such as Arvind Kejriwal made
broad accusations of corruption against government officials and ministers.
They demanded fresh legislation to set up a national Lokpal, an
ombudsman, who would be empowered to investigate charges of corruption
against the highest in the land including the PM.
Dr Singh’s government capitulated in the face of these threats of fasting
unto death. It would have undoubtedly been politically damaging for the
UPA government if any of those fasting had passed away. However, the
spectacle of Dr Singh’s government struggling incoherently to appease
agitators did not make it popular with voters. The cardinal mistake made by
Dr Singh was to allow the agitation to reach the proportions it did right in
the heart of Delhi. The problem for the Congress party was that the Anna
Hazare ‘movement’, which was mostly confined to Delhi, received
extensive television coverage and was watched around the country.
After melodramatic moments inside and outside Parliament, Dr Singh’s
government had the Lokpal and Lokayuktas legislation passed in the Lok
Sabha on 27 December 2011. The Lokpal is meant for the Central
government and Lokayuktas for the state governments. The bill was passed
by the Upper House two years later on 13 December 2013 and came into
force on 1 January 2014 with the approval of the President.67
There is no guarantee that the Lokpal and others in and around this office
would be inflexibly non-partisan and honest, particularly when the political
and financial stakes are high. The Central Vigilance Commission has
watchdog representatives in all public-sector organizations. The CBI has
wide powers to investigate and prosecute those engaging in corrupt
practices. The Serious Fraud Investigation Office (SFIO) is a statutory body
meant to investigate wrongdoing by corporates. The Directorate of Revenue
Intelligence is meant to keep an eye out for smuggling of gold, firearms or
narcotics. Dr Singh’s government should have explained to the country that
having yet another oversight body would not necessarily reduce corruption.

Legacy

Dr Singh had greatness thrust upon him when he became finance minister
and again when he was elevated to the position of PM. He rose to the
occasion as FM but could not as PM. After Narasimha Rao’s term as PM
and that of Dr Singh as finance minister ended in 1996, Dr Singh did not
seek to be a leader in the Congress party with a political base of his own.
Consequently, as an appointee PM in 2004, with no pressing economic
crisis, Dr Singh needed the Congress president’s approval for almost all
decisions.
The expectation after the Congress-led UPA coalition came back to
power with more seats in the Lok Sabha68 in 2009 was that Dr Singh would
exercise greater authority within the cabinet and on economic policies.
However, Dr Singh had limited freedom of action on issues related to the
economy, internal security, defence purchases and selection of ministerial
colleagues and senior officials. By contrast, he had considerably more
autonomy in foreign policy matters. Although the Congress party had
traditionally taken a wary attitude towards the US, Dr Singh’s government
carried forward the considerable work done during the Atal Bihari Vajpayee
years to normalize relations with that country. Dr Singh was able to
convince Sonia Gandhi to go against the CPI (M)’s wishes in pushing for
the 123 Agreement. This was the most significant achievement of Dr
Singh’s ten years in office because the agreement ended the denial of
nuclear materials and technology to India since the 1974 nuclear test. Dr
Singh also recognized the importance of India’s economic cooperation with
Japan and pushed it to a higher level of engagement.
In the neighbourhood, the Pakistani establishment keeps pointing to India
as an ever-present existential threat. This, combined with the November
2008 terrorist attack on Mumbai, ensured that no progress could be made on
relations with this western neighbour. In Afghanistan, Dr Singh was
successful in convincing the local leadership of that time that India could be
a counter to Pakistan’s harmful pro-Taliban influence in that country. Dr
Singh was successful in his efforts in discouraging the setting up of training
camps on Afghan soil for attacks in Kashmir or elsewhere in the Indian
heartland.
On the domestic front, Dr Singh and his government provided a lifeline
to the landless poor by passing the MGNREGA. The setting up of
biometrics recording centres for Aadhaar numbers was also an extremely
useful achievement. Over time, a more widespread use of Aadhaar will
stem leakages in the government’s financial assistance programmes by
ensuring that cash benefits reach intended beneficiaries.
The RBI did not accumulate an adequate volume of FX reserves during
Dr Singh’s two terms. Consequently, when there was a sharp rise in net FX
outflows in July–August 2013, there was a run on the Indian rupee, and the
exchange rate slipped from around Rupees 63–64 to Rupees 68 to a US
dollar within a month. Although this was a necessary downward correction
since the rupee’s REER was overvalued, the sharp depreciation eroded
foreign investor confidence. Dr Singh’s much graver error of judgement
was that of encouraging PSBs to raise lending volumes without adequate
checks on the viability of the long-term projects that were being funded.
This was the genesis of the non-performing assets (NPAs) problem that the
country is grappling with even as of May 2019.
The Group of Ministers (GoM) mechanism was overused during the Dr
Singh years and became a way to delay decisions on issues which had huge
financial implications or were politically contentious.69 ‘In the Dr Singh
Government 68 GoMs and 14 Empowered GoMs or EGoMs were
constituted to consider issues ranging from gas prices to selling shares in
Public Sector Undertakings and mega power projects. The then Defence,
External Affairs and later Finance Minister Pranab Mukherjee used to (head
most) EGoMs and GoMs. At one particular time he was heading more than
two dozen such committees.’70 These GoMs and EGoMs (empowered group
of ministers) gave an appearance that the ministers concerned were working
faster towards solutions which would be acceptable to all without
necessarily achieving much.
Dr Singh undertook several systemic reforms but failed to make even
minor progress in reforming the two important factor markets of labour and
land. The existing rules and regulations applicable to these crucial areas are
major impediments in the way of promoting private investment necessary
for job creation.
Dr Singh began his first term in 2004 with an image of personal probity.
Sanjaya Baru was Manmohan Singh’s media adviser from 2004 to 2009,
and he calls Dr Singh an ‘Accidental Prime Minister’ although ‘appointee
PM’ may be a more apt description.71 This book suggests that Dr Singh may
have been an unwilling victim of the multiple intrigues of Ahmed Patel, a
close confidant of Sonia Gandhi. Irrespective of what was the truth about
these portrayals in Baru’s book, the fact is that Dr Singh chose to remain
PM till May 2014. In his second term, a rash of corruption scandals became
public, and then the huge public agitations in Delhi for a Lokpal
immobilized him and compromised the reputation he had started out with.
For average voters, the buck stops with the head of government (PM), even
if she/he is an appointee, if there are scandals about financial or other
wrongdoing.
In September 2013, Rahul Gandhi publicly tore up a copy of the
proposed ordinance that Dr Singh’s government was in the process of
issuing.72 This ordinance may have enabled Lalu Prasad Yadav to contest
elections even though he had been convicted in several corruption cases.73
The ordinance had been approved by the cabinet, and Dr Singh happened to
be in the United States on an official visit when this incident took place. Dr
Singh does not appear to hold anything against Rahul Gandhi for
symbolically tearing up a Union cabinet-approved ordinance. During
December 2018–March 2019, Dr Singh accompanied Rahul Gandhi to
boost the electoral prospects of the Congress party in the 2019 general
elections. Consequently, the conclusion has to be that Dr Singh does not
hold Sonia Gandhi or the Congress party responsible for forcing him to
look the other way on politically charged issues or allegations of corruption.
Narasimha Rao and even Indira Gandhi, due to the sudden death of Lal
Bahadur Shastri in Tashkent, were accidental PMs. However, both of them
were elected to the Lok Sabha several times. The division of work between
Dr Singh heading the government and Sonia Gandhi as the Congress party
president, presented as a virtue at the start in 2004, became a liability later
on. The Congress party’s strength in the Lok Sabha came down from 206 in
2009 to just forty-five seats in the 2014 general election. This was probably
because the electorate was displeased with Dr Singh’s lack of accountability
and the extent of behind the scenes executive power enjoyed by Sonia
Gandhi.
Towards the end of Dr Singh’s second term, the focus to get a third term
for a Congress-led government reached absurd levels. For instance, Dr
Singh took the decision of awarding the Bharat Ratna to Sachin Tendulkar.
This to me appeared to be a cynical ploy to get the votes of India’s teeming
young cricket lovers in the 2014 general election. In Dr Singh’s defence, it
could be argued that given the multiple problems which afflict India, the
benefits of having one coalition government for an uninterrupted ten years
overwhelmed all the ills stemming from corruption in high places and
distorted/delayed decision making. Effectively, the country was spared the
uncertainties and consequent lack of direction that prevailed during the
short-lived governments headed by V.P. Singh, Chandra Shekhar, Deve
Gowda or I.K. Gujral.
In his public persona, Dr Singh was more comfortable with the English-
speaking, Western-educated elite even though he came from a humble
background. His education and long years as a senior national and
international bureaucrat, and his subsequent political career made him part
of the ‘India’ elite. Dr Singh usually spoke in English from prepared texts,
rather than spontaneously, which created a distance between him and his
audiences. He was often dressed in a bandhgala suit; even when he wore a
starched white kurta, he was not seen as part of the ‘Bharat’ of the common
man. He spoke in stilted Hindi only when he had to and appeared to be
more comfortable with specialists and government officers rather than
fellow politicians.
Assessing Dr Singh on the 3Cs compared to other PMs, his personal
integrity was never in doubt. However, even though integrity is a necessary
prerequisite, it is not sufficient to qualify a person as being of high
Character. Dr Singh showed character only when he chose not to bend in
the 123 Agreement with the US. In most other cases, if he sensed any
conflict with the political interests of the Congress party, he took the line of
least resistance, showing weakness of character. Dr Singh’s Competence
was evident during the years he held positions as an economist, governor of
the RBI and finance minister. However, Dr Singh chose to make his peace
with political as opposed to national-interest-driven objectives too often as
PM, and that reduced his competence. His score was extremely low on the
Charisma index, and he was not an effective public speaker. Dr Singh
showed little ability to make personal connections which made it difficult
for ministers, officers and others to relate to him.
Cynicism levels among Indian voters about government and those in
public life have been on the rise for the last several decades. All things
considered, there was a sharp upward spike in public cynicism over the
years that Dr Singh was PM. This was negative for the country and has
probably tarred Dr Singh’s overall reputation beyond redemption.
 NARENDRA MODI
Result Oriented, Charismatic Orator and Controversial

Nirmamo nirahaṁkārah sa śāntimadhigacchati

It is only those without a sense of (personal) Ownership (over worldly possessions) and
(excessive) Ego who attain Peace

Bhagavadgita

Narendra Damodardas Modi1 was sworn in as prime minister on 26 May

2014 after a historic win for his party, the BJP. Since Independence, only
the Congress governments of Jawaharlal Nehru, Lal Bahadur Shastri, Indira
Gandhi2 and Rajiv Gandhi had an absolute majority in the Lok Sabha. With
the general election of 2014, the BJP became the first non-Congress party to
win an absolute majority in the Lok Sabha.
Gujarat has a long history of fractured mandates in the state assembly
elections going back to the 1970s. Modi changed that and led the BJP to
form government in Gujarat thrice consecutively with decisive victories in
the state assembly elections of 2002, 2007 and 2012. In the thirteen years
that Modi was the chief minister of Gujarat, the state benefited from an
increase in infrastructure, power generation and irrigation. According to a
study titled the ‘Economic Freedom of the States of India’, Gujarat’s
average state domestic product (SDP) growth rate was consistently high
during the years Modi was CM.3 Other analysts hold the view that there is
no ‘evidence in favour of the claim that Modi’s leadership had any
significant additional effect on Gujarat’s growth rate in the 2000s’.4
Irrespective of the arguments about whether Modi’s leadership raised
Gujarat’s growth rates above trend levels or not, Gujarat did make
impressive progress in building roads and providing electrical power
reliably to farmers. Modi pushed to make Gujarat business-friendly and an
attractive investment destination for both domestic and foreign private-
sector firms. He orchestrated the annual Vibrant Gujarat conferences which
were attended by CEOs (chief executive officers) of large multinational
corporations as well as domestic companies.
CEOs of Indian firms have confirmed on record that during the years
Modi was CM, his government responded speedily to their requests for
purchase of land and regulatory clearances.5 In short, Modi built an
impressive track record in administering Gujarat. This gave him a larger-
than-life image in Gujarat, and gradually through migrant workers in the
neighbouring predominantly Hindi-speaking states as well.
However, he assumed charge as PM with a blemished record on the law
and order front. On 27 February 2002, a train in which Gujarati kar sevaks6
were returning from Ayodhya was burnt at the Godhra station in Gujarat. It
was reported that fifty-nine kar sevaks were burnt to death when their
compartment was set alight.7 This incident was followed by retaliatory riots
in Ahmedabad and other parts of Gujarat. According to media reports, over
1100 people were killed in the post-Godhra riots, out of which about 880
were Muslims and 250 Hindus. In some quarters in India, the feeling was
that Modi had consciously prevented the police from stemming the
violence. And if the Gujarat government did not have the will or the means
to stem the retaliatory violence, the NDA-led Central government of Atal
Bihari Vajpayee should have stepped in to do so.
By end December 2018, the Gujarat High Court had sentenced those held
responsible in the Naroda Patiya, Sardarpura, Gulbarg Society, Ode Village
and Dipda Darwaja cases to life imprisonment.8 In May 2019, seventeen
years after the riots of 2002, in the horrific Bilkis Bano case of rape and
murder, the Supreme Court has directed the Gujarat government to provide
financial relief.9 The allegations against Modi’s state government were
examined by a special investigation team (SIT) appointed by the Supreme
Court. This SIT had reported in February 2012 that there was no evidence
to implicate Modi or the several other accused. The SIT’s findings were
challenged, and at the end of May 2019, the Supreme Court had scheduled
further hearings.
According to British author Andy Marino, there is ‘little chance that a
charge will ever be brought against Modi, but even if there is, it would
probably be thrown out. That is why, after twelve years, the Supreme Court
monitored investigation has so far found nothing tangible against him—not
even dereliction of duty.’10 By contrast, a 2018 book by K.S. Komireddi is
sharply critical of many aspects of the Modi government’s conduct during
the 2002 riots. Komireddi says that ‘a special investigative team constituted
by the Supreme Court did not find adequate evidence of Modi’s complicity
in the [2002] violence. But of incompetence there could be no question:
Modi failed in every respect.’11
Indian public opinion remains divided about the state government’s
inability to prevent communal violence in Gujarat in February–March 2002.
Some continue to feel that Modi, as the chief minister, could and should
have saved lives, while others have accepted the SIT’s report. Till such time
as the Supreme Court rules otherwise, everyone has to accept that the state
government of Gujarat, Central government agencies and judiciary have
done their best to punish the guilty.
Prior to the 2014 general election, the BJP went through an internal
power struggle in which Modi emerged as the undisputed leader, displacing
veteran L.K. Advani.12 Thereafter, Modi carried out a presidential-style
campaign in the lead-up to the voting. Modi’s skills as an orator were on
full display, and the other parties did not have a comparable leader who
could match him in content or delivery in reaching out to the electorate. In
the sixteenth Lok Sabha election of 2014 the BJP won 282 seats, and the
Congress was a distant second with forty-four seats.13 The image of the
Congress party was severely dented due to several high-profile corruption
cases and the Anna Hazare movement.
It is worth noting that although the BJP won an absolute majority in the
Lok Sabha with an all-India average of 31 per cent of the vote, this was less
than the 41 per cent of the vote won by the Congress(I) after the Emergency
in 1977. However, since regional parties were not as significant in 1977,
there was little splintering of votes across parties in that general election.
Further, the BJP vote share was much higher in states such as Rajasthan,
Gujarat, UP and Madhya Pradesh, but the party had little support in Kerala,
Tamil Nadu, West Bengal and Orissa. While the Congress vote share
reduced from 28 per cent in 2009 to 18 per cent in 2014, the BJP’s went up
from 19 per cent to 31 per cent between 2009 and 2014. Even as some
states remained unmoved by Modi’s magic, there was a palpable feeling
around the country that Modi’s government would shake things up in Delhi
and get matters which were stuck or not moving at all in the Central
government from 2010 to 2014 to move faster.
Modi chose not to include senior BJP leaders such as L.K. Advani, Murli
Manohar Joshi, Yashwant Sinha or Arun Shourie (all ministers in
Vajpayee’s government) in his cabinet. Their experience and collective
memory would have been an asset as leaders to whom the government
could turn to for advice. Further, they are valuable repositories of
information about how to work with regional parties and non-NDA state
governments since the BJP did not have an absolute majority during the
Vajpayee years, 1998–2004.
The non-inclusion of these experienced leaders in Modi’s cabinet led to
difficulties in government formation in Delhi. It was impractical to entrust
defence and finance, two of the heaviest ministries in the Central
government, to Arun Jaitley. These two ministries cannot be run by one
person, even if the PMO is keeping a watchful eye on both. If the ministers
of the Vajpayee era were not acceptable to Modi, he could have selected
non-politically affiliated experts with domain knowledge to head one of
these two ministries. The choices of Radha Mohan Singh, a veteran Lok
Sabha member from Bihar, and Smriti Irani, a thirty-eight-year-old former
television actress, as cabinet ministers for agriculture and human resource
development respectively left many scratching their heads. The general
reaction was that Modi would have been better served if he had selected
from among those who are knowledgeable about these two important arms
of government.
Modi has allowed a perception to gather ground that he prefers officers
who worked with him when he was chief minister in Gujarat. Any tendency
towards keeping decision making confined to a like-minded group is
usually not successful in a large corporation, let alone a country as large and
diverse as India. Despite the BJP’s absolute majority in the Lower House of
Parliament, Modi needed friends in the Rajya Sabha to help his government
pass non-money bills.
Modi made his first speech from the ramparts of the Red Fort on 15
August 2014 and struck a chord with the masses by speaking about
empowering the ordinary Indian who lives from hope to hope. Modi also
spoke with conviction about promoting cleanliness, creating employment
and rooting out corruption. An earthy remark about gender sensitivity was
that parents should not just question their daughters but also their sons
when they come home late. By all accounts, he was able to connect with
listeners. Modi’s once-a-fortnight ‘Mann ki Baat’ messages to the nation on
radio was also a welcome initiative for many. Radio as a medium is
available to practically everyone, even the poorest in rural and urban areas.
In barber shops and roadside tea stalls, people listened to Modi the narrator
and orator. It was an innovation and a way for the head of government to
talk directly to the people on a regular basis. A cynical interpretation is that
these radio talks were motivated by Modi’s desire for self-promotion, but it
cannot be faulted in principle.
This chapter assesses Modi’s five years as PM right up to May 2019. The
consequences of the Central government’s foreign and economic policies
take time to unfold and become apparent. Hence the analysis and
conclusions in this chapter are tentative.

Foreign Relations and National Security

Modi’s incredibly high and sustained energy levels in reaching out to the
rest of the world began right from the start of his tenure. He visited
countries that no Indian PM had visited in a long time, such as Fiji, Nepal,
Mauritius and Australia. The negative perception about Modi after the 2002
communal riots and the de facto travel ban to the developed West was set
aside by these countries post-2014. Consequently, Modi was able to have
frequent high-visibility interactions with the heads of government of the
US, Germany, France, the UK and Japan in addition to China and Russia
bilaterally and in multilateral forums such as the G20, SCO and BRICS.
Modi amply demonstrated that he could easily handle the pressures of
relentless intercontinental travel and having to deliver high-octane speeches
in foreign locations. Overall, the defining characteristic of much of his
diplomacy was the personal touch and the effort he put in to develop a one-
to-one connection with the heads of government he met.
Modi’s tenure was off to a flying start with his invitation to the SAARC
heads of government to participate in his swearing-in ceremony in Delhi. It
was attended by the heads of government of Afghanistan, Sri Lanka,
Bhutan, Mauritius, Pakistan, Nepal and the Maldives. Bangladesh was
represented by the Speaker of their Parliament. Given the history of conflict
with Pakistan, this early visit by then Pakistani PM Nawaz Sharif augured
well for bilateral relations. Modi was perceived as a statesman who
understood the primacy of good relations with neighbours.
At the end of the following year, Modi arrived in Lahore on Christmas
Day, 25 December 2015. The public announcement of this visit was made
just hours before Modi’s arrival in Pakistan while he was still in the air after
having visited Russia and Afghanistan. It appeared at that stage that Modi’s
personal diplomacy could turn out to be more effective than the cautious
confidence-building steps taken by successive governments of the two
countries in the past. Dashing any such hopes, on 2 January 2016, within a
week of Modi’s visit to Pakistan, there was a terrorist attack on the
Pathankot14 air force station of the Indian Western Air Command. The five
attackers and seven Indian security personnel were killed in that incident.
The infiltrators wore Indian Army fatigues, and the media reported that the
terrorist organization JeM was behind this attack.15 All through the next
eight months of 2016, there were incidents of shelling across the India–
Pakistan border, often with fatalities on both sides. This was in sharp
contrast with the second half of Pervez Musharraf’s years as Pakistan’s
President from 2004 to 2008, when the shelling from the Pakistani side first
reduced and then almost completely stopped.
The next armed infiltration was on 18 September 2016 when an Indian
Army brigade headquarters at Uri was attacked by four terrorists, and
seventeen Dogra Regiment personnel were killed in the exchange of fire.16
Again, the militant outfit JeM was blamed for this outrage. These attacks
led to jingoistic calls on some Indian television channels for retaliation.
Eleven days later, on 29 September 2016, the Indian Army claimed that it
had conducted ‘surgical strikes’ against terrorist training camps across the
LoC in PoK. The Pakistani side denied that the Indian Army had crossed
the LoC. These incidents of terrorism on Indian soil were accompanied by
unrest and violence in the Indian state of Jammu and Kashmir.17 It is
possible that among the reasons for these repeated attacks on the Indian
armed forces was the discomfort of the Pakistani Army, a dominant part of
the deep state in that country, with any improvement in the atmospherics
between India and Pakistan.
Seventeen years earlier, PM Nawaz Sharif was Vajpayee’s host during the
latter’s visit to Pakistan in February 1999. Vajpayee’s speech in Lahore and
the positive media commentaries in both countries probably rang alarm
bells in the Pakistani establishment. Soon thereafter, in October 1999,
Sharif was deposed, and the Pakistani Army chief Pervez Musharraf took
over as head of government. Reverting to recent events, in July 2017,
Nawaz Sharif was removed from office on corruption charges and
sentenced to ten years imprisonment a year later. The Pakistani
establishment replaced him with a lightweight non-Punjabi politician, and
hence more pliable, Imran Khan, who became PM on 18 August 2018.
After the incidents of terrorism in Punjab and J&K in 2016, the Modi
government decided that there could be no discussions with Pakistan on any
topic. Thereafter, border clashes and infiltrations became less frequent. The
chauvinistic explanation on Indian TV channels was that Pakistan had
learnt its lesson. A more likely reason was that the Pakistani deep state was
now comfortable with the prevailing atmosphere of unfriendliness, and that
saner minds in Pakistan would find it difficult to assert that India is not an
existential threat. Modi’s initial tactics of giving primacy to personal
diplomacy with Pakistan did not take into account the long history of
India’s troubled relations with that country. On a more substantive note, the
Modi government announced in September 2016 that it would increase the
use of waters of the eastern rivers, Ravi, Beas and Sutlej, within the
framework of the Indus Water Treaty. To that end, a dam is to be
constructed on the Ravi river at Shahpurkandi.18
On a per capita basis, J&K received a disproportionate share of all
Central government grants to states during the years 2000–16.19 Over time,
such financial assistance has come to be taken for granted and has created a
dependency syndrome. The parlous state of the J&K government’s finances
was evident before and during the 2014–19 period. For example, the gross
fiscal deficit for this state as a fraction of its SDP varied from a high of 6.8
per cent to 4 per cent for the four years from 2015–16 to 2018–19.20 The
BJP was a coalition partner with the PDP (Peoples Democratic Party) in
J&K from 1 March 2015 to 19 June 2018, except for a few months from
January to April 2016 when Governor’s rule prevailed. It was a welcome
surprise that such a government could be formed at all. The sources of the
state’s revenue need to be widened and deepened. Although it was difficult,
the Modi government should have made the coalition work since it has
implications for law and order in that state and relations with Pakistan.
A calmer situation in the Kashmir Valley is in the interest of J&K and the
rest of the country. The BJP and Modi’s government did not measure up to
this task during its tenure. Governor’s rule was reimposed in December
2018 after the BJP decided to leave the alliance in June 2018. As the much
larger party compared to PDP, with a national presence and in power at the
Centre, the BJP could have focused more on the need for J&K to raise
revenues and push employment-generating investment. Modi could have
tried to bring all parties together to form another interim coalition
government in time to have fresh assembly elections.
The BJP also needed to find ways for the state and Central government
representatives to talk to all segments of the Kashmiri population. As of end
May 2019, it appears that Modi was not able to engender a sense of
confidence in the Central government among all sections of the people of
Kashmir. Kashmir experts may well feel that this is too simplistic a
statement given the years of mistrust and the violence which has claimed
both innocent civilian lives and those of the armed forces. The ground
situation in J&K and the use of force by Indian security forces is recounted
very differently by domestic and foreign observers. Domestic commentators
tend to take the official point of view in their reporting.21 International
observers such as the Office of the United Nations High Commissioner for
Human Rights22 was critical about the use of force by security forces in its
report dated 14 June 2018. External commentators could be misinformed or
deliberately biased. Nevertheless, the Central government has the
responsibility to improve the security situation in Kashmir. And the law and
order situation in the state should be consistent with India’s self-image as a
liberal and tolerant democracy which allows for the holding of local
elections with high percentages of voter participation.
In continuation of past practice, within a month of assuming office, Modi
visited Bhutan on 15–16 June 2014. Over the past several decades, well
before the Modi government came to power in 2014, the content of the
relationship has included India’s economic and technical support to develop
the hydroelectricity potential of Bhutan. India and Bhutan have also agreed
to provide surplus power from Bhutan’s hydroelectric projects to
Bangladesh.
Modi’s initial outreach to India’s other Himalayan neighbour, namely
Nepal, was well received. Modi’s first bilateral visit to Kathmandu was in
August 2014 and again in the same year in November to attend the
eighteenth SAARC Summit. A massive earthquake in Nepal in April 2015
killed about 9000 people, injured several times that number and rendered
many homeless. The Modi government’s quick response to provide
substantive support in material and medical assistance was well appreciated
and made for a good start for Modi’s engagement with Nepal.
The following year, in 2016, the constitutional amendments introduced
by the Nepalese government were perceived in the terai region of India, in
UP and Bihar bordering Nepal, to be against the interests of the plains
people of Nepal called ‘Madhesis’.23 Relations between the two countries
took a downward turn due to resentment in Nepal that India was slowing
the movement of fuel and even medicine to the mountainous regions. Nepal
has always had concerns about its landlocked geography and its dependence
for items of daily necessity on India. Modi needed to take a longer-term
view of the relationship rather than allowing the perception that India was
indifferent to Nepal’s requirements to gain ground through 2017.
Nepal’s left-leaning parties and others formed a coalition government in
February 2018 after the general election, with K.P. Sharma Oli as PM. It
was to be expected that the newly formed government would reach out to
China to reduce dependence on India. The Kosi and Gandak rivers flow
from Nepal into Bihar and UP, and finally merge with the Ganga. Bihar and
parts of Uttar Pradesh are exposed to floods caused by these two rivers
during monsoon. If Nepalese political parties stopped working at cross-
purposes, Nepal and India could benefit from hydroelectric and irrigation
projects. There was a rethink in India’s Nepal policy following China’s
positive reaction to Nepal’s overtures. Modi changed course and received
PM Oli in Delhi in April 2018. Unlike his predecessor Dr Manmohan Singh
who neglected Nepal, Modi had visited that country four times till the end
of May 2019. These exchanges of visits at the level of PMs led to an
improvement in bilateral relations.
By any metric, economic or strategic, China is a highly important
neighbour for India. Modi was quick off the mark on India–China relations.
He had visited that country four times while he was the chief minister of
Gujarat during the years he was not welcome in Western countries. Since
becoming PM, Modi has visited China five times, and the only other
country he has visited this often after assuming office was the US. These
visits to China were on a bilateral basis and also to attend multilateral
meetings of the G20, BRICS and SCO.
Chinese President Xi Jinping came to India on a bilateral visit early in
Modi’s tenure in September 2014. Symbolically, the visit started in Modi’s
home state of Gujarat, and through Xi Jinping’s stay in India, there were
several photo-opportunity occasions, including the two leaders sitting on a
swing next to the Sabarmati river. At that time, there was talk of large
Chinese investments in Indian infrastructure projects. Modi paid a return
bilateral visit to China in May 2015 and went to Xian, Xi Jinping’s home
town.
After these warm and friendly interactions between Modi and Xi Jinping,
the two countries had the Doklam confrontation in mid-2017.24 In this
eyeball-to-eyeball situation, it was not clear who would back down. The
Chinese side claimed that a piece of territory located strategically on a tri-
junction of India, Bhutan and China belonged to them. It became public on
17 June 2017 that China had started constructing a road southward on the
Doklam Plateau, and the Indian Army stopped the Chinese workers from
progressing farther south. China tried to pressure Bhutan into accepting
their claim but Bhutan remained tacitly in India’s corner, and finally, on 28
August 2017, India and China announced that they had withdrawn their
troops and were back to the status quo ante.
After the tense confrontation in Doklam, the two leaders met bilaterally
in Wuhan in April 2018. Considerable significance was attributed to this
meeting by Indian and international media, and China was seen to be a bit
more accommodating. This was probably because China was feeling
pressured by President Trump’s accusations about China following unfair
trade and investment policies.25 Additionally, Chinese firms such as Huawei
were accused of stealing proprietary technology from Western companies.
India has decided not to be associated with what is now called China’s
Belt and Road Initiative (BRI). In a significant eye-catching move Modi’s
government did not participate in the first summit-level meeting of the Belt
and Road Forum for International Cooperation which took place in Beijing
during 14–15 May 2017.26 One of India’s main objections is that BRI
includes a so called China-Pakistan Economic Corridor (CPEC) which will
pass through Pakistan Occupied Kashmir and give China access to Gwadar
port. More broadly, as the Modi government has presciently concluded,
there is no convincing reason for India to climb on to this BRI bandwagon
which is to push China’s foreign policy and economic objectives as far and
widely as possible. The longer-term Chinese objective is to have a dominant
say in setting the terms for international trade and investment and to push
Chinese hegemony to levels that the US has enjoyed around the world since
the end of the Second World War.
The difficulties in India–China relations are embedded in the latter’s
long-term goal to contain India such that China is accepted as the
unquestioned power in Asia and beyond. This is evident from a number of
Chinese postures such as its claim on Arunachal Pradesh, that the Dalai
Lama curtail alleged anti-China activities, and the propping up of Pakistan
ignoring its direct involvement in acts of terrorism in India. The differences
about the border came to the surface during the Doklam confrontation. It is
to the credit of successive Indian governments’ efforts to maintain close
relations with Bhutan that this small country decided not to capitulate to
China. As mentioned elsewhere in this book, Bhutan has more to fear from
an embrace from China, with its large Buddhist population in Tibet, than
from India. On a lighter note, at times it pays off in relations with smaller
neighbours to be a bumbling well-meaning country like India rather than
one which is militarily powerful and focused exclusively on self-interest,
such as China.
It is abundantly clear that Modi and Xi Jinping had a number of
opportunities to push ties between the two countries to higher levels of
cooperation. However, there are limits to high-visibility personal diplomacy
translating into real benefits. In the past five years of the Modi government
(May 2014 – May 2019), relations with China ostensibly improved and then
took a turn for the worse. As the Indian economy and its international
footprint grow, it can expect more opposition from China. The open-ended
squabbles that President Trump has started with China, including the
demand for US tourists to visit Tibet, probably mean that China would be
hesitant to embark on another Doklam type of confrontation with India any
time soon.
Modi did go beyond the platitudinous references to ‘Act East’ as a signal
of India’s intent to pay more attention to countries to the east. The ASEAN
heads of government were invited as the principal guests at the Republic
Day function on 26 January 2018. Although the warm welcome, including
the references to age-old ties, was pleasing to watch and hear, the ASEAN
countries were focused on tangible next steps and suggested that India
should move faster on the negotiations of the Regional Comprehensive
Economic Partnership (RCEP). As in the past, there was nervousness in the
Indian private sector about another free trade agreement, and the Modi
government’s position on trade agreements, regional or global in scope, has
not been articulated clearly—to all appearances it was hesitant to negative.
Modi built on the achievements of previous Indian governments in
engendering the feeling of a common destiny with Bangladesh. Cross-
border sales of power rose, there were improvements in the bus linkages
between Guwahati and Kolkata via Dhaka and transportation of goods and
passengers by river waterways, coastal shipping and trains. The two
countries chipped away at the trade and transportation barriers created post-
Partition and particularly after the 1965 India–Pakistan war.
Modi visited Bangladesh in June 2015, and the Bangladesh PM Sheikh
Hasina paid a return visit in April 2017. Although Teesta water-sharing
arrangements could not be concluded, much has changed in India’s relations
with Bangladesh. Sheikh Hasina, Mujibur Rahman’s daughter, has been the
Bangladesh PM for the last ten years, and she took recourse to legal action
prior to jailing and executing those responsible for genocide in East
Pakistan in 1970–71. She won another huge victory, by seemingly
impossible proportions, in the election of December 2018. It is likely that in
time, the Indian North-east would again have unfettered access to the sea
via Bangladeshi ports as it did during the colonial era. It is strategically and
economically important for India’s north-eastern states to be linked to
mainland India by high-speed motorways, waterways and rail connectivity
via Bangladesh. This has not yet been followed up vigorously enough.
 Among developed countries, Modi focused most on the US. He visited
the US and the UN in the first few months of his tenure in September 2014
and was able to establish an equation with President Barack Obama. The
US government responded positively to Modi’s overtures, and President
Obama attended the Republic Day event in January 2015 as the chief guest.
In Modi’s visits to the US in 2015, 2016 and 2017, he made it a point to
meet with business leaders and heads of technology giants such as
Facebook, Google and Microsoft. This was a welcome departure from the
past. These interactions with technology giants should in time make for
greater interest among such companies to invest more proactively in India.
The reach of US products and services can be significantly expanded by
catering to India’s young population—41.6 per cent of whom were below
twenty-five years of age, and 69.2 per cent below forty-four in 2011.27
At the same time, there are limitations to how much well-orchestrated
sales pitches can achieve unless the providers of capital are convinced that
the returns on their investments in India would be high enough to
compensate for the risks of investing in an emerging economy. Further,
high-technology companies are mostly engaged in dispensing services that
need higher educational skill levels and provide fewer job opportunities
than those in manufacturing. The Indian services sector just cannot provide
employment to meet the requirements of the millions of underemployed
who want to enter the formal job market.
After Donald Trump took over as the US President, Modi went on a
bilateral visit to that country in June 2017. Since then, India’s relationship
with the US has been somewhat rocky, primarily because President Trump
takes a transactional approach to foreign relations. He expects all US
trading partners, even India with whom the US has a marginal trade deficit,
to make trade concessions. Trump’s decision to withdraw US troops from
Afghanistan will raise the risks for Indian personnel working in that
country. In all of this, Modi was more of a spectator, like the other heads of
government of the G20 grouping of nations, as a less assured US kept
taking decisions unilaterally.
 Modi followed up energetically on the concerted efforts of his
predecessor Dr Manmohan Singh to strengthen India–Japan economic and
technical ties. The Indian PM’s work in bolstering collaborative efforts is
helped by Japan’s need to promote India vis-à-vis China. Since Modi’s first
visit to Japan, in August 2014, he and the Japanese PM have had several
annual summit meetings.
Given its own horrific experience of atomic bombs being dropped on
Hiroshima and Nagasaki on 6 and 9 August 1945 respectively at the end of
the Second World War, Japan had reacted negatively to India’s nuclear tests
in May 1998. However, as India’s relations with the US improved in the
first decade of the twenty-first century, Japan’s attitude reverted to one of
supporting economic development in India. In the past fifteen years, Japan’s
financial and technical support has been crucial in the building of bridges,
underground metro railways and industrial corridors. The proposed bullet
train between Mumbai and Ahmedabad with Japanese technology and
financing is not an optimal use of India’s money or time. There are so many
other priorities, including improving safety in Indian railway networks.
However, one saving grace could be the transfer of engineering technology
to India in such a collaboration.
Modi visited France and Germany in April 2015, and the French
President François Hollande was chief guest at the Republic Day function
in 2016. German Chancellor Angela Merkel visited India in October 2015,
and French President Emmanuel Macron was in Delhi in March 2018. In
the last several decades, the bilateral relationship with France has been
particularly important because of collaboration in the defence sector.
Specifically, India has bought fighter aircraft in the past and has now
contracted to purchase Rafale warplanes.28 However, at the margin, the
relationship with France has also been coloured by allegations of corruption
in this Rafale deal. At the outset of the negotiations, India was to buy 126
Rafale fighters. This number was reduced to thirty-six ready-to-fly planes
during Modi’s visit to France in April 2015 on the grounds that the fighters
are required urgently.29
 The agreement for the supply of these fighters includes an ‘offset’ clause
under which the French companies involved (Dassault, Thales, Safran and
MBDA) will need to source 50 per cent of the value of the deal, estimated
to total about €4 billion, in goods and services from Indian defence
equipment suppliers. In October 2016, it was announced that the Anil
Ambani Reliance Group would be a 51 per cent partner with Dassault
Aviation to manufacture components of the Rafale fighter in India.
Opposition parties including the Congress have been shouting themselves
hoarse that the Anil Ambani Group, with no experience in the manufacture
of defence equipment, was shown this favour by Dassault at the behest of
Modi’s government. France is also a leader in superfast trains and nuclear
power. Unfortunately for India’s bilateral relationship with France, the
Rafale deal has cast a shadow over the possibility of closer cooperation in
other high-technology fields.
Germany has a tradition of students learning trade skills through
programmes in vocational schools called Berufsschule. Such trainees are
absorbed into the workforce, and it reduces the need for all students to seek
higher educational qualifications. India is trying to learn from this German
practice of trade-specific vocational training, often with the support of
industry giants. India’s two-way trade with Germany is growing faster than
with other European countries. It is likely that in bilateral trade, FDI and
skills training, Germany will be a valuable partner for India in the coming
decades. Modi was fully cognizant of this reality and courted Germany
assiduously.
In comparison, in the past two decades, Indian PMs have required a fair
amount of prodding to visit the UK. This is because the bilateral dialogue
often degenerates into issues of visas and job opportunities for Indian
students in the UK, which are limited. Additionally, due to the UK’s current
priorities, it cannot be of much assistance to India in terms of technical and
financial support in manufacturing. India is fairly well positioned in the
information and communications fields and has chosen to be cautious in the
financial sector with the bulk of it in the public sector, unlike in the UK.
Consequently, there is less of a fit between the Indian economy and that of
the UK compared with France where some of its industry is still in the
public sector or with Germany which boasts of highly specialized
manufacturing firms.
Despite the lack of complementarity between the Indian and UK
economies, the people-to-people relations are strong with perhaps about 2
million people of Indian origin residing in that country. The people of
Indian origin in the UK have political and business linkages with India.
Modi visited the UK in November 2015, and on the substantive side, the
discussions probably included containment of anti-India elements and the
return of Indian economic offenders who are based in the UK.
The EU is a repository of technical expertise in pharmaceutical products,
the agriculture sector and renewable energy. Due to an incident involving
the killing of two Indian fishermen in 2012, and two Italian marines
consequently being placed in Indian custody, India–EU meetings were held
up for a while. The Italian foreign minister Federica Mogherini had become
the EU high representative for foreign affairs. Given the time taken for this
case to wend its way through Indian courts, Mogherini said that ‘the issue
has the potential to impact the overall European Union-India relations’.30
Modi visited Brussels in March 2016 for an India–EU summit and a
bilateral visit to Belgium. A trade agreement between India and the EU is
stuck because the latter feels an agreement with a long negative list of
excluded items does not serve any purpose. The Indian point of view is that
a trade agreement between the world’s largest and second-largest
democracies has significance much beyond economics. Given the
differences in perceptions and the anxieties about what ought to be included
(for example, the EU does not want easier entry of Indian information
technology specialists, and India has concerns about lower import duties on
cars), there was again no progress on the India-EU trade agreement during
Modi’s tenure between 2014 and 2019.
Modi visited Russia four times to attend bilateral summits or multilateral
meetings under the rubric of the BRICS and SCO groupings. His
government gave enough indications to Russia that it feels that India’s
relationship with that country is special because of the extensive
collaboration in the fields of nuclear power and sophisticated military
technology and equipment. However, Modi’s frequent visits to the US and
the strengthening of the Indo-US relationship was viewed in Russia as a
downgrading of India’s traditional ties with them. Russia has made
overtures to Pakistan, particularly because it could be helpful in containing
extremist sentiments in Central Asia from gaining ground. Large numbers
of Central Asia nationals move in and out of Russia to meet the shortage of
semi-skilled labour. Russia’s move towards engaging with the Taliban has
become more significant with Trump announcing further reductions of US
troops in Afghanistan.
Despite Russia’s concern about India’s growing friendships with the
West, Modi kept the Russian side sufficiently engaged. However, earlier
Indian governments and that of Modi have not prepared enough for
eventual changes in Russia’s current leadership. These will possibly result
in a reduction in Russia’s ability and willingness to provide spares for dated
military equipment India had sourced from that country.

Economy and Institutions

The Modi’s government emphasis on rebooting the Indian economy was

issue and innovation specific, and not geared towards systemic reforms. It
promoted many eye-catching and far-reaching schemes, and all these taken
together should create employment and raise government’s tax revenues
over time. However, there was no discernible underlying economy-wide
logic to the steps taken by Modi’s government. For instance, no progress
was made to reform labour and land markets, improve India’s trade
competitiveness or address the underlying ills that afflict India’s PSBs.
The Planning Commission, set up in 1950, was shut down after sixty-five
years by Modi’s government at the end of December 2014. In its place, in
the same offices, with most of the earlier support staff, the NITI Aayog
started functioning from 1 January 2015. According to Modi’s public
comments, he felt that the Planning Commission’s inputs were not even-
handed or based on adequate understanding of the constraints at the level of
state governments. The newly formed NITI Aayog was meant to be a
government think tank and not be involved in release of funds for state
governments. However, it has not established itself in the last four and a
half years as a source of in-depth studies and/or as an unbiased
commentator. Shortly after it was constituted, the NITI Aayog was tasked to
finalize reports of three subgroups of chief ministers on Central government
sponsored schemes such as skill development and Swachh Bharat (Clean
India). It seems that on this occasion the NITI Aayog ‘played their role
more as agents of the Central government than as technical advisers’.31
Earlier governments have kicked the problem of large, loss-making
public-sector enterprises down the road. For example, FCI, Air India,
BSNL and Mahanagar Telephone Nigam Limited (MTNL) are overstaffed
and have consistently made losses over the last several decades. The FCI
acquires foodgrains at government-determined MSPs and stores them. It
has tentatively begun acquiring pulses but at market prices. The
controversies about the inordinately high volumes of FCI stocks driven by
knee-jerk acquisition of foodgrains at MSPs, wastage due to inadequate
storage space and allegations of corruption involving FCI officials are
legion. The Modi government did set up a committee headed by a former
agriculture minister to look into reforming FCI. At the time of writing in
May 2019, it was not at all clear what, if any, FCI-related reforms were
being implemented.
The Ministry of Civil Aviation did try to sell a minority stake in Air
India, but the terms were not palatable to potential buyers, and the
government did not receive a single bid. Even if privatization was not
politically feasible or considered appropriate, it was high time for the Modi
government to sell parts of these loss-making institutions and make them
board rather than government driven. It has to be borne in mind though that
when Modi took over, serious charges of corruption against Central
government ministers and senior officials were meandering through Indian
courts or being investigated by Central government agencies.
A major problem inherited by the Modi government was the huge
overhang of NPAs in the banking system. The PSBs needed to recover at
least a fraction of the large amounts that were loaned between 2007 and
2012 to energize lending which had slowed down considerably by 2014.
The existing legislation, including the SARFAESI Act, had proved
inadequate to rein in recalcitrant borrowers who did not service their debts
and clung on to their pledged assets. With this as background, a huge policy
success of the Modi government was the passing of the Insolvency and
Bankruptcy Code (Amendment) Act (IBC) in May 2016. Under this Act,
lending banks can take borrowers to the National Company Law Tribunal
(NCLT) in a time-bound, well-defined manner. An Insolvency and
Bankruptcy Board of India (IBBI) was set up to certify insolvency
professionals. The NCLTs are now ruling on auctioning of assets or change
in management-ownership based on assessments made by professional
resolution specialists. However, as in all other disputes Indian high courts
and the Supreme Court have the final say and court proceedings can drag on
indefinitely.
Fortunately for Modi’s government, Aadhaar, a key prerequisite for
reforms that has touched the lives of many, was ready for use in 2014. By
April 2016, about a billion people had been registered under Aadhaar.32
Moving back two years, the biometric data of around 700 million people
was available with Aadhaar by May 2014. At around the same time, in
2014, the number of active mobile phone users had increased to half of
India’s entire population. By 2018, mobile plus fixed phone numbers had
crossed a billion, and there were over 460 million broadband Internet users.
Building on this huge base of mobile users and holders of Aadhaar card,
Modi announced a financial inclusion campaign, later called the Pradhan
Mantri Jan Dhan Yojana (PM People’s Money Plan), in his first
Independence Day speech on 15 August 2014. It was claimed by Modi’s
government that by June 2016, about 220 million new accounts were
opened. These accounts were to be linked to Aadhaar cards and mobile
phones in what was called the JAM (acronym for Jan Dhan, Aadhaar and
Mobile) trinity. Even discounting for exaggerations in government-
sponsored publicity about JAM, it is likely that this linkage across bank
accounts, personal biometrics of Aadhaar and mobile phone numbers to
promote financial inclusion was indeed achieved for millions of individuals.
However, the continuing challenge is to help account holders to keep their
accounts active by depositing cash benefits in them. This has proved to be
difficult since the household sector’s net financial savings as a percentage
of GDP did not rise in the last few years and, in fact, declined marginally
from 7.2 per cent in 2013–14 to 7.1 per cent in 2017–18.33
One out of several reasons for the consumer boom in the USA in the
1950s was the availability of easy consumer credit for household goods. In
India, in the past, banks and NBFCs (non-banking financial companies)
were reluctant to provide low-value consumer credit and loans have been
available mostly for housing, cars or two-wheelers. Increased lending for
low-cost items could help create credit history for millions of Indians—
namely, those who honour their debt obligations and others who do not—
which would then be available to lending institutions. This has already
happened to a considerable extent through the spread of online shopping.
The next stage could be to expand such lending to individuals in semi-rural
and rural areas for instalment-based purchases of air conditioners,
computers, mobile phones, bicycles and so on, leading to virtuous widening
circles of easier access to consumer goods. It appears that after the initial
publicity about JAM, subsequent steps to widen consumer lending were not
taken with adequate urgency as the government took up a number of new
initiatives with eye-catching acronyms to attract voter attention.

Demonetization

Demonetization was announced by Modi without any forewarning on 8

November 2016. It caused considerable anxiety among those who depend
on wages in cash and those who own small businesses with transactions in
cash. Micro, small and medium enterprises (MSMEs), whose employees are
mostly part of the cash economy, were hit hard. Marginal farmers and those
living in the less accessible parts of the country were also impacted
adversely except where they reverted to age-old systems of informal credit
based on family or social relationships but possibly at higher rates of
interest. The export sector was impacted adversely because some of the
small-scale units which provide inputs of goods and services function
almost entirely on a cash basis.34
Despite these difficulties for the average Indian, there was considerable
initial support for demonetization which was ostensibly meant to unearth
unaccounted wealth stored in cash and increase tax collection. As it turned
out, about 99.3 per cent of the cash in circulation came back to the banks.35
If reducing the size of the unaccounted cash economy was the objective, the
government should have printed enough 100-rupee notes to make up for the
cash shortfall of demonetized 500-rupee and 1000-rupee notes. Instead, it
inexplicably issued 2000-rupee notes. The Eurozone and the US
governments have gradually phased out high-denomination notes to bring
down tax evasion and reduce illegal activities. Even if secrecy was of
paramount importance, Modi’s government should have been able to find
ways to print the required numbers of 100-rupee notes quietly. Atal Bihari
Vajpayee’s government was able to keep the May 1998 nuclear weapons
tests secret from the intelligence agencies of developed countries.
Finance Minister Arun Jaitley reported in his budget speech of 1
February 2017 that after demonetization, of the cash deposits made in bank
accounts, 10.5 million accounts belonged to companies and individuals, and
the average deposit size was Rs 0.5 million. In another 14.8 million
accounts, again held by companies and individuals, the average deposit size
was Rs 33 million. It is unlikely that individual account holders would store
Rs 0.5 million in cash, much less Rs 33 million. As of May 2019, the Modi
government had not made public, in summary form or otherwise, the tax
returns of individuals or companies that held such large cash balances.
Analysis of tax returns as compared to the size of cash deposits was also not
available on the website of the Ministry of Finance.
In the same February 2017 budget, the finance minister provided for
issuance of anonymous electoral bonds. This was claimed to be in keeping
with the avowed objectives of the Modi government to root out corruption
and make funding of political parties more transparent. On the contrary, the
issuance of such bonds has increased the probability of quid pro quo deals
between big business and whichever party is in power.
It is widely agreed among non-government economists that the country
lost about 1 per cent in GDP growth in 2017 due to demonetization. This is
growth that has been forgone forever. In a nutshell, Modi wasted an
immense amount of his personal political capital in the demonetization
exercise. By the end of its term, the government was not able to make a
convincing case that the benefits were commensurate with the economic
pain inflicted on the many who are involuntarily part of the unorganized
cash economy.
Direct taxes as a percentage of GDP went up marginally in the period
2014–18 from about 5.7 to 6.0. This better income tax compliance could at
a stretch be attributed to the fear factor caused by the government’s
warnings and the demonetization exercise. Comparatively, indirect taxes as
a fraction of GDP increased more, from 4.4 to 6 per cent.36

Goods and Service Tax (GST)

A nationwide goods and services tax (GST) to replace a range of indirect

taxes levied by the Central and state governments was under discussion for
over ten years when Modi took over. In the past though, the BJP was
obstructionist, and Modi, as chief minister of Gujarat, had opposed GST. It
is to the credit of Finance Minister Arun Jaitley and Modi’s government
that they were able to get the GST legislation involving constitutional
amendment finally passed by both houses of Parliament by 8 August 2016.
The state governments have since agreed on the GST rates to be applied,37
although major items of consumption such as liquor and petroleum products
were exempted.
Modi’s government was heavily criticized for the multiple GST rates, the
shortcomings in the GST software, and the consequent complications in the
implementation of this hugely significant reform. A change so systemic and
nationwide was bound to cause complications. However, at least some of
the glitches in implementation should have been anticipated by the Ministry
of Finance. Closer and quicker attention was needed to help those who did
not get their GST refunds on taxes paid on inputs, in time. Smaller
businesses needed more time to file their GST returns as they gradually
mastered the intricacies of the involved soft-copy forms. It was particularly
important to help smaller exporters receive their refunds to maintain
production since they easily lose credibility with importers if they do not
adhere to delivery schedules. In response to complaints from various
quarters, the government did relax deadlines for filing GST returns. All
things considered, the fact that GST was finally implemented will be seen
as a major achievement of Modi’s government as this brought to fruition the
efforts of many others who had worked since the 1970s towards making
India a single market.

Competitive and Cooperative Federalism

India is a Union of states with a powerful Central government as designed

by the framers of the Constitution. Modi did not press the accelerator on
broader economy-wide reforms to promote both competitive and
cooperative federalism. For instance, he needed to do more on reforming
the factor markets of land and labour. The NDA did not have a majority in
the Rajya Sabha, and given the opposition of the Congress and other parties
to most NDA legislative proposals, it was not possible for Modi’s
government to effect changes in land or labour-related legislation. However,
a beginning was made at the state government level in the BJP-ruled state
of Rajasthan. In Rajasthan the law was amended to make it easier to lay off
workers in firms with less than 300 workers. Earlier the threshold was 100
workers. Subsequently, Maharashtra and Madhya Pradesh followed
Rajasthan.
Instead of this tentative beginning of labour market reform in three states
being expanded to other states, it was abandoned amidst the din of state
assembly elections. Modi and the BJP may have lost interest in labour
reforms or were perhaps never convinced about the need for systemic
changes in labour laws.
 Even though a few items which are heavily consumed have been kept out
of the purview of GST, the empowered group of state finance ministers
played a crucial role in arriving at a consensus on GST-related matters. On
12 September 2016, the notification for the GST Council, with the Union
finance minister as the chairperson and with the finance ministers of all the
states under Article 279A as members, came into effect. For all practical
purposes, the GST Council has replaced the empowered group of state
finance ministers.
It is likely that in the future there will be differences of opinion between
the GST Council and the Finance Commission. This was already evident in
the discomfort of some state government representatives on the council
with the terms of reference of the Fifteenth Finance Commission. This has
to do with the weightage given to population in allocation of funds across
the various states. Southern states feel that their success in lowering birth
rates would work against them as compared to northern states such as UP
and Bihar where the rate of growth of population has been higher. Given
that these differences could snowball over time, the Modi government could
have sought the views of the GST Council on correlation between
population and allocation of funds.38
Since Rajiv Gandhi’s years as PM, steps were taken to devolve
administrative and financial powers to local bodies and panchayats. The
73rd and 74th Amendments of the Constitution, which went into effect in
1993, enabled the setting up of panchayat and municipal bodies. However,
‘even after nearly 26 years [in 2019] of the amendment of the Constitution,
many states have failed to confer the responsibilities listed in the Eleventh
and Twelfth Schedules to the local bodies. Similarly, their track record in
transferring powers of taxation has been poor, with the exceptions of states
such as Kerala and Karnataka.’39 As of end May 2019, Modi’s government
had not pushed governments even in BJP-ruled states to devolve greater
financial powers to local bodies or build professional capacities in them.
From May 2014 till December 2018, the BJP was in power on its own or
in coalitions in Gujarat, Maharashtra, Madhya Pradesh, Rajasthan,
Chhattisgarh, Jharkhand, Bihar, Karnataka and Himachal Pradesh.40 The
BJP lost power in Karnataka, Rajasthan, Madhya Pradesh and Chhattisgarh
by end 2018. However, it won by a huge margin in India’s largest state,
Uttar Pradesh. It had more than four years to effect changes. Modi could
have initiated healthy competition among the BJP-ruled states on land,
labour reforms and greater devolution of financial autonomy to local bodies
to serve as a model for non-BJP-ruled states.

Economic Indicators and Estimation Controversies

Moving on to economic indicators, in January 2015 the CSO changed the

base year for estimating the country’s GDP and related numbers from
2004–05 to 2011–12.41 The CSO also dropped the earlier practice of
estimating GDP42 at factor cost and changed it to using GVA (gross value
added). The GDP growth rates for all years from 2011 to 2018 are higher
with the use of 2011–12 as the base year. Given these changes, comparisons
on GDP growth rates, debt and related numbers between the pre-Modi and
post-Modi years cannot be made with any confidence. The Modi
government’s credibility about GDP growth rate estimates would have been
higher if it had set up an independent group of experts to provide a template
for estimation of national income and related numbers.
The fiscal and other deficit numbers in Table 11.1 in the Appendices
show that the gross fiscal deficit as a proportion of GDP decreased by 0.5
per cent to 3.5 per cent and primary deficit halved from 0.94 to 0.43 per
cent between 2014–15 and 2017–18. These numbers do not tell the whole
story and understate the true extent of the deficits in the Modi years. This is
because a part of the recapitalization support provided to PSBs was through
government bonds. This ruse has been used often in the past by the Central
government as it is ‘cash neutral’. The principal amount to be repaid does
not show up in the fiscal deficit number in the year in which such assistance
is provided. Unlike companies, the Central government’s budgets are cash
and not accrual based. As for gross capital formation, this has decreased
from 33.5 to 30.6 per cent between 2014–15 and 2016–17, and capital
outlays remained range bound between 1.3 and 1.6 per cent of GDP.
 As of May 2019, the CSO was part of MoSPI. The NSSO too receives
administrative and funding support from MoSPI. By contrast, the National
Statistical Commission (NSC) was expected to be independent of
government and was set up under an executive order dated 1 June 2005
with non-government experts and government nominees as members.
Simmering controversies over India’s unemployment numbers boiled over
with the resignation of two independent members of the NSC at the
beginning of 2019.43 These two NSC members were reported to be
aggrieved because the higher than expected unemployment numbers which
were cleared by them in December 2018 were not released by
government.44 This controversy about the extent of unemployment dented
the government’s credibility needlessly. Most working-age Indians who are
not employed in the public or private sector are underemployed to various
degrees in informal jobs. It is difficult without extensive and reliable sample
surveys to come to definitive conclusions about the precise extent to which
underemployment has changed over time and in which regions of the
country.
It is important for CSO to continue to function within a Central
government ministry, namely MoSPI, and to get government agencies to
provide the required numbers consistently and on a timely basis. And going
forward, the NSSO should be subsumed within the NSC and provided a
separate budget.45
Modi inherited an overvalued Indian rupee, and this overvaluation
increased further between May 2014 and December 2018. During this
period, the Real Effective Exchange Rate (REER) of the rupee went up by
another 10 per cent. This was only one of several factors that had a
dampening impact on India’s exports. India’s exports to GDP dropped from
16.9 per cent in 2013 to 11.9 per cent in 2018. Despite this, the current
account deficit remained below 2 per cent. This was primarily because the
price of crude oil dipped from over US $100 per barrel in 2008 to an
average of around US $50 during the years 2014–19. In a counterproductive
protectionist move in the 2018–19 budget, the Modi government raised
import duties on a range of products. This was a backward step in
government’s thinking about trade in goods since there has been a slow yet
steady reduction in customs duties since the economic reforms of the 1990s.
On a positive note, FDI, although low in absolute terms for an economy
of India’s size, kept growing steadily. It was around US $16 billion in
2013–14 and had risen to US $37.4 billion by 2017–18.46 It is likely that
this rise in FDI was at least partly due to the Modi government’s efforts to
improve the ease of doing business.
During the course of 2018, Modi’s government was involved in an
unnecessary controversy with the RBI about the amount that would be
transferred from the latter’s reserves to government. The MoF and RBI also
appeared to be in disagreement about allowing weaker PSBs to restart
lending. The Modi government was concerned that long-term lending had
frozen for the first three years it was in power, and in 2018 it was limping
back. Reading between the lines, it appears that MoF would have liked the
RBI to show even greater regulatory forbearance towards the PSBs with
lower capital adequacy and allow them to restart lending. Unfortunately, the
differences led to the resignation of RBI Governor Urjit Patel on 11
December 2018. Patel was appointed by Modi’s government, and this has
happened only once before in independent India in the mid-1950s.
An important reform during the Modi years for which the RBI deserves
the bulk of the credit is the setting up of a Monetary Policy Committee
(MPC) which sets short-term benchmark interest rates. The publishing of
the minutes of MPC meetings has made the setting of interest rates more
transparent than before. The Modi government has helped in this reform as
the government’s nominees on the RBI board have been supportive of this
change.
BJP’s absolute majority in the Lok Sabha and Modi’s unquestioned
supremacy within the BJP gave him the elbow room to take a fresh look at
India’s economic policies. In particular, Modi needed to focus more on
employment generation in the formal sector. On this score, the Modi
government’s first budget in July 2014 came as a big disappointment. There
was little urgency about reviving long-term investment that would lead to
job creation. It was already obvious by 2014 that large-volume, long-
maturity loans had ground to a halt because of imprudent lending in the
previous six years. Hence, other sources of funding were required even as
PSBs needed to be nursed back to health.
In past decades, Indian governments have not pushed hard enough to
widen the tax net. For instance, in financial year 2016–17, only 7781
companies declared profit before tax of Rs 100 million, and just 3.2 million
individuals reported annual income above Rupees one million. In his budget
speech of 2017, the finance minister concluded that ‘we are largely a tax
non-compliant society’.47
In 2014–15 direct taxes collected in India amounted to 5.7 per cent of
GDP compared to an average of about 7.4 per cent for other emerging
economies. The numbers for indirect taxes, as a fraction of GDP, was 10.1
per cent for India and 10.8 per cent for emerging economies.48 In addition to
policy measures to widen and deepen the Indian tax base, such collections
depend on the sincerity of the rank-and-file-level tax personnel of the
Central government. This in turn depends on the government’s ability to
motivate these officials and punish wrongdoers.

Accounting and Financial Sector Scams

Modi spoke specifically about the sorry fact of business and other
professionals under-reporting their incomes. He upbraided and exhorted
accountants at an Institute of Chartered Accountants of India (ICAI) event
on 1 July 2017 in the following terms: ‘Only 32 lakh (3.2 million) people in
the country reveal their income to be more than ten lakh (1 million) rupees .
. . after demonetization . . . thieves and robbers must have gone to some
economic doctor . . . they have definitely taken the help of someone who
needs to be identified. Don’t you feel the need to identify such people, who
are sitting among you, who supported these companies?’49 The
implementation of GST had been announced by Modi the previous night,
and he was speaking in the context of a new beginning, not just for indirect
taxes but also about income tax disclosures. However, Modi’s government
has not yet followed up by setting up a separate regulator for the accounting
profession, with the ICAI continuing to be the watchdog.
A Banks Board Bureau (BBB) was set up in April 2016 to improve
governance of PSBs. The BBB was part of the Modi government’s
‘Indradhanush’ programme to reform PSBs. As the selection of PSB
management and board members was earlier heavily influenced by
political–economic considerations, the BBB was expected to make such
appointments more merit based. In practice, however, the Ministry of
Finance did not let go and kept final decision making to itself. This is yet
another example of how the Modi government started off with a sound
thought but failed to carry through with it. The sense one gets is that Modi
intends to carry out systemic reforms but the political will fades when faced
with entrenched opposition.
The cash flow and solvency problems of the non-bank finance company
(NBFC) called Infrastructure Leasing and Financial Services (IL&FS) came
to the surface in the first week of October 2018. This so-called strategically
important NBFC had the chairpersons of two public-sector behemoths, the
LIC and the SBI, on its board, and several government officers have worked
in IL&FS on deputation. The first thought that may have come to many was
the oft-quoted French expression ‘plus ça change, plus c'est la même chose’
(the more things change, the more they stay the same). It was another case
of ‘crony’ capitalism in which IL&FS had access to large volumes of loans
without adequate scrutiny of the business models and creditworthiness of
the hundreds of subsidiaries it had set up.50 The credit rating of IL&FS was
downgraded from AAA in June 2018 to junk status in a matter of just three
months after it defaulted in September 2018 on some of its debts out of a
total debt of Rs 910 billion. The representatives of LIC, SBI and senior
figures in Indian industry who were IL&FS board members were asleep at
the wheel at best or complicit at worst.
In the case of Punjab National Bank (PNB), the irresponsible lending to
Nirav Modi came to light in mid-March 2018. Modi’s government was
proactive in taking action against PNB officials who were either
incompetent or were involved in the wrongdoing. Till the end of its first
term in May 2019, the Modi government had not carried out a systemic
review of the shortcomings in regulatory oversight of the financial sector or
made the selection processes for the heads of public-sector financial
institutions and their boards transparently fair.

Power Sector

As of February 2019, the total installed electricity generation capacity in

India was about 350 gigawatts of which renewable energy amounted to 21.2
per cent.51 State electricity boards (SEBs) are near bankrupt because over
the decades, they have been coerced by state governments into selling
power at prices which were well below administratively determined
purchase prices. In November 2015, Modi’s government set up the Ujwal
DISCOM52 Assurance Yojana (UDAY) to help the SEBs recover. The
principal motivation was to help distribution companies, which are
burdened with a total debt of around Rs 4.5 trillion. Under UDAY, state
governments were to issue bonds of up to 75 per cent of the debt of each
SEB. The remaining 25 per cent was to be covered by debt securities issued
by DISCOMs. However, the underlying irrationality was not addressed by
Modi’s government, which is that power tariffs have been subsidized for
decades depending on the consumer.53 For instance, the agriculture sector
continues to receive highly subsidized power.54
Surface transportation infrastructure was given a significant push forward
by Nitin Gadkari’s Ministry of Road Transport and Highways, and
Shipping. Transportation is a sector which the Modi government has pushed
hard. The number of highway kilometres added in four years from 2014 to
2018 was an impressive 28,531 kilometres, which was reported to be faster
than during the UPA years.55 Similarly, railway track length has increased
substantially by about 9500 kilometres of broad-gauge lines between 2014
and 2018.56 However, the rate of laying tracks was only marginally faster
than during the UPA years. The significant difference with the past is that as
of end May 2019 there were no allegations of wrongdoing, and the
momentum was building up for faster completion of a number of NHAI
projects in the next few years.
The coal block allocations during the tenure of the Manmohan Singh
government were subsequently cancelled by the Supreme Court.57 The
Modi government’s energy minister Piyush Goyal carried out fresh auctions
swiftly and without any controversy. Modi spoke eloquently on several
occasions about the need for India to move fast on increasing its renewable
energy production. India’s per capita consumption of energy is way below
that of developed countries and China. In the coming decades, India will
move up on this scale of consumption of energy per capita. Depending
almost wholly on coal and oil-based power generation would add to
pollution at irresponsible levels. India’s renewable energy production
capacity in February 2019 was 75 gigawatts.58 The target of 175 gigawatts
(this number varies depending on the source) for renewable energy by 2022
is clearly unattainable. However, Modi’s ambitious numbers gave all
concerned targets to aim for, and was welcome news for Indians and for the
rest of the world.

Healthcare—Ayushman and Education

Healthcare for most of the Indian population is patchy in both quality and
reach. Low-cost government hospitals are overcrowded and inadequate in
number. Private hospitals are mostly located in large metropolitan areas,
and even with cross-subsidies between higher-income and poorer patients,
the costs are way too high for those who are not covered by insurance.
In this overall context, the healthcare for all programme called Ayushman
Bharat Yojana or Pradhan Mantri Jan Arogya Yojana (PMJAY) launched by
Modi’s government in partnership with the Ministry of Health on 23
September 2018 was a welcome initiative. The purpose was to make
primary, secondary and tertiary healthcare affordable and hence accessible.
It is too early at the time of writing to assess whether this programme would
meet the healthcare needs of the poorest in the country and how the costs
will be met on a sustainable basis. If it does work, even for a fraction of the
intended beneficiaries, it should reduce anxiety levels among those covered
since the current high cost of private healthcare can and does impoverish
Indians. This is particularly true for those who are self-employed with
meagre earnings and are not covered for such costs by insurance
companies.
As for the spread of literacy and numeracy, although Modi’s government
did initiate multiple programmes, it did not pay sufficient attention to the
difficulties of implementation. His government focused more on enhancing
skills. However, even to acquire basic skills, workers have to be familiar
with the three ‘Rs’; they need to be able to fluently read and write and be
conversant with basic arithmetic. If India is to take advantage of the many
programmes that Modi has launched, the young, particularly among the
poor, have to be better educated. Under the Aam Aadmi Party’s (AAP)
administration, government schools are said to have improved in the state
of Delhi.59 Teachers are being held accountable, and parents have been
compelled to come to schools for meetings with teachers. Modi’s
government could have included what was perceived to work in the Delhi
model in the states where it was in power.

Multiple Programmes, Acronyms and Slogans

One of the campaign promises that Modi made in 2014 was that his
government would enhance employment opportunities for all. To this end,
Modi pushed for a ‘Make in India’ campaign for the manufacturing sector.60
Modi’s government also paid special attention to improving the ease of
doing business in India to boost domestic and foreign investment in job-
creating ventures. However, the rent-seeking practices which feed off the
existing labyrinthine systems of permissions are difficult to change. The
underlying legislation and the innumerable rules and regulations need to be
first amended or abolished.
Modi created a mismatch between expectations and reality by promising
too much on jobs and self-employment; instead, demonetization was a
setback for those employed in MSMEs. Other schemes such as ‘Startup
India’ and ‘Standup India’ were floated to help new businesses started by
small entrepreneurs, women, Dalits and other disadvantaged groups.
However, these appeared to be more political slogans than adequately
thought-out and sustainably funded programmes.
Modi launched the Swachh Bharat Abhiyan (Clean India Mission) on
Mahatma Gandhi’s 145th birth anniversary on 2 October 2014. The
objectives were to make India free of open defecation by constructing 90
million toilets in rural India. This effort also included the cleaning up of
urban areas. There can be no two opinions about the need for such a
campaign. No other PM had chosen to speak as often about this issue. A
conversation that I had in 2017 with a European couple who had lived in
India for about four years and had travelled to every corner of the country
brings home the point about how outsiders view India. Their plaintive
question was ‘why does India have to be so dirty?’ In their understanding, it
could not be an issue of scarce financial resources since with community
efforts, at least neighbourhoods can be kept clean. It follows that Modi
deserves the nation’s thanks for exhorting Indians to take responsibility and
do their bit to promote cleanliness around the country. There is also a
positive economic aspect to this campaign since a cleaner India with a
lower incidence of communicable diseases will reduce public health
expenditure and also attract more tourists. On the whole, it was too early in
May 2019 to assess the effectiveness and longer-term sustainability of the
several programmes which were floated by Modi with a host of acronyms.

Agriculture Sector Distress and Farm Loan Waivers

Media reports have indicated that farmers around the country felt neglected
by Modi’s government. This led to agitations in several states including
those ruled by the BJP/NDA such as Madhya Pradesh and Maharashtra. At
its core, farmer dissatisfaction is based on the undeniable fact that their
earnings are not commensurate with the hard work they put in.
Uncertainties related to monsoons in areas which do not receive assured
irrigation is a major worry for them. Much more extension work remains to
be done to get farmers to insure their output against the vagaries of weather
and equally importantly understand the mechanics of how to claim
compensation. In some states, production of foodgrains, vegetables and
farm products has increased well beyond demand, leading to lower prices.
Another persistently intractable issue is that intermediaries between farmers
and retail outlets strip away a large proportion of the final sale price of the
produce including grains, vegetables and livestock.
High-yielding foodgrain seeds were introduced in the 1960s, and
currently average productivity per hectare for wheat production is 3.2, 3.5
and 5.3 tons in India, China and the US respectively.61 Counter-intuitively,
the proportion of land on which rice is cultivated in states which receive
relatively less rainfall has increased substantially between 1960 and 2014.
In Punjab and Haryana, this number has risen from 6.4 to 36 per cent and 4
to 19 per cent respectively.62 Such distortions are due to higher than
warranted subsidies on power, enabling low-cost pumping of groundwater.
The Modi government and the state governments of Punjab and Haryana
needed to motivate farmers in these two states to move out of rice and on to
cash crops.
Modi did not choose subject specialists to head the Ministry of
Agriculture and affiliated bodies. India’s agriculture sector reform process
is literally stuck in the mud, and for the most part, during Modi’s tenure, ad
hoc steps were taken. One day, it was about insurance for farm produce
without thinking through who would pay what proportion of the insurance
premiums and exactly how compensation would be assessed and paid
promptly. On another, it was about controls on exports or import tariffs to
protect consumers from rising prices of agricultural products.
The Central and state governments in India are prompt in subsidizing
final consumer prices while insisting on high prices for agricultural
products. For instance, the UP state government insisted that farmers be
paid a minimum price for their sugar cane, while sugar mill owners were
told they had to sell processed sugar at controlled prices below the purchase
price of sugar cane. A rational approach in UP and Maharashtra would have
been to start weaning farmers away from growing sugar cane which
consumes much more water than other crops.
A major part of the attention of all governments has been on protecting
consumers from high prices of farm products. This has been the policy
since Independence, and Modi’s government did little that was different.
Since farmers of one or more products are also consumers of a range of
other farm products, government policy for obvious electoral reasons has
favoured consumers.
Specific programmes were needed to provide direct minimum income
support to farmers. Instead, during 2017 and 2018, state governments of UP,
Rajasthan and Madhya Pradesh authorized waivers of agricultural loans.
The continuing principal underlying reasons for farmer distress are that the
average size of landholdings is too small, agriculture is not sufficiently
mechanized, and too large a proportion of India’s population is still engaged
in farming. Successive governments have not been able to implement
measures to improve and diversify the skills of the farming communities
around the country so that they obtain employment in other sectors.
Although five years are too short a time to achieve any measure of success,
Modi’s government did not make a beginning towards sustainable reforms
in the agriculture sector.

Supreme Court and Central Bureau of Investigation (CBI)

Four senior judges of the Supreme Court took the unprecedented step of
holding a press conference on 12 January 2018.63 They expressed their
sense of disquiet about the manner in which the then Chief Justice of India,
Dipak Misra, was allocating cases among Supreme Court judges, that
diverged from established practice. The media gossip was that Dipak Misra
was allocating politically sensitive cases to judges who were junior to the
four judges who held the press conference. For the public at large, it was a
matter of considerable concern that Supreme Court judges had reached such
a point of dissatisfaction with the chief justice that they had to go public
with a press conference.
 During the course of 2018, the ugly accusations and counter-accusations
between Alok Verma and Rakesh Asthana, the head and deputy head of the
CBI, did no credit to them or the institution. These two officers were
appointed to their respective posts by the Modi government. On 23 October
2018, Verma stripped Asthana of all responsibilities. The Modi government
then dismissed Verma the same day and melodramatically at midnight. This
must have lowered the morale among the rank and file in CBI. The CBI had
already come in for sharp criticism during the second term of Dr
Manmohan Singh. The expectation was that Modi’s government would
strengthen this important investigative body and not expose it to fresh
criticism and hence doubt in the minds of the electorate.

Reservations

Reservations for Dalits, STs and OBCs are currently applicable for
seats/positions in government and publicly owned educational institutions,
banks and other undertakings. Every now and then, demands have been
raised by one or the other community such as Gujjars, Patels and Jats in
Rajasthan, Gujarat and Haryana respectively for inclusion in the category of
OBCs. It is to the credit of the Modi government that it resisted demands
for reservations from these groups, since acceding to them was likely to
lead to a snowballing of the same demand from other communities.
In January 2019, the Modi government piloted fresh legislation through
both houses of Parliament for an additional 10 per cent reservation in
government jobs and educational institutions for all those in the ‘general’
category whose families earn less than Rs 0.8 million per annum (that is, Rs
66,667 per month), and have less than 5 acres of land, among other
criteria.64 If the declarations for income tax purposes are correct (only 3.2
million returns are for income above Rs 1 million), a large number of Indian
families will qualify for this additional 10 per cent reservation. This move
pandered to a misunderstanding, deliberate or otherwise, that it is
essentially through reservations in government jobs and educational
institutions that the country will uplift the socially and economically
disadvantaged. Affirmative action to help those who are at the bottom of the
social and economic ladder is an absolute must. However, this has to be
tempered increasingly with fair competition to promote excellence. Modi’s
government should have taken the politically more difficult route of
explaining that the existing quota for OBCs needs to be gradually reduced
and eliminated over say the next ten years, and similarly for Dalits and STs
over time.

Societal Intolerance and Anxieties

In the last six years, four prominent social activists and rationalists (against
superstitions) were murdered in India. They are rationalist Narendra
Dabholkar in Pune on 20 August 2013, social activist Govind Pansare in
Pune on 16 February 2015, Kannada scholar and author M.M. Kalburgi in
Dharwad on 30 August 2015, and outspoken journalist Gauri Lankesh in
Bengaluru on 5 September 2017. In each case, the media speculation was
that they were killed by Hindu fundamentalists. These cases of murder are
being investigated by the CBI or by Special Investigation Teams and the
state-level Criminal Investigation Department (CID). It is likely that the
views of these activists angered obscurantist elements who may have
conspired to murder them.
According to media reports, in August 2018 the Maharashtra Anti-
Terrorism Squad (ATS) arrested three persons belonging to right-wing
radical organizations who were possibly involved in the murder of
Dabholkar and Pansare.65 At the time of writing, the investigations into
these four killings have not been concluded. The Modi government needed
to speak up more forcefully in favour of freedom of speech and against such
hate killings.
The Koregaon Bhima instance of caste-related violence took place in
Pune district at the beginning of January 2018. In June and August 2018,
several prominent lawyers, journalists, academics and activists who support
the rights of Dalits and tribals were arrested under the Unlawful Activities
Prevention Act for having links with banned outfits.66 As of end May 2019,
some of those activists were still in jail, and the cases against them were
being pursued by Maharashtra police. It is difficult for the lay Indian to
understand what threat these few left-leaning individuals pose to the
integrity of the country. It would help the image of the BJP–Shiv Sena
coalition in Maharashtra and Modi’s government, domestically and
internationally, if the cases against the activists were to be explained by
government officials through mass media.

Inter-religious Issues

On 28 September 2015, a fifty-two-year-old called Mohammad Akhlaq

Saifi was killed and his son Danish seriously injured in their home in a
village near Dadri in Uttar Pradesh. The accusation was that Akhlaq had
killed a calf and there was beef in the refrigerator in his house. Accepting
that the law in UP and select other states in India prohibits wilful killing of
cattle and there are social sanctions against the consumption of beef, it was
still a grave crime for a mob to enter Akhlaq’s home and kill him and injure
others. If the law meant to protect cattle in UP was violated in any way, the
aggrieved parties could have filed a case with the local police and sought
legal redressal.67
In another incident, Pehlu Khan, a fifty-five-year-old, was killed on 1
April 2017 near Alwar by so-called cow vigilantes when he was returning
from Jaipur after purchasing dairy cattle.68 On 3 December 2018, a police
inspector and a villager were murdered in Bulandshahr, UP, by so-called
protectors of cows. It is illegal and abominable that groups of people take
the law into their hands, ostensibly to impose their religious beliefs about
cattle on the rest of the population. An unanticipated fallout was that
unwanted cattle strayed into agricultural fields and ate standing crops
leading to distress in rural areas in UP.69 A majority of the people in Asia
and the West consume beef. At a minimum, these cattle-related killings
have detracted from India’s image as a forward-looking nation on the move,
and possibly also reduced inward tourism.
 Modi had said at a public rally on 8 October 2015 that ‘Hindus and
Muslims should fight poverty, not against each other’. However, several
BJP members have continued to make intemperate remarks. For example,
the comment made by the 2019 BJP campaigner for Bhopal, Pragya Thakur,
that Nathuram Godse, Mahatma Gandhi’s assassin, was a patriot.70 Several
prominent academics and commentators are also concerned that there is a
continuing attempt to introduce incorrect facts and even outlandish concepts
about India’s past into school textbooks.

January–May 2019 and Beyond

The cascading rush of significant events in just the first five months of 2019
included: (a) the Central government’s interim budget announcement on 1
February 2019 that an annual grant of Rs 6000 will be provided to all
farmers who own less than 2 hectares of land;71 (b) JeM’s—a Pakistan-
based terrorist organization—claim that it was responsible for a suicide
bomber attack in the Pulwama district of Jammu and Kashmir on 14
February 2019 which killed forty Central Reserve Police Force (CRPF)
personnel; (c) India’s missile attack on a JeM terrorist training centre in
Balakot, Pakistan at 3.30 a.m. on 26 February 2019; (d) Pakistan’s
retaliation by sending warplanes into Indian airspace on 27 February 2019;
(e) appointment of Justice P.C. Ghose as the first Lokpal on 19 March 2019;
(f) India’s destruction of one of its own satellites on 27 March 2019 with a
ballistic missile interceptor; (g) yet another powerful bomb explosion on 9
April 2019 in Dantewada district in Chhattisgarh, attributed to so-called
Maoist extremists in this state, which killed a member of the state
legislative assembly and four security guards; and (h) announcement of
general election results on 23 May 2019, and BJP-led Modi government’s
return to power with more than an absolute majority on its own.
Taking a step back from this relentless barrage of events, as of end of
May 2019, the economic environment did not look promising, with a
noticeable downturn in the profitability of the private sector. There was a
gradual slackening of rural demand, stemming from lower prices of
agricultural products and, to an extent, excess production. Sales of tractors,
cars and two-wheelers were also down in the last two quarters.72
Overall, economic growth has slowed down, and in Modi’s second term
the government will need a competent and highly driven team. William
Easterly, a former World Bank economist, and many others have argued
persuasively that a focus on economic growth is of paramount importance
for developing countries to reduce poverty sustainably.73
An important element in India’s higher growth strategy has to be to push
for increased exports of goods. As a proportion of GDP, Indian exports of
goods in 2017 had shrunk to 11.7 per cent which is well below the same
number in 2004 when it was about 16.9 per cent.74 Clearly, the efforts till
now to create conditions for greater ease of business, higher FDI and for
India to be included in value chains—which are prerequisites to make the
pricing of quality goods competitive internationally—have not been
adequately implemented. The growth in the exports of IT services as a
fraction of GDP also came down somewhat from 3.9 per cent in 2008 to
2.98 per cent in 2017. However, it is production of goods, not services,
which involves employment of larger numbers of workers. Consequently,
the Modi government in its second term needs to pay particular attention to
promoting production of quality goods.
In the past, Indian corporate borrowers managed to strip assets and yet
retain control of their companies after reneging on their debt service
obligations to PSBs. It is in this context that the RBI had issued a circular
on 12 February 2018 that set out a timetable over which impaired assets had
to be immediately recognized and legal action initiated with the National
Company Law Tribunal after 180 days. Under a Supreme Court order of 2
April 2019,75 this RBI circular was set aside as unconstitutional, and it was
left to the Central government to direct RBI on individual cases.
Even a cursory examination of this Supreme Court judgment76 indicates
that the balance of power in cases of debt default has again shifted in favour
of borrowers. The logic which permeates this judgment is that RBI should
not follow a ‘one size fits all’ approach for debt default cases. This flies in
the face of the principle that all cases of bankruptcy should be dealt with
impartially in exactly the same manner, particularly because borrowers of
large amounts are able to get lender consortiums to be more ‘understanding’
in return for ‘inducements’.
Another order of the Supreme Court of June 2018 on reservations in
promotions for Dalits and OBCs or ‘promotion quotas’ in government has
been discussed widely in the media.77 The Central government was asked
by the Supreme Court to ensure that administrative efficiency should not be
compromised even as fair practices are followed in promotions. Separately,
the Allahabad High Court had ruled that reservation quotas for universities
should be calculated department-wise and not for the whole university. The
Supreme Court upheld the Allahabad High Court judgment on 22 January
2019.78 Perhaps with an eye to garnering voter support in the April–May
2019 general election Modi’s government announced that it would bring in
legislative changes to overturn the Supreme Court judgment. However, the
Central government had not initiated a bill till the end of its first term in
May 2019.
Five years since the Lokpal legislation came into force in January 2014,
no Lokpal had been appointed by the end of calendar year 2018. After
protests from a few non-governmental organizations (NGOs), the Central
government constituted a search committee, at the end of September 2018,
to propose names for a Lokpal and members. On 17 January 2019, the
Supreme Court took it upon itself to ask the search committee to finalize
names by end February 2019. A selection committee headed by the prime
minister with the Chief Justice of India and the ‘leader’ of the Opposition as
members finally selected P.C. Ghose, former Supreme Court judge, as the
Lokpal on 19 March 2019. The other Lokpal members have also been
selected. Lokayuktas were to be appointed by state governments, but
several states had not done so by end May 2019.
On 14 February 2019, a twenty-two-year-old Kashmiri suicide bomber
rammed his vehicle laden with explosives into a convoy of vehicles
carrying CRPF personnel. In this attack, forty CRPF men were killed.79 The
Pakistan-based JeM claimed responsibility for this terrorist attack. The
decibel levels in the Indian media rose to feverish levels with most calling
for retaliatory action while a few counselled restraint and urged greater
attention to reducing the sense of alienation that many in Kashmir feel from
India.
In the early hours of 26 February 2019, Modi’s government launched a
missile attack from the air on Balakot located in the Khyber Pakhtunkhwa
province in Pakistan. Balakot was said to harbour JeM terrorists who were
preparing for another attack on India. Modi’s government claimed that ‘in
this operation, a very large number of JeM terrorists, trainers, senior
commanders and groups of jihadis who were being trained for fidayeen
action were eliminated’.80
According to Indian media reports, a day later, on 27 February 2019,
twenty Pakistani air force jets entered Indian airspace in Kashmir. The
Indian air force scrambled MiG fighter planes to counter this attack, and
one Indian MiG aircraft was brought down during the air battle.81 The
Indian pilot of this MiG fighter plane was taken into custody by Pakistani
authorities. He was subsequently handed back to India via the Wagah
border on 2 March 2019. The Indian government has claimed that one F-16
fighter was brought down during the encounter between the fighter planes
of the two countries on 27 February.82
Irrespective of the precise veracity of the details about the Indian missile
strike on Balakot and subsequent events, this was an inflection point in
India’s relations with Pakistan. It is the first time that India has retaliated
against a target within that country since 1971. India had not resorted to a
counter-attack of any sort on Pakistani soil, even after the Pakistan-
supported terrorist killings in Mumbai in November 2008.
The usual argument has been that since Pakistan possesses nuclear
weapons, any overt Indian government attack on Pakistani targets could
lead to a nuclear counter-attack. Of course, Pakistan made it somewhat
easier this time compared to November 2008. In 2008, despite any number
of confirmations that the attack had been planned and carried out with the
support of the Pakistani establishment, there was no claim by any Pakistan-
based outfit that it was responsible for the attack.83 On the contrary, for the
February 2019 attack, the JeM claimed responsibility making it just that bit
easier for India to retaliate.
The subsequent UN declaration of Masood Azhar as a global terrorist at
the end of April 2019 was a foreign policy success for Modi’s
government.84 China, with its veto power in the UN, had resisted such a
classification for Masood Azhar. The Masood Azhar–led JeM’s claim that it
was responsible for the Pulwama attack had convinced the other four
permanent members of the UNSC that he should be branded as a global
terrorist and it was only China that held out till April 2019.
The second BRI (Belt and Road Initiative) forum summit meeting took
place in Beijing in the last week of April 2019.85 India did not participate
and there is no compelling economic or strategic reason for India to allow
China to claim such a BRI-related leadership role around the world. At a
bilateral level, India has not reached a comprehensive agreement on its
border with China, and the latter continues to lay claim to large areas within
India such as the state of Arunachal Pradesh.
Legacy

Modi took over as PM in May 2014 at a difficult juncture for the Indian
economy. He inherited PSBs laden with bad debts and power producer–
electricity distribution companies groaning under the weight of debt they
could not service. Inflation was high, fiscal deficits were elevated, and there
was a run on the rupee in September 2013. Additionally, there was a
pervasive view that Manmohan Singh’s government was either a spectator
or abettor of widespread corruption, and there was impatient dissatisfaction
among the young because employment opportunities in the formal sector
were inadequate.
On the positive side for Modi when he became PM, a significant
proportion of the population was already registered under Aadhaar.
Implementation of the MGNREGA, which was passed to provide limited
yet assured employment to the rural unemployed, had started and was
working well. On the foreign policy front, the hard and delicate work of
rapprochement with the US was complete, with the conclusion of the 123
Agreement. Relations with the other four permanent members of the UNSC
(Russia, China, France and the UK) were on a sound footing, and economic
interactions with Japan and Germany were on the rise.
In overall terms, the foreign-policy-related performance of Modi’s
government was at a high level in content and breadth of coverage. This
was particularly impressive given that he had no direct experience of
foreign policy at a national level earlier. Modi’s principal strength was that
he was perceived abroad as the unquestioned leader within his party with an
absolute majority in the Lok Sabha. However, Modi placed more emphasis
than warranted on personal diplomacy and particularly on rhetoric about
India’s relations with Pakistan. The latter gave an inaccurate sense of parity
between India and Pakistan.
In de facto terms, Sushma Swaraj, the minister of external affairs in
Modi’s government, was more the minister for the erstwhile Ministry of
Overseas Indian Affairs (MOIA) than MEA. Modi would have done better
to entrust MEA to someone who had his full confidence and could have
shared the burden of travel to distant capitals. All Indian PMs have
necessarily taken a close interest in foreign relations. At the same time, an
able Indian foreign minister can take on the administrative burden of
managing the foreign office, that is, the MEA, and would have the time to
visit distant countries to which the PM may not have the time to travel
except in transit. The MOIA was formally merged with the MEA in 2016.
This was a rational decision taken by Modi’s government since matters
related to overseas Indians should logically be managed by the MEA.
India’s relations with neighbours such as Bhutan, Bangladesh and
Myanmar improved marginally, and those with Sri Lanka remained the
same. However, Nepal’s anxieties as a landlocked nation could have been
handled better, and the relationship with Pakistan deteriorated considerably.
By contrast, Modi’s efforts at wooing the G7 were viewed positively in
those countries. To a considerable extent, this was because these nations
were looking to a further opening up of India as a market for their goods
and services, particularly defence equipment. Although relations did not
remain as close as before, the Modi government did enough with Russia for
it to remain a reliable supplier of sophisticated defence equipment and
classified technologies. The modus vivendi with China needed to be further
fine-tuned for it to have a restraining influence on Pakistan. One
inducement for China could have been to allow their goods and products to
have greater access to the Indian market with reciprocal adjustments to be
made by China to facilitate imports of Indian IT services.
In foreign relations, personal chemistry and summitry can help push
bilateral ties to higher levels of engagement. However, when there are
substantial differences about borders or divergences in strategic and
economic interests, personal diplomacy is less effective. This became
amply evident in the cases of Pakistan, China and the US during Modi’s
years as PM.
Modi took the view that the Indian PM needs to visit and engage with the
leadership in smaller countries such as Mauritius, Fiji and the Maldives.
This undoubtedly gave a boost to India’s relationship with those countries.
However, as these smaller countries face pulls and pressures from major
powers, visit diplomacy does not necessarily lead to lasting benefits. A
more efficient time management strategy was for Modi to have met with
these leaders on the sidelines of the annual UN General Assembly
meetings.
As the star BJP election campaigner, Modi continued to travel ceaselessly
from mid-2014 to May 2019 to campaign during the state assembly
elections of several large states such as UP, Karnataka, Gujarat, Madhya
Pradesh and Rajasthan, and for the Lok Sabha elections. Modi needed to
delegate at least some of this campaigning and spend more time checking
on the implementation of his government’s multiple initiatives. In politics
that means allowing others to rise within the party including those who
could in the future replace Modi. That is a risk that effective leaders have to
take when they groom potential successors. To put this suggestion in
perspective, even Jawaharlal Nehru did not measure up adequately in this
matter.
A not so centralized mode of functioning would have enabled the
government to be alerted whenever it was veering off course or policies
were not being effectively followed. This was particularly true about the
implementation of primary health and education targets. In both these
fields, it is state governments that supervise subordinate bodies. However, it
appears that Modi did not spend enough time coordinating and monitoring
efforts with all chief ministers in these two vital fields.
Modi’s yoga initiative was typical of his high personal energy and fitness
levels. He was unique among Indian PMs and senior political figures in that
he personally participated in community yoga popularization drives on live
television. Modi used yoga astutely to promote India’s image as a non-
threatening nation which promotes physical and mental wellness through
time-tested methods.
Modi was acutely conscious of the importance of keeping up with the
latest technologies. This was evident in his election campaign for the Lok
Sabha elections in 2014 and was abundantly clear in his interactions with
heads of globally significant cutting-edge technology companies such as
Microsoft, Google and Facebook. It was less evident that Modi had
interacted enough with heads of high-technology companies in India and
the Indian Institutes of Technology.
The Modi government’s final approval for Rafale fighter aircraft imports
from France was questioned by Opposition political parties and in the
Indian media on various grounds. The deal showed up the inability of
Hindustan Aeronautics Limited (HAL) or the French side’s unwillingness to
accept it as a reliable partner. This was a reminder about the slow pace at
which India’s domestic defence production capabilities have grown. While
it was too short a period for Modi to have set up sophisticated defence
manufacturing, it does not appear that his government gave sufficient
attention to this matter.
The Lalit Modi episode, and the dubious manner in which he was in
touch with the BJP chief minister of Rajasthan and the external affairs
minister, was not satisfactorily explained by Modi’s government. Indian
authorities rarely reach closure on allegations of financial wrongdoing,
impropriety or conflict of interest at high political levels. Coming as Modi
did, after the scam-ridden years of UPA, enhanced transparency on such
issues was expected from his administration.
Modi’s punishing schedule included much more domestic and foreign
travel than his predecessor. Additionally, the responsibilities he bore as PM
were heavier than others before him since several of his ministers had
relatively little experience of working in the Central government. All things
considered, Modi placed too heavy a load on himself. The PMO appears to
have centralized much of the government’s decision making. This was an
unfortunate throwback to the years when Indira Gandhi was PM.
By any standards, Modi was a superbly efficient manager. Modi’s
government made faster progress in the building of national highways and
railway tracks. The auction bidding process for coal blocks was free of
controversy, and electricity distribution companies are recovering gradually.
However, power-sector reforms were again not systemic enough to do away
with undeserving subsidies. PSBs are limping back to health, but again, no
sustainable reforms were attempted to make them less vulnerable to pulls
and pressures from whoever is ruling in Delhi.
On a broader note, Modi was unable to show the qualities of an all-
embracing leadership required to take India, a country of multiple
minorities, forward as one nation. For instance, the choice of UP’s chief
minister did not reflect a forward-looking mindset for the BJP or for Modi.
Cow vigilantes have heartlessly hounded even those who are engaged in the
leather-processing and buffalo meat exporting sectors. At the root of this
issue are eating habits based on religious beliefs which should be personal
and not extended to those who have different practices. The instances of
vigilante justice may have been avoided if the norms and rules for
transportation of cattle and disposal of their carcasses had been widely
publicized by the Central and the BJP-ruled state governments.
Modi tended to adopt a transactional approach on governance issues.
This can be effective under some circumstances, but is not enough or
appropriate at all times. To be a transformational leader, he needed to have
had at least some around him who could speak the truth to power and
inform him about what was going well and what was not working.
On the perceived divide between India and Bharat, Modi leaned
definitively towards Bharat. His personal origins are humble, and although
he speaks English fluently, he seems to be more comfortable in Gujarati and
Hindi. Modi used to dress in typically Indian clothes as an RSS and BJP
worker. However, since becoming the chief minister of Gujarat and later
PM, he preferred bandhgala suits in foreign locations and churidars and
sleeveless jackets plus matching kerchiefs.
To summarize, a number of significant and uplifting steps were taken by
the Narendra Modi government; for example, to promote cleanliness,
implement GST, and float an as yet untested scheme called Ayushman
Bharat to provide universal health coverage and to provide easier access to
loans for smaller businesses. At the same time, among the touchy and
difficult issues confronting the Narendra Modi government after five years
in power are doubts about commitment to interfaith harmony,
announcements of income support without mention of bringing down non-
merit subsidies and higher levels of reservations. This is a complex mix of
challenges, and it will take considerable skill on Modi’s part to sustain
optimism among the masses over the next five years, after securing an even
more lopsided victory in the May 2019 elections.
As for the 3 Cs, on Character, the Supreme Court has not indicated that
Modi had any direct responsibility for the 2002 communal riots. Modi’s
compassion for the economically weak and socially marginalized was
evident in his frenetic and even frantic pushing for JAM which should help
in direct transfer of cash benefits, cooking gas cylinder connections,
housing and toilets for lower income households. Although political
opponents and naysayers remain unconvinced that these and other welfare
initiatives have succeeded in any substantive manner, the fact is that all
public outreach programmes in India take time to grow roots. Modi’s
commitment was abundantly evident from the impossibly long hours that he
has so visibly put in at work. However, Modi concentrated more on starting
any number of specific programmes rather than trying to implement
systemic reforms. Minority communities had reason to be vocal in
expressing their disquiet about physical insecurity. On the remaining 2 Cs,
Modi scored at extremely high levels on Competence and with large
sections of the population on Charisma. In fact, Modi’s charisma is evident
from the warm reception he gets from crowds at his public meetings in
many parts of the country.
 Epilogue

‘. . . And in these words that I have relayed

From other shoulders,
Is man’s cruel experience
And the maulings of history.’1

Hiren Bhattacharya

As Mark Tully puts it, there are ‘No full stops in India’.2 I would go further
and say that there are no colons, semicolons or even commas. It is
invariably a downpour of conscience-stirring events which the media
gushes about with short-lived interest. It is unclear which significant issues
have been resolved, and experts rarely reach a consensus on the
consequences for the country. The jackboots of time march on, and most
Indians do not have the luxury of looking back as fresh events overtake
yesterday’s ‘big’ news.
The Indian electorate, with 900 million eligible voters in the general
elections of April–May 2019, was by far the largest anywhere in the world.
The voting, at 67.11 per cent, was the highest ever in any Indian general
election since Independence. In recent years, television programmes in
regional languages have come to be increasingly viewed on smartphones.
By the time of the elections, perhaps over 90 per cent of Indian voters got
their news and entertainment in the vernacular, with emphasis on issues of
local interest, and often on hand-held phones. It has to be a matter of
celebration that, despite the cynicism that was amply evident in the
selection of candidates and statements made by several party leaders, the
elections were held without evidence of widespread fraud or violence. The
BJP got a clear majority, winning 303 out of 543 seats, and the participation
of women was higher than in earlier elections.3 Prime Minister Narendra
Modi and his ministers took their oath of office on 30 May 2019 in the
forecourt of Rashtrapati Bhavan.
A sobering thought is that India’s elected representatives are much
wealthier than average Indians, and many have serious charges against
them, including criminal records. Another regret about the 2019 elections
was that voter alienation was high in Kashmir as was evident from the
extremely low polling percentages. Given the tense security environment
there, the assembly elections could not be held simultaneously. The law and
order situation for average Indians in several states, including Delhi,
continues to be a matter of concern.
If the hugely favourable 2019 election results for BJP are an indication
that development issues are to the fore, rather than communal–caste
polarization, this is indeed a welcome trend. It appears from the election
results that affiliations with the doctrinaire Left are weaker than before.
This is a trend in other democracies as well, and ‘strong’ individuals rather
than parties seem to appeal to voters. Perhaps due to language differences,
southern states remained unimpressed by the Modi juggernaut.
A significant lesson from the 2019 elections is that if the Congress
remains coterie ridden and feudally run, its days are numbered. The decline
of the Congress in north India began in the 1980s with the rise of caste-
based parties in Uttar Pradesh and Bihar. West Bengal was the bastion of
the Left and then the Trinamool Congress (TMC). Currently, the Congress
is near insignificant in that state, Tamil Nadu and Andhra Pradesh. It is
unfortunate for the country that a national party has been gradually whittled
down to scrambling to form governments in only three large states: Madhya
Pradesh, Rajasthan and Karnataka. For a vibrant democracy, India needs at
least two truly national parties.
The English-speaking elite based in India usually has one or more family
members settled in the West. They can speak in the vernacular but find it
difficult to write more than a few pages in any regional Indian language.4
Most Indian academics, senior government officials, bankers, writers and
media personalities belong to this group. By contrast, current BJP leaders
and those of regional parties prefer to speak and write in Indian languages.
However, textbooks in the physical sciences are almost exclusively
available only in English in India. As for the social sciences, most of the
seminal work is again available only in English. Textbooks will need to be
translated to regional Indian languages, and this will take time. To have a
window to what is being published around the world, a robust working
knowledge of English is essential.
For India to succeed in tomorrow’s world, the English-speaking classes
and those who are more fluent in regional languages need to become more
like each other. The former cannot merely talk among themselves. And the
latter cannot move the country forward if they keep harking back to a
distant, possibly mythical, glorious past. Some among those who speak only
in the vernacular suggest that they alone are true Indians. This kind of
inverse snobbery could lead to unhelpful divisions.
Going forward, after May 2019, systemic efforts will be necessary to
meet India’s social, economic and foreign policy challenges. Those who
were from ‘subaltern’5 India are now firmly in power in Delhi. They were
already in charge in several states, first in the south, and since the mid-
1980s, in northern states too. However, a mere changing of the political
elite would achieve little in addressing the glaring inequities and
discrimination in part-obscurantist, semi-feudal, rural India and its
congested urban slums. Indian leadership should be less cynical and more
open in discussing and arriving at remedies based on consensus.
Turning to the Indian economy, farming and related activities employ the
largest fraction of the country’s population. Instead of the usual unwinnable
game of micro-managing prices, the government’s policies need to be
rationalized and farmers supported to store, transport and sell their products
at cost-plus prices. Leasing of land needs to be fully legalized for farming
lots to be larger, enabling greater mechanization which would result in
higher productivity and more income from farming. A prerequisite is
digitization of landownership records to make leasing less risky for
landowners.
Most rural households have family members working informally in urban
areas. The national average for farm income of rural households as a
proportion of total income was about 60 per cent in 2012–13.6 The average
hides wide divergences across states, and this number is at 30, 34, 69 and
76 per cent for West Bengal, Kerala, UP and Madhya Pradesh, respectively.
However, according to a NABARD report in 2016–17, only 34 per cent of
the income of agricultural households came from ‘cultivation’.7 It is
unlikely that the share of farming income could have nearly halved, from 60
to 34 per cent in just four years from 2012–13 to 2016–17. Even assuming
that the share of farming income for rural households has decreased
substantially, non-farming income comes from a variety of informal-sector
jobs. The single most important economic challenge for India is to get
surplus labour in the agriculture sector out of farming and gainfully
employed in industry, and more generally in the formal sector. One of the
enabling steps is for the Central government to work with state
governments to move agriculture from the state to the concurrent list in the
Constitution.
The growing disparity in incomes and wealth has to be addressed. In
1930s India, the fraction of income earned by the top 1 per cent was 21 per
cent of the total. This number came down to 13 per cent by the mid-1950s
and 6 per cent by the mid-1980s. From then on, and particularly after the
1990s, the share of income for the top earners has grown steadily. A saving
grace has been that concurrently the annual rate of growth of real income
for all earners has risen steadily from 0.7 per cent in the 1970s to 4.7 per
cent post-2000.8
The poor in India have been fed the myth by most political parties that
they can be provided with quality primary education, subsidized healthcare,
foodgrains, fertilizers, power and other benefits, including employment
opportunities in the formal sector. This would just not be possible without
sustained higher economic growth. Of course, the poor cannot wait for the
Indian economy to grow. Even as income and other support are provided
through direct bank transfers (DBT), there has to be a single-minded focus
at the Centre and in the states to push for growth. This requires land, labour
and financial market reforms, focus on water conservation and higher
investments in infrastructure. Infrastructure includes not just roads, bridges,
railways tracks, ports and power, but also rainwater harvesting, solar and
wind power, irrigation canals and better power–grid connectivity.
As for the importance of keeping up with technological innovation, both
(vernacular) Bharat and (English-speaking) India need to anticipate the
ever-increasing mechanization of industry and agriculture. It may take
decades for this to spread fully to agriculture, but the use of robots has been
increasing in industry, even in labour-surplus India. It is likely that at least
for the next two decades, manual labour would continue to be required in
construction and road building. Greater emphasis on technical knowledge is
the way forward in India as advanced countries are moving towards
enhanced use of artificial intelligence.
For success of their initiatives, all Indian governments necessarily
depend on the quality of those at senior and junior levels in political,
constitutional, official and judicial positions. Since the Indira Gandhi years
of the early 1970s, Indian prime ministers have invariably appointed pliable
personalities to such positions. Retired civil service officers with little
domain knowledge are often appointed to constitutional and statutory
positions. The net has not been cast wide enough throughout the country in
selecting people to head these bodies, and officials are rewarded for loyalty
rather than expertise. Matters have reached a point where the Supreme
Court has recorded its disappointment with the CBI. It is more than high
time that selection to oversight and regulatory positions should also include
those who have excelled in the private sector, academics and professionally.
A crucially important pillar of the Indian state is the independence and
quality of its judiciary. It has to be a matter of serious concern that over the
past several decades, the Indian judiciary has increasingly encroached on
the turf of the executive. It also appears that considerations of religion,
caste and region are followed too rigidly in the selection of judges. At a
very minimum, there should be a cooling-off period for judges to accept
any form of remunerative appointment after retirement. Unless the Central
government plays favourites and waives rules, retired civil servants have to
comply with such a requirement.9
 Often, the government of the day appears to be relieved if courts take
over and it can stonewall aggrieved parties by saying that the matter is sub
judice.10 As of 30 June 2016, the backlog of pending cases in the district
and subordinate courts, high courts and the Supreme Court amounted to 2.8
crore, 40 lakh and 63,000 respectively.11 If the lack of judges, staff and
office space are continuing constraints, the Supreme Court should not spend
as much time as it has, for instance, with the affairs of the Board of Control
for Cricket in India (BCCI). The Supreme Court even has to accept cases
related to disagreements between tenants and landlords. For instance, on 17
April 2017, it set aside a judgment of the Himachal Pradesh High Court on
the grounds that ‘the contents of the impugned order’ were
incomprehensible.12 This case exposed the systemic flaws in the
appointment of judges. In another instance, a strangely worded judgment
passed on 24 July 2003 by Dipak Misra, the then chief justice of the
Madhya Pradesh High Court, involved the singing of the national anthem.
Readers can assess for themselves if this judgment made any more sense
than that of the Himachal Pradesh High Court.13
A disproportionate assets case against Jayalalithaa started in 1996, and
the final judgment was delivered by the Supreme Court twenty-one years
later in February 2017, after she had passed away.14 Lalu Prasad Yadav was
chief minister in Bihar and also the cabinet minister for railways in the
Central government. Accusations against him first surfaced around 1997,
and he was convicted on charges of corruption sixteen years later in 2013
and is currently in jail.15 These inordinate delays in court judgments, even
for such high-profile cases, raise grave doubts about the efficacy of India’s
justice system.
In the India of 2019, the judiciary appears to have become the new
royalty. Even though the Parliament enacted a law to set up a National
Judicial Appointments Commission (NJAC), it was struck down by the
Supreme Court as unconstitutional.16 There is danger in this apparent
accumulation of executive power by the judiciary. A future Indian
government may refuse to respect a Supreme Court judgment, which would
result in a constitutional crisis. The government, principal Opposition
parties and the judiciary can sit down behind closed doors to work out
boundaries for each other.
India’s domestic and foreign policy strengths stem from its large
geographical size and a relatively young population. These two factors,
coupled with growing consumer markets, make it an attractive destination
for investments and sale of products and services. Indian governments will
have to deal with increasing protectionist tendencies in the developed West,
including the United States. It follows that India has to nurture and develop
domestic markets, and focus even more on Asia’s relatively younger
consumers and rising per capita incomes.
Since the Vajpayee years, there has been a gradual shift towards the US
in India’s foreign policy. Hence, despite the issues raised by President
Trump’s indiscriminate rattling of the trade and technology17 cage, the
overall trend is towards closer relations with the US. India would have to
walk the tightrope of increasing economic, technological and defence
interaction with the US without raising Russian hackles. A recent example,
for which a balancing act is required, is the US threat to impose sanctions
on India under its Countering America’s Adversaries through Sanctions Act
(CAATSA) if India goes ahead to purchase of the S-400 Triumf air defence
system from Russia. Over the last decade, Russia has moved closer to
China as they both cannot, at least not right now, stand up to US financial
and technical hegemony individually on their own.
It remains to be seen if India can keep China at bay in South Asia while
strengthening ties within SAARC (Pakistan is necessarily an exception
because of its abetment of terrorism) and with BIMSTEC18 nations. It will
also be a challenge for India to expand trade and investment relationships
with ASEAN countries without participating in China’s Belt and Road
Initiative (BRI). Foreign policy efforts would have to be geared towards
attracting investment, and, if possible, classified and high-technology tie-
ups with Japan, Germany and France.
The West, led by the US, relies on NATO for collective security, and the
G7 grouping of high per capita income countries, again led by the US, for
coordination on economic issues. India, Russia and China do not cooperate
on security matters in any way comparable to NATO. The Russia–India–
China (RIC) meetings at the level of foreign ministers are more for
exchange of information, and there are no mechanisms for institutionalized
follow-up. On the other hand, the BRICS group has set up a development
bank headquartered in Shanghai. Another grouping, the SCO, is again
headquartered in China. The SCO’s members include China, Russia, India,
Pakistan and four Central Asian nations excluding Turkmenistan. The
primary unstated focus of China and Russia in SCO is to keep the West’s
economic and strategic tentacles from gaining any hold over the huge oil
and gas reserves or the existing and potential military–intelligence facilities
in Central Asian countries. India had close historical connections with
Central Asian nations and should enhance economic cooperation with this
group of countries, including buying/leasing of rights to fossil fuel and
mineral resources.
A four-nation informal formation, of which India is ostensibly a part, is
the so-called Quad comprising the US, Japan, Australia and India. The US
would like to coordinate efforts with the other three countries to contain
China’s maritime ambitions. A basic difficulty for coherence in this
grouping is that India needs to maintain working relations with
neighbouring China. China is the largest trading partner in goods for Japan
and Australia, and hence the ability of these two countries to contain
China’s designs in and around the East and South China Seas is limited.19

It was inevitable that the widespread faith in the leaders of the newly
independent India of the 1950s would not be sustained. Over the past seven
decades, the proportion of the desperately poor has diminished sharply. At
the same time, the norms of probity and fairness in governmental decision
making have eroded more than what can be attributed merely to the fading
memories of the freedom struggle. Effective political leadership is needed
from the new Modi government to strengthen confidence in the good faith
of those at high levels in the government, judiciary and media.
 In Jnanpith Award–winning author U.R. Ananthamurthy’s novel titled
Samskara,20 the principal character Praneshacharya is a priest married to an
invalid. Praneshacharya is a Sanskrit scholar, well versed in the scriptures,
and his life consists entirely of his temple duties and looking after his wife.
When childless and wayward Naranappa who was cohabiting with a
prostitute dies, differences of opinion arise within the conservative
community in which Praneshacharya lives about how Naranappa’s funeral
rites should be conducted. The community looks to Praneshacharya to
provide answers, and despite his knowledge of sacred texts and rituals, he is
unable to resolve in his mind who should conduct the last rites and how
these should be carried out. An implied suggestion of this multifaceted
novel is that mere book knowledge and asceticism do not provide answers
to everyday challenges.
Another Jnanpith Award winner V.S. Khandekar’s many-layered novel
Yayati recounts the author’s version of a story about this mythological king
in the Mahabharata. Yayati is married to Devyani and falls in love with
Sharmishtha, his wife’s maid. In the involved plot in Khandekar’s novel, as
distinct from the original mythological tale, Devyani is mean-spirited, and
Sharmishtha, who is of royal descent, provides the love that Yayati craves.
At a physical level, after Yayati has sired five sons from the two women, he
declares ‘my lust for pleasure in still unsatisfied’.21 A simple truth from this
complex novel is that the desire to indulge in never-ending physical
pleasures could be compared to nations chasing ever-increasing levels of
consumption and material well-being.
Praneshacharya’s excessive dependence on religious texts to guide his
community, or the relentless chasing of physical pleasures as was Yayati’s
wont as a king, are clearly not the appropriate models for leaders. Kings in
the past or heads of government today cannot raise their countries to higher
levels of well-being without the confidence and support of the people. The
character and competence of the teams led by India’s prime ministers will
remain critically important in inspiring fellow citizens to rise above
themselves. Finally, it is average Indians who will have a definitive bearing
on the nation meeting its enduring quest for the basics, dignity and peace
for all.
 Appendices and Tables

TABLE 1.1
Length of Railway Tracks, 1947–2016

Sources
1947: http://www.kportal.indianrailways.gov.in/index.php/history-of-railways
1961 and 1966: Indian Railways Annual Statistical Statement 2011–12.
http://www.indianrailways.gov.in/railwayboard/uploads/directorate/stat_econ/pdf/IR_STATISTICAL
_STATEMENTS_BI_2011_12/8.pdf
1970–71 to 2012–13: Indian railways key statistics 1970–71 to 2012–13
2014: Indian Railways Statistical Publications 2013–14
2016: Indian Railways Statistical Publications 2015–16
Track kilometre: The length of all running tracks including tracks in sidings, yards and crossings.
BG: Broad gauge (lines with 1.67 metre width)
MG: Meter Gauge (lines with 1 metre width)
NG: Narrow Gauge (lines with 0.762/0.610 metre width)
*Break-up of track lengths are not readily available for these years
 TABLE 1.2
India’s Exports and Share of Total Value of World Exports, 1951–70
Calendar Indian Exports (US $ Indian Exports as Percentage of World
Year millions) Exports
1951 1,611 2.2
1952 1,295 1.8
1953 1,116 1.5
1954 1,182 1.5
1955 1,276 1.5
1956 1,300 1.4
1957 1,379 1.4
1958 1,221 1.3
1959 1,308 1.4
1960 1,331 1.2
1961 1,387 1.2
1962 1,403 1.1
1963 1,631 1.2
1964 1,749 1.2
1965 1,686 1.0
1966 1,606 0.89
1967 1,612 0.84
1968 1,760 0.82
1969 1,835 0.75
1970 2,026 0.72
 TABLE 1.4
Sectoral Composition of the Indian Economy (per cent of GDP)

*Including government services, for example Railway Services.

Source RBI

TABLE 1.5
Income Tax Rates for the Highest Income Slab (per cent)*
1954–55 78.1
1955–56 84.4
1956–57 87.5
1960–61 70
1962–63 72.5
1971–72 85
1974–75 70
1977–78 60
1984–85 55
1985–86 50
1992–93 40
1997–98# 30

* Surcharge is excluded
# Continuing till 2017
Source: RBI staff study, ‘Empirical Fiscal Research in India: A Survey’ (pp. 14–15).
 TABLE 1.6
Institutional and Non-Institutional Agricultural Credit

Source: All India Debt and Investment Survey, Various Issues, NSSO.
 TABLE 3.1
Indira Gandhi: 1970–77

Notes: Applicable to all the tables from 3.1 to 11.1, as relevant.

GDP: Gross Domestic Product
* Indicates percentage of GDP
Gross Fiscal Deficit and Net Primary Deficit are for the Central government and do not include
state governments
CPI: Consumer Price Inflation
 TABLE 3.2
Indira Gandhi: 1980–84

Appendix 3.1
Definitions of Deficits

(a) Revenue Deficit (RD) is the difference between revenue receipts and
revenue expenditure.
Revenue Account Gap = Revenue Deficit (RD) = Revenue Receipts (RR) –
Revenue Expenditure (RE).

(b) Capital Deficit denotes the difference between capital receipts and
capital disbursements.
Capital Account Gap = Capital Account Deficit (CAD) = Capital Receipts
(CR) – Capital Disbursements (CD).
(c) Conventional deficit (budgetary deficit or overall deficit) is the
difference between all receipts and expenditure, both revenue and capital.

Overall Gap = RD+CAD = (RR–RE) + (CR–CD) = [(RR+CR) –

(RE+CD)].

(d) Gross Fiscal Deficit (GFD) is the difference between aggregate

disbursements net of debt repayments and recovery of loans and revenue
receipts and non-debt capital receipts.

Gross Fiscal Deficit (GFD)

= RE + [CD–(Discharge of Internal Debt (DID) + Repayment of Loans to
Centre (RLC) + Recoveries of Loans & Advances (RLA)] – RR
= RE + [Capital Outlay (CO) + Loans & Advances by States (LAS) +
DID+RLC –(DID +RLC+RLA)] –RR
= (RE–RR) + [CO+ (LAS–RLA) + (DID–DID) + (RLC–RLC)]
= RD+CO+ Net Lending (NL)
(e) Net Fiscal Deficit (NFD) is the gross fiscal deficit less net lending of the
State Governments.
Net Fiscal Deficit (NFD) = GFD – (LAS–RLA).

(f) Gross Primary Deficit (GPD) is defined as GFD minus interest

payments.
Primary Deficit (PD) = GFD – Interest Payment (IP).

(g) Net Primary Deficit (NPD) denotes net fiscal deficit (NFD) minus net
interest payments.
Net Primary Deficit (NPD) = NFD – [(IP–Interest Receipts (IR)].

(h) Primary revenue balance denotes revenue deficit minus interest

payments. Primary Revenue Balance (PRB) = RD – IP.

(i) Net primary revenue balance denotes revenue deficit minus net interest
payments.
Net Primary Revenue Balance (NPRB) = RD – (IP–IR)

Source: Reserve Bank of India

GCF as a percentage of GDP: Gross capital formation consists of outlays on additions to the fixed
assets of the economy plus net changes in the level of inventories. Fixed assets include land
improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and
the construction of roads, railways, and the like, including schools, offices, hospitals, private
residential dwellings, and commercial and industrial buildings. Inventories are stocks of goods
held by firms to meet temporary or unexpected fluctuations in production or sales, and “work in
progress.
GDP Growth Rate: Annual percentage growth rate of GDP at market prices based on constant
local currency. Aggregates are based on constant 2010 U.S. dollars. GDP is the sum of gross value
added by all resident producers in the economy plus any product taxes and minus any subsidies not
included in the value of the products. It is calculated without making deductions for depreciation
of fabricated assets or for depletion and degradation of natural resources.
 TABLE 4.1
Morarji Desai and Charan Singh: 1977–80
 TABLE 5.1
Rajiv Gandhi: 1984–85 to 1988–89
 TABLE 6.1
V.P. Singh and Chandra Shekhar: 1989–91
 TABLE 7.1
P.V. Narasimha Rao: 1991–96
 TABLE 8.1
I.K. Gujral and Deve Gowda: 1996–98
 TABLE 9.1
A.B. Vajpayee: 1998–2004
 TABLE 9.2
PMGSY Road Length Completed since 2000–01
Year Road Length Completed (Km)1
2000–01 1,837
2004–05 61,923
2014–15 419,372
2017–18 550,622
 TABLE 9.3
Exports of Software Services as a Percentage of GDP and Export of
Goods, 1998–2017

Note: Export of Software Services are divided into two major categories: (i) Computer Services
exports which include IT services as well as Software Product Development; and (ii) ITES/BPO
services (including engineering services).
 TABLE 9.4
Exports of Goods as a Percentage of GDP, 1998–2017
(Current US $)
Year Export of Goods (US $ billion) Exports of Goods as percentage of GDP
1998 33.2 8
1999 36.8 8.1
2000 44.5 9.6
2001 43.8 9.2
2002 52.7 10.4
2003 63.8 10.7
2004 83.5 11.9
2005 103.1 12.7
2006 126.4 13.7
2007 163.1 13.6
2008 185.3 15.6
2009 178.8 13.5
2010 249.8 15.1
2011 306 16.8
2012 300.4 16.4
2013 314.4 16.9
2014 310.3 15.2
2015 262.3 12.5
2016 275.9 12.1
2017 303.5 11.7

Sources: Handbook of Statistics on Indian Economy, RBI,

https://rbi.org.in/Scripts/PublicationsView.aspx?id=7704; World Bank,
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=IN; Directorate General of
Foreign Trade (DGFT), http://commerce-app.gov.in/eidb/ergnq.asp.
 TABLE 10.1
Manmohan Singh: 2004–14
 TABLE 11.1
Narendra Modi: 2014–17

Sources: The sources listed here are the same for all the tables, from 3.1 to 11.1, for the respective
heads.
Gross fiscal deficit: RBI, https://rbi.org.in/Scripts/PublicationsView.aspx?id=18699.
Net primary deficit: Ibid.
Capital outlay: Ibid.
Current Account Deficit: RBI https://rbi.org.in/Scripts/PublicationsView.aspx?id=18703.
Defence Expenditure: World Bank.
Forex Reserves: RBI.
Gross Capital Formation: RBI.
 CPI: RBI https://rbi.org.in/Scripts/PublicationsView.aspx?id=18698.
GDP Deflator: World Bank https://data.worldbank.org/indicator/ny.gdp.defl.kd.zg
Rupees per USD: RBI https://rbi.org.in/Scripts/PublicationsView.aspx?id=18607
Exports: RBI https://rbi.org.in/Scripts/PublicationsView.aspx?id=18703
REER: RBI.
1
Pradhan Mantri Gram Sadak Yojana, Online Management, Monitoring and
Accounting System (OMMAS). Refer: http://omms.nic.in/
 Notes

Prologue: The Promise of India Endures

1. The road in central Delhi that connects Rashtrapati Bhawan (currently
the Indian President’s house) at the top of Raisina hill at one end to India
Gate at the other. Rashtrapati Bhawan was the British viceroy’s residence
prior to independence, and Rajpath was called Kingsway.
2. Former chief economic adviser in the Ministry of Finance, and World
Bank economist.
3. As of October 2017, there were twenty-nine states and seven union
territories (administered by the Central government).
4. The cabinet committees on economic affairs, on security and on political
affairs are all headed by the PM, and their members include the home
minister, external affairs minister and finance minister. The committees
on economic affairs and on security also include the minister of defence.
5. Tables 1, 2, 3 and 4 at the end of this Prologue list India’s prime
ministers, finance and foreign ministers since 1947 and the ruling party’s
strength in Parliament.
6. Choices: Inside the Making of India’s Foreign Policy, S. Menon, former
foreign secretary and national security adviser, Penguin, 2017.
7. The prime minister was the ex-officio chairman of the Planning
Commission. When Narendra Modi became PM in 2014, this body was
replaced by the National Institution for Transforming India (NITI) Aayog
(Commission).
8. The National Judicial Appointments Committee (NJAC) Act and the
enabling Constitutional Amendment Act came into force in April 2015.
However, the NJAC Act was struck down by the Supreme Court in
October 2015 on the grounds that it was inconsistent with the basic
structure of the Constitution which provides for independence of the
judiciary.
9. In the 1951 Tennessee Williams play, the original line is ‘deliberate
cruelty is unforgivable’.
10. Butter Chicken in Ludhiana: Travels in Small Town India by Pankaj
Mishra. It was first published in 1995, and now, more than two decades
later, the state of our urban areas is more distressing than amusing.
11. An Uncertain Glory: India and Its Contradictions, Jean Dreze and
Amartya Sen, Princeton University Press, 2013.
12. What Is History?, E.H. Carr, Cambridge University, 1961.
13. The film was based on a 1946 novel authored by Nikos Kazantzakis.
14. Millennials are those who were born in the 1980s or early 1990s, and
this word was coined by investment bankers.
15. For sufficient numbers of people to be aware of this book, it needs to be
translated into regional languages. Currently, about 8 per cent of Indians
over eighteen years of age can read English (author’s estimate based on
the number of copies of English-language newspapers sold daily plus
those who get their news in English from the Internet).

Acknowledgements
1. Specific reference to Bijoy Chandra Bhagwati: Planter Raj to Swaraj,
Freedom Struggle and Electoral Politics in Assam 1826–1947,
Amalendu Guha, Indian Council of Historical Research, 1977,
republished by Tulika Books in 2006, p. 144.
2. Planter Raj to Swaraj, p. 241.
3. Congress leader and later chief minister of Assam, 1970–72.
4. Specific reference: Gopinath Bardoloi, The Assam Problem and Nehru’s
Centre, Nirode K. Barooah, Bhabani Print & Publications, Guwahati,
November 2010, p. 229.
5. Details mentioned in Strangers in the Mist authored by Sanjoy Hazarika.
Originally published in 1994 and republished by Penguin.
6. British admiral’s daughter who was Gandhi’s follower and renamed
Mirabehn by him.

Introduction
1. Employment, Growth and Development, Essays on a Changing World
Economy, Deepak Nayyar, Routledge Taylor and Francis Group, 2017.
Contours of the World Economy 1-2030 AD: Essays in Macro-Economic
History, Angus Maddison, Oxford, 2007.
2. Minto, Mary Caroline Grey Elliot-Murray-Kynynmound, 1934. India,
Minto and Morley, 1905–1910; compiled from the correspondence
between the viceroy and the secretary of state, London: Macmillan.
3. Journal of Asian Studies, Vol. 74, No. 1, February 2015.
4. Power, Performance and Bias: Evaluating the Electoral Quotas for
Scheduled Castes in India, Francesca Refsum Jensenius, Spring 2013.
5. In Mysore there were reservations for backward classes in civil services
as far back as 1874.
6. After 1947 the reservation of legislative seats for Dalits was originally
intended to last for ten years. However, reservations for the Lok Sabha
have been extended every ten years, and the last such extension was in
2009.
7. The Discovery of India was authored by Nehru while he was in prison in
Ahmednagar Fort between August 1942 and March 1945 (Nehru was
jailed nine times by the British). This book includes a recounting of
India’s heritage of thousands of years of civilizational and beneficial
trade linkages with neighbouring countries and distant corners of the
world.
8. War and Diplomacy in Kashmir, 1947–48, Chandrasekhar Dasgupta,
Sage Publications, 2002.
9. The Indian Air Force was called the Royal Indian Air Force till 1950, and
the last British commander in chief of the Indian Air Force was Air
Marshal Gerald Gibbs who served till March 1954. The first Indian air
marshal was Subroto Mukherjee, who served from April 1954 till he
retired in March 1955.
10. The last British naval officer to head the Indian navy was Vice Admiral
Sir Stephen Hope Carlill, and he served till April 1958. Vice Admiral
R.D. Katari was the first Indian national to head the Indian navy, and he
served from April 1958 till June 1962.
11. The Pakistani armed forces were also headed by British officers in
1947. However, Jinnah refused to accept Mountbatten as governor
general.

Chapter I: Pandit Jawaharlal Nehru: Unparalleled Nation Builder, Caring

Yet Distant Leader
1. Nehru was born on 14 November 1889 in Allahabad, Uttar Pradesh, to a
wealthy lawyer father. He had a very privileged upbringing and was sent
to Harrow in England when he was barely eleven. Nehru returned to
India in his early twenties after completing a Tripos at Cambridge and
being called to the bar in London. On his return to India, he spent a few
years practising law in Allahabad before coming under the influence of
Mahatma Gandhi and immersing himself in the freedom struggle. He was
forty-seven years old when he lost his wife Kamala Nehru to tuberculosis
in 1936.
2. Sunday Standard (Indian Express on Sunday), 17 August 1958.
3. Many had expressed doubts about one India, and Churchill is said to have
remarked that British India should be broken up into Hindustan, Pakistan
and Princes-stan.
4. Patel: A Life, Rajmohan Gandhi, Navajivan Publishing House, 1990.
5. Rajmohan Gandhi’s article on p. 15 of the Indian Express dated 28
October 2018.
6. For example, A Collector’s Piece, S.N. Mitra (1933 batch—served in
Assam and West Bengal), A Writers Workshop Greybird Book, 1997.
Mitra was the deputy commissioner in Tezpur, Assam, in the early 1940s
and had jailed my father in that town during the Quit India period. In the
1960s, he was our house guest in Delhi on more than one occasion.
7. Constituent Assembly Debates, Nehru Memorial Museum and Library
(NMML), Teen Murti, New Delhi.
8. Amritsar: Mrs Gandhi’s Last Battle, Mark Tully and Satish Jacob,
Jonathan Cape, 1986.
9. As mentioned to me by M. Rasgotra at his residence in New Delhi on 29
November 2017. He was India’s foreign secretary and high commissioner
to the UK during his long and distinguished career.
10. Nehru’s younger sister who served as India’s ambassador to the USSR
and the US and high commissioner to the UK.
11. As mentioned to me on 30 November 2017 at his residence in New
Delhi. K.S. Bajpai was secretary (East) in the Ministry of External
Affairs and India’s ambassador to the US, China and Pakistan. Mr
Bajpai joined the Indian Foreign Service in 1952 and retired in 1986.
12. The RBI was owned by private shareholders since 1935 and was
nationalized in January 1949. It continued to be the currency authority
of the Government of Pakistan till April 1948 when the Reserve Bank
 of Pakistan was set up. Prior to Independence, decision making in RBI
was driven by the interests of its private shareholders who appointed
RBI’s central board. RBI was nationalized in 1949 and thereafter took
on the mantle of India’s central bank.
13. Details: Indian Fiscal Federalism, Y.V. Reddy and G.R. Reddy, Oxford
University Press, 2019.
14. Indian Fiscal Federalism, Y.V Reddy and G.R. Reddy, Oxford
University Press, 2019, p. 193.
15. India: Planning for Industrialization: Industrialization and Trade
Policies since 1951, Jagdish N. Bhagwati and Padma Desai, published
on behalf of the Development Centre of the OECD by Oxford
University Press, 1970.
16. This argument is attributed to Raul Prebisch and Hans Singer who
developed it between 1945 and 1949. Hans Singer’s paper ‘Post-war
price relations between underdeveloped and industrialised countries’
was published in February 1949. This paper concluded that the terms of
trade for developing countries declined steadily from 1876 to 1948.
Separately, Prebisch presented a paper to this effect in May 1949 at a
United Nations Economic Commission for Latin America and the
Caribbeans meeting in Havana.
17. The Bombay Plan, Edited by Sanjaya Baru and Meghnad Desai, Rupa,
2018.
18. ‘Commands and Controls: Planning for Indian Industrial Development,
1951-1990’, Rakesh Mohan and Vandana Aggarwal, Journal of
Comparative Economics, 1990, Vol. 14, Issue 4, pp. 681–712.
19. The Commanding Heights: The Battle between Government and the
Marketplace that Is Remaking the Modern World, Daniel Yergin and
Joseph Stanislaw, 1998.
20. Per capita income at 1948–49 prices. Source: Aspects of Indian
Economic Development, A Book of Readings, with an Introduction by
Pramit Chaudhuri, University of Sussex, George Allen & Unwin Ltd,
1971, p. 30.
21. ‘Over the past decade economists have been intensely scrutinized for
their intellectual failings in the run-up to the 2007–08 crisis . . .
Economists understand even less about economic growth than about
business cycles. But the profession has done little to address this failure
 or to understand its implications.’ 14–20 April 2018 issue of the
Economist, p. 67.
22. The members of this committee of economists were: V.K.R.V. Rao,
D.R. Gadgil, C.N. Vakil, H.L. Dey, P.S.N. Prasad, Gyan Chand, E. Da
Costa, K.T. Shah and Radha Kamal Mukherjee. Their report was
classified as ‘Secret’ at the time it was submitted, and has been sourced
from the Nehru Papers at the NMML, Teen Murti, New Delhi.
23. India’s Tryst with Destiny: Debunking Myths that Undermine Progress
and Addressing New Challenges, Jagdish Bhagwati and Arvind
Panagariya, HarperCollins, 2012.
24. Defined in the same letter as lack of food, clothes and shelter—the
familiar ‘roti, kapda aur makan’.
25. The Course of My Life, C.D. Deshmukh, Orient Blackswan Private
Limited, 1974.
26. Nehru: A Contemporary’s Estimate, Walter Crocker, Oxford University
Press, 1966.
27. Adam Smith: What He Thought and Why It Matters, Jesse Norman,
Penguin, 2018.
28. ‘The moral component evaluates one’s own action in terms of what
would happen, if, hypothetically, this action were adopted by others.
Such moral preferences have important implications for economic
behaviour. They motivate individuals to contribute to public goods, to
give fair offers when they could get away with cheap offers, and to
contribute to social institutions and act in environmentally friendly ways
even if their individual impact is negligible.’ Ingela Alger and Jorgen
W. Weibull, ‘Morality—Evolutionary Foundations and Policy
Implications’, 3 June 2016,
http://pubdocs.worldbank.org/en/543241464122153185/Weibull-
PAPER.pdf
29. Published in 2009 by Penguin.
30. The Clash of Economic Ideas: The Great Policy Debates and
Experiments of the Last Hundred Years, Lawrence H. White, Cambridge
University Press, 2012.
31. Council for Mutual Economic Assistance (COMECON). Members were
the USSR, Bulgaria, Czechoslovakia, Poland, Hungary and Romania.
32. There were three finance ministers from 1947 to 1950.
33. Private papers of John Mathai, Microfilm Division, NMML, Delhi.
34. Milton Friedman’s ‘Memorandum to the Government of India’ dated 5
November 1955. This memorandum was published in Foundations of
India’s Political Economy: Towards an Agenda for the 1990s, Subroto
Roy and William James, Sage Publications, New Delhi.
35. Glimpses of Indian Economic Policy: An Insider’s View, I.G. Patel,
Oxford University Press, 2002, p. 44.
36. Using 2004 as the base year, the real effective exchange rate (REER) of
the Indian rupee was overvalued by about 30 per cent at the end of
2018.
37. On the Under-invoicing of Imports, Jagdish Bhagwati, Bulletin of the
Oxford University Institute for Economics and Statistics, 26 November
1964 and Fiscal Policies, the Faking of Foreign Trade Declarations and
the Balance of Payments, February 1967.
38. This Act was later replaced by the Foreign Trade (Development and
Regulation) Act, 1992, and the chief controller of imports and exports
was renamed director general of foreign trade.
39. National Bureau of Economic Research (NBER) publication, Title: ‘An
Overview: 1950–70’, Chapter authors: Jagdish N. Bhagwati, T.N.
Srinivasan. http://www.nber.org/chapters/c4508.
40. Net national product is the market value of a nation’s goods and
services minus depreciation.
41. C.D. Deshmukh, an ICS officer of the Central Provinces and Berar
(Madhya Pradesh) cadre of the 1918 batch, was secretary of the central
board of the RBI from 1939 to 1941, deputy governor RBI from 1941 to
1943 and governor RBI from 1943 to 1949. Deshmukh was one of the
five members of the Planning Commission when it was first set up in
1950. He was finance minister from 1950 to 1956.
42. Winner of the Nobel Prize in Economics in 1979.
43. Glimpses of Indian Economic Policy: An Insider’s View, I.G. Patel,
Oxford University Press, 2002.
44. Source: Aspects of Indian Economic Development, edited by Pramit
Chaudhuri, George Allen & Unwin/Blackie (India), 1971, pp. 18 and 33
45. Companies get around this law by employing contractual workers.
46. Published on behalf of the Development Centre of the Organization for
Economic Cooperation and Development, Paris, by Oxford University
Press, 1970.
47. ‘The Political Economy of Trade and Foreign Investment Policies in
India: 1950–2006’, Arvind Panagariya, NCAER Golden Jubilee
Volume.
48. From one pound, which was equal to $4.03, down to $2.80.
49. Currency peg arrangements were in vogue universally till 1971 when
the US dollar parity with gold was abandoned by the administration of
President Richard Nixon.
50. Indian Public Finance Statistics, 2017.
51. Direct taxes are ‘progressive’ since these depend on the level of income.
Indirect taxes are easier to collect since these are levied at points of sale
or purchase. However, indirect taxes are ‘regressive’ since these impact
lower-income groups to same extent as the rich.
52. Orient Blackswan Private Limited, July 1974.
53. IDA and IMF loans are denominated in Special Drawing Rights (SDRs)
which, before the euro replaced the Eurozone currencies, was mostly
made up of US dollar, pound sterling, Japanese yen, Deutsche Mark and
Swiss franc. IDA loans carried well below market rates of interest and
before 1987 could be very long-term and up to fifty years in maturity.
However, these loans have turned out to be extremely expensive for
developing-country borrowers including India because of the embedded
exchange rate risk. The principal amounts of IDA loans have risen to
multiples of the original loans, as measured in the recipient country
currencies because these have depreciated steadily over the last sixty
years against the major reserve currencies, namely the US dollar, JPY
and the euro (earlier Deutsche Mark).
54. The World Bank is made up of the International Bank for
Reconstruction and Development (IBRD), IDA, International Finance
Corporation (IFC) and Multilateral Investment Guarantee Agency
(MIGA). IDA does not have any separate personnel like IFC and
MIGA. IDA loans are based on contributions by developed countries
such as the USA, Japan, Germany, Switzerland, the UK and France.
55. Source: World Bank
(http://pubdocs.worldbank.org/en/804131447347453530/WBAR15-
LendingData-rev.pdf)
56. The circumstances and numbers on bilateral and multilateral assistance
received by India in the first two decades are available in a paper titled
‘The Aid-India Consortium, the World Bank, and the International
 Order of Asia, 1958-1968’ by Shigeru Akita of Osaka University. Asian
Review of World Histories 2:2 (July 2014), pp. 217–48 © 2014, The
Asian Association of World Historians doi:
http://dx.doi.org/10.12773/arwh.2014.2.2.217 217.
57.
http://documents.worldbank.org/curated/en/164191468034447809/pdf/8
04800WP0India0m0Box379801B00OUO090.pdf
58. Nice Guys Finish Second, B.K. Nehru, Viking Books, 1997.
59. These two external assistance numbers are from a lecture delivered by
Dr Y.V. Reddy, then governor, Reserve Bank of India, at Osmania
University, Hyderabad on 16 December 2006.
60. Nehru: A Contemporary’s Estimate, Walter Crocker, Oxford University
Press, 1966.
61. A.M. Rosenthal was the New York Times (NYT) South Asia
correspondent in Delhi from 1954 to 1958. He was the executive editor
of the NYT from 1977 to 1988.
62. After scouring through records in the NMML, several accounts of the
Nehru years and the first four volumes RBI’s record, I have not found a
single reference by Nehru to the Aid India Consortium or to bilateral
assistance from Western countries.
63. How India Sees the World: From Kautilya to Modi: Kautilya to the 21st
Century, Shyam Saran, 2017.
64. ‘The Soft Power of India’, Chinmaya R. Gharekhan, The Hindu, 19
April 2018, http://www.thehindu.com/opinion/lead/the-soft-power-of-
india/article23590348.ece?homepage=true
65. Ibid.
66. Nehru: A Contemporary’s Estimate, by Walter Crocker, Oxford
University Press, 1966.
67. As reported in the Indian Express, 16 August 1961.
68. It is only in 1966 after Nehru had passed away and Indira Gandhi was
PM that the Punjab Reorganisation Act was passed, and Punjab and
Haryana were separated and a few areas went to Himachal Pradesh.
69. The Journal of Imperial and Commonwealth History, Vol. 38, No. 3,
September 2010, pp. 441–469.
70. I succeeded him as India’s high commissioner (HC) in London about six
decades later and had exactly the same office in Aldwych House.
According to the longest-serving local employees in the high
 commission, Menon’s eccentric habits included spending the night in
the room adjacent to the HC’s office, and he was often on a diet of just
coffee and biscuits.
71. Menon was India’s defence minister from 1957 to 1962.
72. Ramachandra Guha in the Magazine section of The Hindu dated 1
August 2004,
https://www.thehindu.com/thehindu/mag/2004/08/01/stories/200408010
0290300.htm
73. As mentioned to the author by K.S. Bajpai in a conversation at the
latter’s residence in Friend’s Colony, New Delhi, on 30 November
2017.
74. In 2018 developed countries continue to jostle for influence in the
Congo which has huge deposits of copper, gold, diamonds and uranium.
75. Outside the Archives, Y.D. Gundevia.
76. India’s Nuclear Bomb: The Impact on Global Proliferation, George
Perkovich, University of California Press, 1999.
77. After the Independence of India Act was passed in the UK in July 1947
the princely states of India regained their paramountcy and technically
had the right to accede to India or Pakistan or even seek autonomy.
Most princely states joined the Indian union, but a few including the
state of Jammu and Kashmir, Junagadh, Travancore, Hyderabad, Bhopal
and Jodhpur chose to defer their decision.
78. War and Diplomacy in Kashmir, 1947-48, C. Dasgupta, Sage, 2001.
79. Ibid.
80. Ibid.
81. Source on details of Indian military equipment: India’s Wars, A Military
History, 1947-1971, Arjun Subramaniam, Harper Collins, 2016.
82. Dulles to George C. Marshall, 23 November 1948, Foreign Relations 5,
Pt 1, pp. 459–60, quoted in War and Diplomacy in Kashmir, 1947–48.
83. Details on the lead-up to Maharaja Hari Singh’s accession to India and
the role of Sheikh Abdullah are available in India After Gandhi by
Ramachandra Guha.
84. War and Diplomacy in Kashmir, 1947–48, C. Dasgupta.
85. ‘Radical Land Reforms Were Key to Sheikh Abdullah’s Towering
Influence in Kashmir’, David Devadas, The Wire,
https://thewire.in/government/radical-land-reforms-key-sheikh-
abdullahs-towering-influence-kashmir. ‘Sheikh Abdullah and Land
 Reforms in Jammu and Kashmir’, Anirudh Kumar Prasad, Economic
and Political Weekly, Vol. 49, Issue No. 31, 2 August 2014.
86. This bilateral agreement was meant to protect minorities in both
countries, enable the return of abducted women during Partition and of
property to rightful owners.
87. Syama Prasad Mookerjee, Life and Times, Tathagata Roy, Penguin
Books, 2012.
88. Article titled ‘The Logic of History’ by Jagmohan in Business Standard
dated 14 June 2013, https://www.business-standard.com/article/beyond-
business/the-logic-of-history-106112301093_1.html
89. Charges against Sheikh Abdullah were withdrawn and he and others in
custody were released in 1964 a few months before Nehru passed away
in May 1964. It is an indication that the two leaders were not estranged
at a personal level, since Abdullah stayed with Nehru at his Teen Murti
House residence in Delhi for a few days immediately after his release.
90. ‘A Short History of Elections in Kashmir’, The Caravan, 25 November
2014, https://caravanmagazine.in/vantage/short-history-elections-
kashmir
91. Nehru passed away on 27 May 1964.
92. Gandak is a major river in Nepal and a tributary of the Ganga.
93. Present at the Creation: My Years at the State Department, Dean
Acheson, 1969, W.W. Norton.
94. Set up in 1954, and among today’s ASEAN members, Thailand and the
Philippines were members of SEATO.
95. Set up in 1955.
96. Trumbo wrote the scripts for Spartacus, Exodus and Roman Holiday.
97. Outside the Archives, Y.D. Gundevia.
98. Ibid.
99. U-2 aircraft were supersonic and flew at 70,000 feet. One such U-2,
which had taken off from Peshawar in Pakistan, was shot down by the
USSR on 1 May 1960. Till then the US had assumed that U-2s were
undetectable.
100. JFK’s Forgotten Crisis: Tibet, the CIA and the Sino-Indian War, Bruce
Riedel, HarperCollins, 2015.
101. Pakistan, without Bangladesh, is larger than France, and its population
of 193 million is more than the combined population of Germany and
France which adds up to about 150 million.
102. The agreement to share Indus waters was signed in Karachi on 19
September 1960 by Nehru and President Ayub Khan.
103. Source: https://www.thehindu.com/news/national/jawaharlal-nehru-on-
permanent-unsc-membership-no-question-of-a-seat-being-offered-and-
india-declining-it/article26536197.ece?
utm_campaign=socialflow&fbclid=IwAR1qY-9g-
L9j_njNV7YWnSipt5QKrxqTaNL33yzpZ6LRm9TyL9cW33wymBQ
104. JFK’s Forgotten Crisis, Bruce Riedel.
105. Nice Guys Finish Second, B.K. Nehru, Viking Books, 1997.
106. David C. Engerman, Professor of History, Brandeis University,
discussed his book The Price of Aid: The Economic Cold War in India
on 23 February 2018 at Brookings, New Delhi. Professor Engerman’s
response to my question whether India could have achieved a meeting
of minds on economic ties in 1961 on the lines of the US-China
understanding of 1971 was that India did not present the US with a
counter to Russia. Professor Engerman was perhaps forgetting that in
1961 China was not yet publicly estranged from the USSR, not a
member of the UN or the Bretton Woods institutions, and for the US
establishment was a communist menace to the ‘free’ world. To that
extent, and on Nehru’s terms, India could have been an economic
counter-example to communist China.
107. Recounted to me by M. Rasgotra at his residence in New Delhi on 29
November 2017. Rasgotra was present at this meeting between Nehru
and the US billionaires.
108. First mention of such a military-industrial complex in the US was
made in the farewell speech of US President Dwight D. Eisenhower on
17 January 1961.
109. JFK’s Forgotten Crisis, Bruce Riedel.
110. A now retired Indian foreign secretary commented with a wry smile
while we were both working in the Ministry of External Affairs in
New Delhi that it is bilateral ties which can be used to further vital
national interests, and discussions at the UN are more suited to
promote values.
111. A Life in Diplomacy, M. Rasgotra (former foreign secretary), Penguin,
2015.
112. The French left Pondicherry in 1954.
113. Turkey has been a member of NATO since 1952. West Germany and
Spain became members of NATO in 1955 and 1982.
114. Outside the Archives, Y.D. Gundevia.
115. The heads of government of four permanent members of the UNSC—
President Dwight D. Eisenhower of the US, Premier Nikolai A.
Bulganin and Politburo member N.S. Khrushchev of the USSR, Prime
Minister Anthony Eden of the UK and Prime Minister Edgar Faure of
France attended this conference in Geneva on 18 July 1955. The
principal topic on the agenda was how to scale down the Cold War.
116. Nehru Papers, NMML, Teen Murti, New Delhi. The record of
discussions at this 21 June 1955 meeting was drawn up by P.N. Kaul.
117. Justice Radhabinod Pal from India submitted the sole dissenting note
in the Tokyo trials of Japan’s war crimes during the Second World
War. Justice Pal’s point was that all the defendants were not guilty and
that a spirit of revenge rather than justice had marred the work of the
tribunal of which he was a member. The controversial Yasukuni Shrine
in Tokyo has a monument dedicated to Justice Pal within its precincts.
118. Outside the Archives, Y.D. Gundevia.
119. The 2008 novel Sea of Poppies by Amitav Ghosh provides a sensitive
portrayal about opium cultivation in India and transportation over the
seas to China.
120. In 1899 the British Indian government proposed this line to China via
Claude MacDonald, the British envoy to that country.
121. As of May 2019, Indian troops have moved up to the LAC and so have
Chinese troops, and hence there is no consistent 20 kilometres of
buffer zone any longer. The LAC is somewhat different from the Line
of Control (LoC) which is a demarcated line between India and
Pakistan.
122. This letter is discussed in J.N. Dixit’s, Makers of India’s Foreign
Policy: From Raja Ram Mohun Roy to Yashwant Sinha, HarperCollins,
2004.
123. Panikkar was the Indian ambassador in China from May 1950 to
September 1952.
124. JFK’s Forgotten Crisis, Bruce Riedel.
125. The Noodle Maker of Kalimpong: The Untold Story of My Struggle for
Tibet, Gyalo Thondup (Anne E. Thurston), Random House, December
2014.
126. Chiang Kai-shek was Thondup’s sponsor when he went to study in
China in 1939, and they met several times including in 1950 in
Taiwan. Thondup claims to have met Zhou Enlai in January 1957and
Field Marshal He Long over dinner at the Chinese Embassy in Delhi,
Thondup calls Zhou a ‘xiao bailian’ which is used by the Chinese to
“describe someone who is understanding and sincere on the outside
and inwardly, crafty, sly and full of tricks”. Thondup mentions in The
Noodle Maker of Kalimpong that he met Deng Xiaoping in Beijing in
1979.
127. Thondup says that he also met R.N. Kao, head of the Research and
Analysis Wing (R&AW), after this external intelligence agency was
set up by Indira Gandhi in 1968.
128. The Noodle Maker of Kalimpong, Thondup.
129. JFK’s Forgotten Crisis, Bruce Riedel.
130. ‘When Nehru Turned Down CIA’s Proposal to Base Snooper Planes in
Charbatia’ India Today, 31 December 1983,
https://www.indiatoday.in/magazine/cover-story/story/19831231-
when-nehru-turned-down-cias-proposal-to-base-snooper-planes-at-
charbatia-804557-2014-01-31
131. Nehru Papers, NMML, Teen Murti, New Delhi.
132. Communist China and the Soviet Union use their PMs to talk to heads
of government in countries such as India. The fact was and is that the
PM in China is not the head of government. The general secretary of
the CPSU in the USSR era and now the President, and similarly Mao
at that time and now the General Secretary Xi Ping, are the heads of
government. It is not clear why Nehru did not insist that all substantive
meetings and communications be with Mao and not the number two.
133. India-China Boundary Issues, Quest for Settlement, Ranjit Singh
Kalha, Indian Council for World Affairs, Pentagon Press, 2014.
134. Ibid.
135. Nehru papers, NMML, Teen Murti, New Delhi.
136. China’s India War, Bertil Lintner, Oxford University Press, 2018.
137. Former finance minister who resigned in 1950 and was followed by
C.D. Deshmukh.
138. Source: Private papers of John Mathai, Microfilm Division, NMML.
139. This phrase is attributed to Rabindranath Tagore. Also the title of a
book authored by Sunil Khilnani. Published by Farrar, Straus and
 Giroux, 1997.

Chapter II: Lal Bahadur Shastri: War and Peace during Short Tenure
1. Shastri was born in Mughalsarai near Varanasi in UP on 2 October 1904.
He was from a family of modest means, and his father was a
schoolteacher. He was a self-contained personality with an aura of quiet
assurance. Unlike Nehru and many others at the forefront of Indian
politics in the 1940s–50s, Shastri’s education was entirely in India. His
full name was Lal Bahadur Shrivastava, and Shastri was the title
accorded to him after he graduated from Kashi Vidyapeeth, Varanasi, in
1925.
2. Selected Speeches of Prime Minister Lal Bahadur Shastri, Publications
Division, Ministry of Information & Broadcasting, Government of India,
1974.
3. Source: Aspects of Indian Economic Development, edited by Pramit
Chaudhuri, George Allen & Unwin/Blackie (India), 1971, pp. 18, 33.
4. W.D. Hopper, ‘Distortions of Agricultural Development Resulting from
Government Prohibitions’, in Distortions of Agricultural Incentives, ed.
T.W. Schultz (Bloomington, Ind., 1978), pp. 69–78.
5. Sunday Standard, 16 August 1964.
6. The leaders of the agitation were advised by senior political leaders
across party lines that their demand should be based on a separate
language and not on religious grounds. Since before Independence, the
consensus in the Congress party had been that states should be
reorganized on the basis of language, not religion. Multilingualism in
India, Debi Pattanayak, Orient Longman, January 2007.
7. The China-Pakistan Axis: Asia’s New Geopolitics, Andrew Small,
Random House Publishers, 2015, p. 47.
8. During the Cold War era, the US and the USSR tried to whittle each
other down and carve out their respective areas of influence. However, on
issues such as non-proliferation of nuclear weapons, the two countries
coordinated their efforts. Similarly, there was possibly a meeting of
minds between the two superpowers that they did not want either India or
Pakistan to win too decisively. Keeping the conflict in Kashmir brewing
at low intensity made the otherwise antagonistic USA and USSR fancy
 their chances of fostering greater dependence on themselves for arms
purchases and transfer of technology.
9. P.C. Bhattacharya was the RBI governor from March 1962 to June 1967.
Of the fifty-one years from 1967 to 2018, economists have held the
position of RBI governor for only twenty-four years. The remaining
years, and earlier, from 1935 to 1967, RBI was headed by ICS or IAS
officers.

Chapter III: Indira Gandhi: End of Innocence Yet Remarkable

Achievements
1. English translation from Hadi Hasan’s A Golden Treasury of Persian
Poetry published by the Indian Council of Cultural Relations (ICCR)
with a foreword by Zakir Husain, April 1966.
2. Indira Gandhi was born in Allahabad on 19 November 1917 to
Jawaharlal and Kamala Nehru, and she was an only child. She was taught
at home by tutors and attended schools in Allahabad and Geneva. She
also studied at the Visva-Bharati University in Santiniketan and at
Somerville College, Oxford University.
3. The Teen Murti (Three Statues) monument in front of Nehru’s residence
was built in 1922 to honour soldiers from the princely states of Mysore,
Jodhpur and Hyderabad who fought and beat the Ottoman army under
British command in and close to Haifa.
4. Indira Gandhi: A Personal and Political Biography, Inder Malhotra,
Hodder & Stoughton, 1989.
5. Indira: The Life of Indira Nehru Gandhi, Katherine Frank,
HarperCollins, 2010.
6. Indira Gandhi: A Personal and Political Biography, Inder Malhotra.
7. On a lighter note, the Syndicate should have known better given P.G.
Wodehouse’s following observation about women in Uneasy Money: ‘At
the age of eleven or thereabouts women acquire a poise and an ability to
handle difficult situations which a man, if he is lucky, manages to achieve
in his late seventies.’
8. This is the sense a reader gets from the following books: Indira Gandhi:
A Personal and Political Biography, Inder Malhotra, Hay House India.
First Draft: Witness to the Making of Modern India, B.G. Verghese,
Tranquebar, 2010.
9. The Political Economy of Trade and Foreign Investment Policies in
India: 1950–2006, Arvind Panagariya, NCAER Golden Jubilee Volume.
Singh had advocated adjustment of the rupee exchange rate downwards
to more realistic levels. To that extent, Indian exports would have
become more competitive in international markets.
10. Glimpses of Indian Economic Policy: An Insider’s View, I.G. Patel,
Oxford, India, 2003.
11. Glimpses of Indian Economic Policy: An Insider’s View, I.G. Patel, pp.
102–07.
12. P.N. Haksar was among the several sincere, left-of-centre nationalists
who were educated in England in the 1920s–30s and chose to return to
India. Most of them were lawyers, a few were scientists and a handful
chose careers in the private sector. Haksar was at the India League in
London along with V.K. Krishna Menon. The India League promoted
awareness in local circles about the injustice of colonial rule in India.
Haksar joined the Indian Foreign Service in 1947.
13. The chief economic advisers in the Ministry of Finance during 1967–69
and 1970–72 were V.K. Ramaswamy and Ashok Mitra respectively.
14. Intertwined Lives: P.N. Haksar and Indira Gandhi, Jairam Ramesh,
Simon & Schuster, 2018.
15. The V.T. Dehejia Committee, which was formed in October 1968, found
that short-term bank lending for working capital purposes was often
diverted to acquire fixed and longer-term assets. That is, bank lending
was deliberately and irresponsibly long and not repayable on demand.
In finance terminology, the ‘modified duration’ of loans was much too
long compared to the duration of the sources of funding, namely
demand deposits.
16. In April 1980, after IG had come back as PM, another six private banks
were nationalized.
17. D.R. Gadgil was the deputy chairman of the Planning Commission from
1967 to 1971.
18. Glimpses of Indian Economic Policy: An Insider’s View, I.G. Patel,
2003; First Draft: Witness to the Making of Modern India, B.G.
Verghese, 2010, p. 121; and Time magazine article on the subject dated
3 December 1965,
http://www.time.com/time/magazine/article/0,9171,842253-1,00.html
19. RBI’s Master Circulars on Priority Sector Lending.
https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?
id=9815
20. Aspects of Indian Economic Development, Pramit Chaudhuri, George
Allen and Unwin, 1971.
21. DMK first came to power in Tamil Nadu in 1967 and supported IG on
abolition of privy purses for princes and nationalization of banks.
22. The Communist Party of India (Marxist) or CPI(M) came to power in
West Bengal in 1977.
23. In the US, the federal and state-level anti-trust laws are meant to ensure
fair competition, if necessary, break up monopolies and cartels, and
prevent price gouging of consumers.
24. The MRTP Act and corresponding commission were replaced by the
Competition Act of 2002 and the Competition Commission.
25. Indira Gandhi, Letters to an American Friend 1950–1984 (Selected
with commentary from correspondence with Dorothy Norman), edited
by Helen and Kurt Wolff, 1985.
26. Coal India was set up in 1975.
27. Indira Gandhi: A Personal and Political Biography, Inder Malhotra,
Hay House India, 2014.
28. First Draft: Witness to the Making of Modern India, B.G. Verghese,
Tranquebar Press, 2010, pp. 186, 200–19.
29. The KGB and the World: The Mitrokhin Archive II, Christopher Andrew,
Allen Lane, Penguin Group, 2005.
30. Indira Gandhi: A Personal and Political Biography, Inder Malhotra,
Hay House, 2014.
31. The Sanjay Story, Vinod Mehta, Jaico Publishing House, 1978,
republished by HarperCollins, 2012, pp. 76–92.
32. Phonetic version of the acronym for the US oil giant Standard Oil, or
SO. In 1972, after regulatory action restricted ESSO’s operations in the
US, it was bought out by Exxon.
33. ‘Political Economy of Petroleum Sector Deregulation’, in India
Transformed: 25 Years of Economic Reforms, Vikram Singh Mehta,
Penguin, 2017, p. 316.
34. All the Shah’s Men, Stephen Kinzer, John Wiley & Sons, 2003.
35. See Appendix 3.1 for definitions of the various measures of government
deficits.
36. See the editorial by T.N. Ninan in Business Standard, 12 January 2019,
titled ‘Still a Fudget: Why the Union Budget Remains Someone’s
Version of the Facts’, www.business-standard.com/article/opinion/still-
a-fudget-why-the-union-budget-remains-someone-s-version-of-the-
facts-119011100595_1.html. Two of my articles in the Business
Standard about the care with which government’s budget numbers
should be read are at: www.business-
standard.com/article/opinion/jaimini-bhagwati-accrual-based-
budgeting-108062001013_1.html; and www.business-
standard.com/article/opinion/jaimini-bhagwati-demystifying-the-
budget-115021901259_1.html.
37. The Arab embargo on oil exports was meant to hurt Western countries
which were perceived to have supported Israel in the Yom Kippur war
of October 1973.
38. Source: https://www.indiabudget.gov.in/bspeech/bs197071.pdf
39. For details and analysis: ‘Thirty Years of Tax Reform’, Shankar
Acharya, Economic and Political Weekly, 14 May 2005.
40. Covered in Chapter 4.
41. Under the Janata government, the P.C. Alexander Committee on import-
export policies was set up in 1978, and the V. Dagli Committee on
‘controls and subsidies’ started work in 1979.
42. India Today, 15 April 1981.
43. See n. 59 in Chapter I. The SDR’s value has been usually somewhat
more than that of the US dollar. As of 30 May 2019, 1 SDR was equal
to 1.38 US dollar (Source: IMF).
44. Indira Gandhi: A Personal and Political Biography, Inder Malhotra,
Hay House India.
45. Congress (Organisation) or Congress (O) was formed after the Congress
party broke up in November 1969 when Indira Gandhi was expelled
from the party. Congress (O) had leaders such as Morarji Desai from
Gujarat, K. Kamaraj from Tamil Nadu, Veerendra Patil from Karnataka
and Bhola Paswan Shastri from Bihar.
46. Indira Gandhi: A Personal and Political Biography, Inder Malhotra,
Hay House India, 2014.
47. In a conversation with me on 23 October 2017. Chandrashekhar
Dasgupta, an IFS officer, was India’s ambassador to China and later to
the European Union. He was awarded the Padma Bhushan in 2008.
48. I was then an undersecretary-level officer, designated officer on special
duty (press relations), in the Ministry of External Affairs. My
responsibilities included managing anything and everything that the
Indian press and about 950 persons from radio, television and print
media from abroad needed. During this summit, I was busy trying to get
responses, in addition to attending to logistical and administrative
arrangements, to the innumerable requests from the media for
interviews with heads of government.
49. As foreign minister in the Janata government headed by Prime Minister
Morarji Desai.
50. M.C. Chagla was the foreign minister. IG was preoccupied with
consolidating her tenuous hold on power, and Chagla, as a legal
luminary, was probably not adequately aware of the longer-term
potential for economic linkages with these countries.
51. The Blood Telegram: Nixon, Kissinger and a Forgotten Genocide, Gary
J. Bass, Vintage Books, 2013.
52. Times of India, 16 August 1971.
53. Archer Blood was the US consul general in Dacca during those fateful
years at the end of the 1960s and the beginning of the 1970s. The title of
this book refers to a telegram sent by Archer Blood to the US State
Department detailing the then ongoing genocide in East Pakistan
(Bangladesh).
54. A History of Assam, Sir Edward Albert Gait, Calcutta, Thacker, Spink
and Co., 1906.
55. Ambassador K.S. Bajpai speaking to the Association of Indian
Diplomats on 27 November 2018 at Sapru House. In 1970, Ambassador
Bajpai was the Indian political officer in Sikkim.
56. Signed by the negotiators G. Parthasarathy, on behalf of Indira Gandhi,
and Mirza Mohammad Afzal Beg, on behalf of Sheikh Abdullah on 13
November 1974 in New Delhi. Text of the accord is at:
https://www.mainstreamweekly.net/article3395.html
57. ‘How Many Times Must We Lose the Valley?’, Omair Ahmed, The
Wire, https://thewire.in/politics/kashmir-valley-1987-militancy. ‘History
of Electoral Fraud Has Lessons for BJP in J&K’, Times of India, 22
November 2014. https://timesofindia.indiatimes.com/blogs/gray-
areas/history-of-electoral-fraud-has-lessons-for-bjp-in-jk/
58. Bangladesh: The Unfinished Revolution, Lawrence Lifschultz and Kai
Bird, Zed Books, 1979.
59. Pakistan’s ambassador to the US, 1959–63, foreign secretary from 1963
till 1967, and later minister of state for foreign affairs when Z.A. Bhutto
became President of Pakistan in December 1971.
60. Indira Gandhi, the Emergency and Indian Democracy, P.N. Dhar,
Oxford University Press, 2000.
61. Indira Gandhi, the Emergency and Indian Democracy, P.N. Dhar, p.
203.
62. Ibid, p. 194.
63. Ibid., p. 209.
64. Across Borders: Fifty Years of India’s Foreign Policy, J.N. Dixit, Picus
Books, 1998, p. 96.
65. Intertwined Lives, Jairam Ramesh.
66. American Prometheus: The Triumph & Tragedy of J. Robert
Oppenheimer, Kai Bird & Martin J. Sherwin, 2009.
67. NSG was set up as a multilateral group to prevent the export of
materials, equipment and technology which could be used to build
nuclear weapons. The principal members of the NSG are the USA,
Russia (USSR in 1974), China, France, the UK, Japan, Canada and
South Korea.
68. The Missile Technology Control Regime (MTCR) was set up much
later in 1987 by the G7 countries. The MTCR is meant to control the
proliferation of missile and drone technology which can carry more than
500 kilograms and travel further than 300 kilometres.
69. Indira Gandhi, the Emergency and Indian Democracy, P.N. Dhar.
70. For example, the railway strike organized by George Fernandes who
was the president of the All India Railwaymen’s Federation and
Navnirman Andolan of 1974 in Gujarat.
71. It lasted until 21 March 1977.
72. India After Gandhi, Ramachandra Guha, Macmillan, 2007, provides
details of the circumstances under which the Emergency was declared.
73. The provisions under this chapter do not apply to managers and
administrators or to the armed forces and police.
74. Times of India, 16 August 1976.
75. Lalu Prasad Yadav of Bihar was jailed under this Act, and thumbing his
nose at Indira Gandhi, he named one of his daughters Misa.
76. In 1973, Justice A.N. Ray was rewarded with the position of chief
justice, superseding three others, after he was the lone judge to dissent
in a ten-to-one Supreme Court verdict which struck down the 1969
Bank Nationalisation Act.
77. P.N. Bhagwati was appointed chief justice in 1985 when Rajiv Gandhi
was PM.
78. Subsequently, during the Janata government years, 1977–80, the then
Law Minister Shanti Bhushan piloted the 43rd and 44th Amendments of
the Constitution. These two amendments more or less restored the status
quo ante. The 44th Amendment revoked MISA and also took it out from
the 9th schedule of the Constitution where it had been placed in 1971 to
put it outside judicial review. In a reinforcement of a reversion of the
legal framework to a pre-1970s India, in July 1980 in the Minerva Mills
versus Union of India case, the Supreme Court ruled that certain parts of
the 42nd Amendment, which was enacted during the Emergency in
1976, were unconstitutional since these provisions give precedence to
the Directive Principles over fundamental rights of individuals.
79. The Dramatic Decade: The Indira Gandhi Years, Pranab Mukherjee,
Rupa Publications, 2015.
80. To gain the electoral support of illegal migrants from Bangladesh in
Assam, the Congress-led UPA government of Manmohan Singh
amended the 1964 tribunal order, making Assam exempt from this
directive. In 2005, the Supreme Court struck down the 1983 IMDT Act
as unconstitutional.
81. Amritsar: Mrs Gandhi’s Last Battle, Mark Tully and Satish Jacob, 1985.
82. Indira Gandhi, Letters to an American Friend 1950–1984 (Selected
with commentary from correspondence with Dorothy Norman), edited
by Helen and Kurt Wolff, Harcourt Brace Jovanovich Publishers, 1985.
83. Turning and turning in the widening gyre / The falcon cannot hear the
falconer; / Things fall apart; / the centre cannot hold; . . . / The best lack
all conviction, while the worst / Are full of passionate intensity. (‘The
Second Coming’—William Butler Yeats)
84. Amritsar: Mrs Gandhi’s Last Battle, Mark Tully and Satish Jacob,
Jonathan Cape, 1986.
85. India’s Long Road: The Search for Prosperity, Vijay Joshi, Allen Lane,
Penguin Random House India, 2016.
86. Intertwined Lives: P.N. Haksar and Indira Gandhi, Jairam Ramesh,
Simon & Schuster, 2018.
87. Widow of Rajni Patel, a well-known lawyer in Mumbai, who joined the
Congress in the late 1960s and was reportedly close to Indira Gandhi.
88. Author of Indira Gandhi’s biography titled Indira: The Life of Indira
Nehru Gandhi, HarperCollins, 2002.
89. High-school physics: a compass does not point to the true North if there
is a magnet in its immediate vicinity.
90. Indira Gandhi: Tryst with Power, Nayantara Sahgal, Penguin Books,
2012.
91. ‘New Economic Policies: A Historical Perspective’, Economic and
Political Weekly, Vol. 27, No. 1/2, 4–11 January 1992, pp. 41–46.
92. It is rumoured that Pupul Jayakar, who was a personal friend, helped in
the selection of saris for IG.

Chapter IV: Morarji Desai: Sincere Yet Inflexible and Outmoded

1. Morarji Desai was born on 29 February 1896 in Bhadeli village, Bulsar
district (erstwhile Bombay Presidency) which is now in Gujarat, and his
father was a schoolteacher. Desai went to high school in Valsad, Gujarat,
and graduated from Wilson College, Bombay (Mumbai). He passed away
on 10 April 1995.
2. Congress (O), Bharatiya Janata Party and Bharatiya Kranti Dal.
3. Times of India, 16 August 1977.
4. Glimpses of Indian Economic Policy: An Insider’s View, I.G. Patel.
5. Trilateral Nuclear Proliferation: Pakistan’s Euro-Chinese Bomb, Arvind
Virmani, Institute for Defence Studies and Analyses, New Delhi,
December 2006, IDSA Monograph Series, p. 40.
6. Across Borders: Fifty Years of India’s Foreign Policy, J.N. Dixit, Picus
Books, 1978.
7. The Brzezinski Interview with Le Nouvel Observateur (1998). The
University of Arizona,
https://dgibbs.faculty.arizona.edu/brzezinski_interview. Translated from
the French by William Blum and David N. Gibbs. This translation was
published in Gibbs, ‘Afghanistan: The Soviet Invasion in Retrospect,’
International Politics 37, No. 2, 2000, 241–42.
8. Charan Singh was born in a peasant family in Noorpur, UP, on 23
December 1902. He graduated with a science degree and was also trained
in law, and all his education was in UP. He passed away on 29 May 1987.

Chapter V: Rajiv Gandhi: Forward-looking Yet Catastrophically Error-

prone
1. RG was born on 20 August 1944. He went to Doon School in Dehradun
and studied engineering at Trinity College, Cambridge, from 1962 to
1965. However, he did not earn a degree at Cambridge. He then went on
to Imperial College in London to study mechanical engineering but again
did not get a degree. RG returned to India in 1966, the year his mother
became prime minister. Thereafter, he learnt to fly at the Delhi flying
club and joined the government-owned Indian Airlines as a pilot in 1970.
He married Sonia Maino in 1968, and his son Rahul and daughter
Priyanka were born in 1970 and 1972, respectively.
2. Video recordings of the speech are available on YouTube and also at:
https://scroll.in/video/1558/watch-rajiv-gandhi-make-his-infamous-big-
tree-falls-speech-justifying-the-1984-anti-sikh-riots. A report is at
https://www.dnaindia.com/india/report-when-a-big-tree-falls-the-earth-
shakes-how-rajiv-gandhi-justified-1984-anti-sikh-riots-2697259
3. In 2006 while he was a member of the Rajya Sabha.
4. Arun Nehru was the same age as RG, a contemporary at Doon School,
and related to him. Arun was a private-sector executive when he was
persuaded by Indira Gandhi to join the Congress party. He was elected to
the Lok Sabha in 1980, and in 1984, and was a minister of state for
energy and later home from 1984 to 1986 in RG’s government.
5. Details in a report titled ‘Who Are the Guilty? Report of a Joint Inquiry
into the Causes and Impact of the Riots in Delhi from 31 October to 10
November 1984’, People’s Union for Democratic Rights, People’s Union
for Civil Liberties,
http://www.unipune.ac.in/snc/cssh/HumanRights/04%20COMMUNAL%
20RIOTS/B%20-%20ANTI%20-%20SIKH%20RIOTS/01%20-
%20DELHI/a.pdf
6. ‘Between Rhetoric and Reality’, Manoj Mitta, The Hindu, 20 December
2018, www.thehindu.com/opinion/op-ed/between-rhetoric-and-
reality/article25783934.ece
7. Amritsar: Mrs Gandhi’s Last Battle, Mark Tully and Satish Jacob.
8. Towards the end of the 1970s, it was noticed that in Lok Sabha
constituencies such as Mangoldoi the number of voters had risen far too
quickly. This, and the visual evidence of the entrants from Bangladesh,
led to the ‘Assam Agitation’ spearheaded first by the AASU and later the
All Assam Gana Sangram Parishad (AAGSP). AAGSP converted later to
the AGP. The agitation was at its height from 1979 to 1985. The
massacres in Nellie and Khoirabari were horrific examples of extreme
violence against alleged foreign settlers.
9. This amendment has since been challenged and the case is pending with
the Supreme Court.
10. One Life Is Not Enough, K. Natwar Singh, Rupa Publications, 2014.
11. SICA was enacted by Parliament to identify sick or potentially sick
companies and then decide if these needed to be closed or could be
helped to recover. The underlying logic was that if a company could not
be nursed back to health, it was best to close it and use whatever assets
could be recovered for profitable investment elsewhere.
12. A concept elaborated upon by Austrian economist Joseph Schumpeter,
who moved to the US and taught at Harvard University, in his 1942
work Capitalism, Socialism and Democracy.
13. Several specific cases are discussed in ‘Corporate Rescue in India: The
Influence of the Courts’, Journal of Corporate Law Studies, Vol. 1,
2015, Oxford Legal Studies Research Paper 37/2014, Kristin van
Zwieten, University of Oxford, Faculty of Law.
14. SICA was finally repealed in 2003. However, such was the labyrinthine
working of the processes of the political executive, civil servants and
office-bearers in BIFR that it was only thirteen years later in 2016 that
the repeal of SICA was notified. The excuse was that since cases
already in the pipeline needed to be resolved, BIFR could not be shut
down. The inordinate delay was also attributed to a perceived conflict
between SICA and the Companies Law.
15. Sam Pitroda’s article titled ‘Development, Democracy and the Village
Telephone’ in the Harvard Business Review of November–December
1993 details the role that he played in bringing about this phone
revolution in India. This article also mentions that Pitroda received
Indira Gandhi’s support and strong backing from RG.
16. J.L. Ford, S. Sen and Hong Xu Wei, FDI and Economic Development in
China 1970–2006, A Cointegration Study, Department of Economics,
University of Birmingham, 2010.
17. http://www.worldbank.org/en/news/feature/2010/07/16/foreign-direct-
investment-china-story.
18. India Transformed: 25 Years of Economic Reforms, Edited by Rakesh
Mohan, Penguin-Viking, 2017, p. 57.
19. Across Borders: Fifty Years of Indian Foreign Policy, J.N. Dixit. One
Life Is Not Enough, K. Natwar Singh.
20. ‘Thirty Years of Tax Reform in India’, Shankar Acharya, Economic and
Political Weekly, 14 May 2005.
21. First Draft: Witness to the Making of Modern India, B.G. Verghese,
Tranquebar Press, 2010, pp. 345–46.
22. The Hindu dated March 2013,
www.thehindubusinessline.com/blogs/blog-nramakrishnan/congress-i-
and-the-cag/article4504238.ece
23. ‘One year after that prime ministerial promise, the Joint Parliamentary
Committee (JPC) probing the Bofors scandal came up with its findings
last fortnight which, in effect, said the Rs 1,700 crore deal for buying
400 of the 155 mm Bofors field guns was as lily-white as could be.’
India Today dated 15 May 1988,
https://www.indiatoday.in/magazine/special-report/story/19880515-
bofors-inquiry-joint-parliamentary-committee-report-reveals-more-
than-it-conceals-797272-1988-05-15
24. Record of discussions in the Lok Sabha on this matter on 1 April 1992
is at:
https://eparlib.nic.in/bitstream/123456789/10295/1/10_III_01041992_p
298_p368_t290.pdf
25. Mikhail Sergeyevich Gorbachev was the general secretary of the
Communist Party of the CPSU between 1985 and 1991.
26. Nuclear Signalling in South Asia: Revisiting A.Q. Khan’s 1987 Threat,
Carnegie Endowment for International Peace, P.R. Chari, 14 November
2013, https://carnegieendowment.org/2013/11/14/nuclear-signaling-in-
south-asia-revisiting-a.-q.-khan-s-1987-threat-pub-53328
27. One Life Is Not Enough, K. Natwar Singh.
28. Even the 1972 Shimla Agreement between India and Pakistan did not
specify the precise border between the two countries in the Siachen
 glacier region.
29. One Life Is Not Enough, K. Natwar Singh.
30. The history of distrust between Sri Lankan Tamils and the majority
Sinhala community goes back to Sri Lanka’s independence from the
British in 1948. At that time, the Tamils were better educated than the
Sinhalas, and a disproportionately high proportion of Tamils occupied
senior positions in the Sri Lankan government. The resulting Sinhala
resentment led to discrimination against Tamils including in admission
to educational institutions and employment in government. For instance,
The Official Languages Act, 1956, recognized Sinhalese as the only
official language. Gradually, the less militant Tamil organizations, such
as the Tamil United Liberation Front (TULF), were sidelined by the
extremist Liberation Tigers of Tamil Eelam (LTTE) as the former were
seen as ineffective in reversing discrimination against Tamils. Source:
‘The Liberation Tigers of Tamil Eelam and the Lost Quest for
Separatism in Sri Lanka’, Neil DeVotta, Asian Survey, Vol. 49, No. 6,
November/December 2009, pp. 1021–51, University of California
Press.
31. ‘The Best Guerrilla of All’, Outlook, Anita Pratap, 5 June 2000,
https://www.outlookindia.com/magazine/story/the-best-guerrilla-of-
all/209492. ‘Indira Gandhi Helped Train Tamil Rebels and Reaped
Whirlwind’, Akshaya Mishra, 23 May 2011, Firstpost,
https://www.firstpost.com/world/indira-gandhi-helped-train-tamil-
rebels-and-reaped-whirlwind-13913.html. ‘RAW in Sri Lanka’,
Economic and Political Weekly, Rita Manchanda, Vol. 28, No. 19, 8
May 1993.
32. ‘DMK & ADMK play politics, Tamil Tigers Say Thank You’, Economic
Times, 10 October 2008,
https://economictimes.indiatimes.com/news/politics-and-nation/dmk-
admk-play-politics-tamil-tigers-say-thank-
you/articleshow/3578468.cms?from=mdr
33. One Life Is Not Enough, K. Natwar Singh and author’s conversation
with Mr Kuldip Sahdev at his residence in New Delhi on 2 January
2018.
34. One Life Is Not Enough, K. Natwar Singh, Rupa Publications, 2014 and
author’s conversation with Mr Kuldip Sahdev at his residence in New
Delhi on 2 January 2018.
35. The Bofors story had broken on 16 April 1987.
36. In conversation with me on 2 January 2018 at India International Centre
in New Delhi. Gharekhan was joint secretary and later additional
secretary in the PMO from 1981 to 1986.
37. In conversation with me on 2 January 2018 at the India International
Centre in New Delhi.
38. Road to Nandikadal by Sri Lankan Major General Kamal Gunaratne,
http://www.newindianexpress.com/world/2016/sep/12/Arming-LTTE-
against-Indian-Army-was-most-unfavorable-and-dangerous-Maj.-Gen-
Gunaratne-1518394.html
39. In conversation with me at Kuldip Sahdev’s residence in New Delhi on
2 January 2018.
40. Across Borders: Fifty Years of India’s Foreign Policy, J.N. Dixit, Picus
Books, 1998.
41. Half Lion: How P.V. Narasimha Rao Transformed India, Vinay Sitapati,
Penguin-Viking, 2016.
42. IG returned to the Lok Sabha from Chikmagalur in Karnataka in
November 1978. Soon thereafter, she travelled to the UK via Moscow.
She was received by a junior Soviet official, which irritated her. Indira
Gandhi: A Personal and Political Biography, Inder Malhotra, Hay
House India, 2014.
43. ‘Role of Arun Nehru, Rajiv in Opening Masjid Ignored’, The Hindu, 25
November 2009, https://www.thehindu.com/news/national/Role-of-
Arun-Nehru-Rajiv-in-opening-masjid-ignored/article16894059.ece.
‘How Rajiv Gandhi Blundered on Ayodhya: Baba Said “Bachcha” Let It
Happen and “Bachcha” Did’, Firstpost, Ajay Singh, 19 January 2016,
https://www.firstpost.com/politics/the-errors-that-rajiv-gandhi-made-by-
unlocking-doors-to-the-ram-janmabhoomi-temple-in-ayodhya-
2603582.html
44. See note 65 in Chapter 3.
45. Mani Shankar Aiyar was the driving force in the PMO in the setting up
of Panchayati Raj bodies.
46. ‘How Mufti Mohammed Sayeed Shaped the 1987 Elections in
Kashmir’, Praveen Donthi, 23 March 2016, The Caravan,
https://caravanmagazine.in/vantage/mufti-mohammad-sayeed-shaped-
1987-kashmir-elections. ‘Jammu and Kashmir Assembly Poll: NC–
Congress (I) Alliance Sweeps a Massive Win’, Inderjit Badhwar, India
 Today, 15 April 1987, https://www.indiatoday.in/magazine/cover-
story/story/19870415-jammu-kashmir-assembly-poll-nc-congressi-
alliance-sweeps-a-massive-win-799831-1987-04-15

Chapter VI: V.P. Singh: Downward Game Changer

1. Vishwanath Pratap Singh was born on 25 June 1931 and passed away on
27 November 2008. He was adopted by the Raja of Manda and studied at
Allahabad and Pune universities. Singh began his political career as a
Congress party member of the legislative assembly of Uttar Pradesh in
1969. He was elected to the Lok Sabha in 1971, and went on to become
the commerce minister in Indira Gandhi’s cabinet during the Emergency
in 1976–77 and CM of UP in 1980 and commerce minister again in 1983.
2. Leaders of the Janata Dal constituent parties were chief ministers in five
states at this time. In Uttar Pradesh—Mulayam Singh Yadav, Bihar—
Lalu Prasad Yadav, Gujarat—Chimanbhai Patel, Orissa—Biju Patnaik
and Haryana—Om Prakash Chautala.
3. Chandra Shekhar was jailed during the Emergency. Subsequently, he left
the Congress party and was the president of the Janata Party in 1977.
4. The mood of the times, and that Devi Lal had supported Singh and then
they fell out, is recounted in this India Today item dated 15 August 1990
by Inderjit Badhwar, https://www.indiatoday.in/magazine/cover-
story/story/19900815-for-janata-dal-and-v.p.-singh-the-recent-crisis-
proves-to-be-a-damaging-one-812913-1990-08-15
5. I.G. Patel in Economic and Political Weekly, January 1992 issue.
6. The word used is classes and not castes, making it that much more
difficult to identify who belongs to the ‘Backward Classes’. The
recommendations included: a) reservations in technical institutions for
candidates from backward classes; reservations of 25 per cent in Class I,
33.5 per cent in Class II and 40 per cent in Class III and IV positions in
government and public-sector institutions.
7. ‘The Tyranny of Compulsory Identities’, Sundeep Dougal, 13 May 2010,
Outlook, https://www.outlookindia.com/blog/story/the-tyranny-of-
compulsory-identities/2294
8. See Chapter IV on Morarji Desai for details.
9. ‘Breaking Up My Country’, Outlook, 8 June 2006,
https://www.outlookindia.com/website/story/breaking-up-my-
 country/231503
10. National Sample Survey Organization (NSSO) data of 2007.
11. The C in OBC is classes and not castes. This took up the percentage of
reservations for SCs, STs and OBCs to 49.5 per cent of all Central and
state government and public-sector (defined as government ownership
of 50 per cent or more) vacancies.
12. Times of India, 8 April 2008,
https://timesofindia.indiatimes.com/india/Pilot-kept-out-to-prevent-
caste-imbalance/articleshow/2933934.cms
13. ‘Tribal War’, Rohit Parihar, India Today, 29 May 2008,
https://www.indiatoday.in/magazine/states/story/20080609-tribal-war-
736454-2008-05-29; ‘Eyewitness: What Happened in Sikandra’, 28
May 2008, Rediff News,
https://www.rediff.com/news/2008/may/28sld04.htm
14. In the 1992 Indira Sawhney case, the Supreme Court ruled that
reservations shall not exceed 50 per cent barring exceptional
circumstances. However, a 1994 Act passed by the Tamil Nadu
legislature allows total reservations up to 69 per cent. This Tamil Nadu
Act has been placed in the 9th Schedule of the Constitution and hence
outside judicial review in any Indian court.
15. ‘Mufti Sayeed’s Darkest Hour, Militants Released for Abducted
Daughter’, Harinder Baweja, Hindustan Times, 8 January 2016,
https://www.hindustantimes.com/india/mufti-saeed-s-dark-hour-
militants-released-for-abducted-daughter/story-
527VIWsrLi2F3kiQ1hTT4O.html
16. Across Borders: Fifty Years of Indian Foreign Policy, J.N. Dixit, Picus
Books, pp. 212–13.
17. Chandra Shekhar (CS) was born on 17 April 1927 in Ibrahimpatti in
Ballia district, Uttar Pradesh, and he did his master’s in political science
from Allahabad University. He was initially a member of the Praja
Socialist Party and joined the Congress party in 1964. He was first
elected to the Lok Sabha in 1967 and was member of a group of left-
oriented Congress leaders who were nicknamed the ‘Young Turks’. He
supported nationalization of banks and abolition of privy purses. In
1988 his party merged with others to fight the Congress. He passed
away on 8 July 2007.
18. Chandra Shekhar claimed later that he had kept Rajiv Gandhi informed,
and the latter had not expressed any disagreement.

Chapter VII: P.V. Narasimha Rao: Economic Reforms—Better Late than

Never
1. Rao was born on 28 June 1921, and did his bachelor’s degree from
Osmania University and his master’s in law from Nagpur University. Rao
was widely read and spoke several Indian and foreign languages. He
participated in India’s freedom struggle and was a member of the
Congress party since before Independence.
2. Half Lion: How P.V. Narasimha Rao Transformed India, Vinay Sitapati,
Penguin Viking, 2016. 1991: How P.V. Narasimha Rao Made History,
Sanjaya Baru, Aleph Book Company, 2016. In Sitapati’s book Rao is
described more as half-lion and half-fox rather than the literal meaning of
Narasimha. This characterization of Rao is accurate. Rao was many
things to many people, and changed his views and persona depending on
the twists and turns in his long and eventful political career.
3. Half Lion, Vinay Sitapati.
4. The crucial roles played by successive RBI governors and officials in the
ministries of industry, finance and commerce are cited in detail in India
Transformed: 25 Years of Economic Reforms, edited by Rakesh Mohan,
Penguin-Viking, 2017.
5. Manmohan Singh inducted Dr Rakesh Mohan and Dr Arvind Virmani as
economic advisers in the Planning Commission when he was deputy
chairman during 1985–87. Separately, Dr Shankar Acharya was hired as
economic adviser in the Ministry of Finance in the 1980s. Dr Jayanta
Roy was hired as an economic adviser in the Ministry of Commerce in
1989. Montek Singh Ahluwalia had joined Prime Minister Rajiv
Gandhi’s office in 1985. All of them were earlier employed with the
World Bank. These are a few of the highly qualified economists who
were fortuitously working in the Government of India since the 1980s,
and they were of immense assistance to Rao and Manmohan Singh in
thinking through and implementing the required reforms.
6. Times of India, 16 August 1991.
7. Source for per capita numbers at current prices in 1990 and 2016: IMF
World Economic Outlook Database, April 2018.
8. India Transformed: 25 Years of Economic Reforms, edited by Rakesh
Mohan, Penguin-Viking, 2017, pp. 11–33.
9. The Intelligent Person’s Guide to Liberalization, Amit Bhaduri and
Deepak Nayyar, Penguin Books, 1995.
10. A simple yet reasonably reliable measure of changes in the rupee’s
value between two points of time is its Real Effective Exchange Rate
(REER).
11. The areas that remained in the public sector were: atomic energy and
related minerals, coal, iron and manganese ore and mining of copper,
lead and zinc, gold and silver, mineral oil and arms and ammunition.
12. Reservations for small-scale industries were sharply reduced in 2002,
and the final few were taken off the reserved list in 2015.
13. Essays on Macroeconomic Policy and Growth in India, Shankar
Acharya, Oxford University Press, 2006.
14. Further details: ‘Thirty Years of Tax Reform in India’, Shankar
Acharya, Economic and Political Weekly, 14 May 2005.
15. M. Narasimham was governor of the RBI for about six months from
May to November 1977. He was replaced by I.G. Patel who went on to
serve for five years.
16. Budget and RBI: New Directions, address by Dr Y.V. Reddy, deputy
governor, Reserve Bank of India, at Administrative Staff College of
India, Hyderabad, on 8 March 1997. RBI press release dated 15 January
1997, https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?
prid=18556
17. Under CRR, all banks have to maintain a specified percentage of total
bank deposits in a current account with the RBI.
18. SLR is the ratio of the liquid assets that banks have to maintain as a
percentage of their demand plus time liabilities. Assets are considered to
be liquid if these are in cash, gold or RBI-approved securities.
19. In May 2019 the same two ratios were 4 and 19.5 per cent.
20. Primary dealers create markets in government securities, and their
purchases and sales provide a basis for market-driven interest rates.
21. In 2000 the Indian government under Atal Bihari Vajpayee did consider
seeking the identities of the companies which invested in India out of
Mauritius. However, this led to a sharp sell-off in Indian equity markets,
and the government backed off from renegotiating the treaty with
 Mauritius. This was finally done by Modi’s government on 10 May
2016 without any disruption in Indian financial markets.
22. For details: ‘India’s External Economic Challenges in the 1990s’ in
Essays on Macroeconomic Policy and Growth in India, Shankar
Acharya, Oxford University Press, 2006.
23. The Scam: Who Won, Who Lost, Who Got Away: From Harshad Mehta
to Ketan Parekh, Sucheta Dalal and Debashis Basu. Kensource
Information Service Pvt. Ltd.
24. Indian Fiscal Federalism, Y.V. Reddy and G.R. Reddy, Oxford
University Press, 2019, pp. 152–59.
25. India Transformed: 25 Years of Economic Reforms, edited by Rakesh
Mohan, Penguin-Viking, 2017.
26. India’s Tryst with Destiny: Debunking Myths that Undermine Progress
and Addressing New Challenges, Jagdish Bhagwati and Arvind
Panagariya, HarperCollins, 2012, provides a review of the Indian
economy from Independence till end 2011.
27. Reflected in the arguments of Amit Bagchi and Deepak Nayyar in The
Intelligent Person’s Guide to Liberalization, Penguin, 2000, which was
critical of the post-1991 reforms.
28. Review of the pro-temple view in the book In Search of Ram Rajya, A
Journey through UP Politics by Manjula Lal is at
www.outlookindia.com/website/story/book-on-up-politics-pegs-
ayodhya-dispute-to-two-centuries-ago/298300
29. The Wire, 6 December 2018, https://thewire.in/history/babri-masjid-asi-
excavation-ayodhya-ram-temple
30. Half-Lion by Vinay Sitapati.
31. On 21 March 2013, the Supreme Court upheld the death sentence
against Yakub Memon as one of those held responsible for the Bombay
bomb blasts. Among the other accused, Dawood Ibrahim and Tiger
Memon are reportedly in hiding in Pakistan. Yakub Memon was
executed on 30 July 2015.
32. Hindustan Times item titled ‘When Babri Fell, Bombay Burned’, dated
3 May 2017 is at https://www.hindustantimes.com/mumbai-news/when-
babri-fell-bombay-burned/story-2toyr59uA8zdxbVfqKZxqJ.html
33. The Supreme Court order written by Justice Verma and dated 6 October
1993 mentions that the following two issues were under its
consideration: ‘(1) Primacy of the opinion of the Chief Justice of India
 in regard to the appointments of Judges to the Supreme Court and the
High Court, and in regard to the transfers of High Court Judges/Chief
Justices; and (2) Justiciability of these matters, including the matter of
fixation of the Judge-strength in the High Courts.’ The full order is at
https://indiankanoon.org/doc/753224/
34. Controversies about judges of the Supreme Court continue after the
introduction of the collegium system, and charges of corruption have
increased. For example, in 2012 Justice J.S. Verma and others suggested
that former Chief Justice of India K.G. Balakrishnan should step down
from the National Human Rights Commission because there were
financial corruption allegations against him. Details in ‘Probe Former
Chief Justice of India K.G. Balakrishnan’, Moneylife, 10 May 2012,
https://www.moneylife.in/article/probe-former-cji-kg-balakrishnan-
supreme-court/25566.html and The Hindu,
https://www.thehindu.com/news/national/allegations-against-justice-
balakrishnan-being-probed-centre/article2987376.ece
35. Business Standard item titled ‘Rao, 18 Others Told to Face Trial in
JMM Bribery Case’, 13 September 1997, https://www.business-
standard.com/article/economy-policy/rao-18-others-told-to-face-trial-in-
jmm-bribery-case-197091301104_1.html. India Today article titled
‘Jharkhand Mukti Morcha Bribery Scandal: In 1993, Corruption Got
Institutionalised in India’, dated 26 December 2005 by Fali S. Nariman,
https://www.indiatoday.in/magazine/cover-story/story/20051226-
jharkhand-mukti-morcha-bribery-scandal-in-1993-corruption-got-
institutionalised-in-india-786386-2005-12-26
36. Rao vs State: A Critique by Balwant Singh Malik, https://www.ebc-
india.com/lawyer/articles/9808a1.htm. Hindustan Times article titled
‘Can Parliamentary Privilege Protect Tainted Leaders? Supreme Court
to Hear’, dated 8 March 2019 by Bhadra Sinha,
https://www.hindustantimes.com/india-news/can-parliamentary-
privilege-protect-tainted-leaders-supreme-court-to-hear/story-
Jb5DkzyPQNQHyQqTJtJOhM.html. Details of Supreme Court
judgment of 17 April 1998 at https://indiankanoon.org/doc/45852197/
37. ‘On the Nuclear Edge’, Seymour M. Hersh, New Yorker, 21 March
1993, https://www.newyorker.com/magazine/1993/03/29/on-the-
nuclear-edge
38. Operation Gibraltar was the code name for Pakistan’s move into
Kashmir in August 1965 with the expectation that the local population
would rise in revolt against India’s rule in J&K. The opposite happened
as the local population informed security agencies about the infiltrators.
39. Under Jyoti Basu and later under Buddhadev Bhattacharjee, CPI(M)
was in power in West Bengal for thirty-four years from 1977 till 2011.
40. Choices: Inside the Making of India’s Foreign Policy, Shivshankar
Menon, Penguin.
41. https://edition.cnn.com/2013/09/15/world/asia/tiananmen-square-fast-
facts/index.html; https://www.britannica.com/event/Tiananmen-Square-
incident
42. One of the several ways to measure the intensity of earthquakes which
was developed in the 1970s to replace the Richter scale methodology of
the 1930s.
43. Article in The Hindu titled ‘Nellie: India’s Forgotten Massacre,’ dated
14 December 2008, by Harsh Mander,
https://www.thehindu.com/todays-paper/tp-features/tp-
sundaymagazine/Nellie-Indiarsquos-forgotten-
massacre/article15402276.ece
44. Congress chief minister Hiteswar Saikia took over on 27 February 1983.
45. Economic Times ‘Chandraswami, the Rise and Fall of a High Flyer’,
https://economictimes.indiatimes.com/news/politics-and-
nation/chandraswami-the-rise-and-fall-of-a-high-
flyer/articleshow/58811428.cms. ‘Spiritual Guru Chandraswami, Once
Close to PM Narasimha Rao, Dies at 66’, India Today,
https://www.indiatoday.in/india/story/spiritual-guru-chandraswami-
godman-dead-978773-2017-05-23
46. Penguin Books, January 2000.
47. Half-Lion by Vinay Sitapati.

Chapter VIII: Deve Gowda and I.K. Gujral: Prime Ministers of Wobbly,
Short-lived Coalitions
1. Deve Gowda was born on 18 May 1933 in a farming family in
Haradanahalli village, Hassan district in Karnataka. He has a diploma in
civil engineering and joined the Congress in 1953. He joined the
Congress (O) when the Congress split and was imprisoned during the
 Emergency in Bangalore. Deve Gowda has been elected repeatedly to the
state assembly and was a minister in Ramakrishna Hegde’s Janata Party
government in Karnataka. Later, Deve Gowda was chief minister of
Karnataka from December 1994 to May 1996.
2. P. Chidambaram had left the Congress party to form the Tamil Maanila
Congress (TMC) along with G.K. Moopanar. TMC won a few seats in
the 1996 elections, and Chidambaram was the finance minister in
Gowda’s government.
3. He was born on 4 December 1919 in a village called Parri Darvaiza in
undivided Punjab and he studied in colleges affiliated with the University
of Punjab. Gujral participated in the freedom struggle and was jailed in
1942 during the Quit India movement.

Chapter IX: Atal Bihari Vajpayee: Decisive, Balanced Yet Susceptible

1. These lines from Vajpayee’s ‘Yaksha Prashna’ are derived from a
mythical tale from the Mahabharata. In this story Yama (the Hindu God
of Death) asks Yudhishthira, the eldest of the Pandava brothers, what is it
about the world that surprises him the most. Yudhishthira replies the fact
that humans see others around them die and yet, they conduct themselves
as if they themselves will never die.
2. Vajpayee was born on 25 December 1924 in Gwalior. He did his
schooling there and graduated from the same city, and did his master’s in
political science from DAV College in Kanpur. He joined the Rashtriya
Swayamsevak Sangh (RSS) in 1939 and the BJS in 1951.
3. India’s Nuclear Bomb, George Perkovich, University of California Press,
1999, p. 259.
4. At that time, I was the lead specialist for derivatives in the World Bank
treasury. Jessica Einhorn was the treasurer of the World Bank and was
aware that I was an Indian Foreign Service officer. She remarked to me
with a mischievous smile one morning that her husband Robert Einhorn
(specialist in nuclear matters in the Arms Control and Disarmament
Agency of the US State Department) had mentioned to her that day that
the US government had detected preparations for another Indian nuclear
test and was able to dissuade India from going ahead in the nick of time.
5. Source: Ambassador Rakesh Sood in conversation with the author.
6. Brajesh Mishra, an Indian Foreign Service officer, was a close confidant
of Atal Bihari Vajpayee and adviser to him. Mishra became the first
Indian national security adviser in September 1998 and held that position
till the end of Vajpayee’s term in May 2004.
7. Details about the meeting as conveyed by Ambassador Rakesh Sood who
was the joint secretary (disarmament) in the Ministry of External Affairs
at that time.
8. Engaging India: Diplomacy, Democracy and the Bomb, Strobe Talbott,
Brookings, 2004.
9. As recounted to me by Rakesh Sood on 6 August 2018. He participated
in the official-level discussions between India and Pakistan prior to
Vajpayee’s visit to Lahore. Rakesh Sood was India’s ambassador to
Afghanistan, Nepal and France.
10. A significant difference with the 1988 Non-Nuclear Aggression
Agreement (NNAA) between India and Pakistan was that the two
countries had declared themselves as nuclear weapon powers after the
tests in May 1998.
11. Engaging India: Diplomacy, Democracy and the Bomb, Strobe Talbott,
Brookings Institution, 2004, pp. 176–78.
12. ‘IC 814 Hijack: How Jaish-e-Mohammed Chief Masood Azhar’s
Brother Planned Indian Airlines Hijack in 1999’, Financial Express, 6
March 2019, https://www.financialexpress.com/india-news/kandahar-ic
indian-airlines-flight-814-hijack-1999-december-masood-azhar-rauf-
pulwama-jem/1506554/. ‘The Release of Three Wanted Terrorists in
Kandahar Marked Yet Another Low Point in the Blood-splattered
Recent History of Kashmir. In a New Book, A.S. Dulat Recalls How It
Happened’, Kaveree Bamzai, 3 July 2015, India Today,
https://www.indiatoday.in/magazine/books/story/20150713-dulat-
kandahar-hijack-raw-kashmir-vajpayee-years-book-review-820027-
2015-07-03
13. ‘Vajpayee’s “Insaniyat, Jamhooriyat” Won Hearts in Kashmir’, Fayaz
Wani, New Indian Express, 17 August 2018,
http://www.newindianexpress.com/nation/2018/aug/17/vajpayees-
insaniyat-jamhooriyat-won-hearts-in-kashmir-1858939.html
14.
http://edition.cnn.com/2001/WORLD/asiapcf/south/07/17/agra.summit.
analysis/
15. ‘Parliament Attack Anniversary: What Happened on 13 December
2001,’ NDTV, edited by Richa Taneja, 13 December 2018,
www.ndtv.com/india-news/parliament-attack-anniversary-what-
happened-on-december-13-2001-1962002
16. Economic Times,
https://economictimes.indiatimes.com/news/defence/jems-ghazwa-e-
hind-brought-india-pakistan-on-brink-of-war-twice-in-20-
yrs/articleshow/68242129.cms?from=mdr; and The Hindu,
https://www.thehindubusinessline.com/news/national/timeline-major-
terror-attacks-on-security-forces-in-jammu-and-kashmir-since-
1999/article26278836.ece
17. Descent into Chaos: How the War against Islamic Terrorism Is Being
Lost in Pakistan, Afghanistan and Central Asia, Ahmed Rashid, Allen
Lane, 2008; also, The Great Game: On Secret Service in High Asia,
Peter Hopkirk, John Murray, 1990.
18. https://www.theguardian.com/uk-news/2016/jul/06/iraq-inquiry-key-
points-from-the-chilcot-report
19. There has been considerable slippage in even attempting to achieve
these objectives from around 2007–08 when Dr Manmohan Singh was
PM.
20. Background and details are available at the following two sources:
https://www.imf.org/external/pubs/ft/fandd/1998/06/imfstaff.htm; and
‘Who Triggered the Asian Financial Crisis?’, Michael R. King, Review
of International Political Economy, Vol. 8, Issue 3, 2001, pp. 438–66.
21. Full report of the task force is at
https://www.prsindia.org/sites/default/files/bill_files/kelkar_direct_taxes
.pdf
22. Although there has been some progress, in 2019 India is still behind
middle-income countries in life and health insurance coverage.
23. Dr Kelkar was the chairman of the Thirteenth Finance Commission, and
one of the important recommendations of this commission was for the
Central government to offer financial support to state governments to
arrive at a consensus on a nationwide GST system.
24. Denominated in US dollars, yen and the Deutschmark group which
included the Swiss franc.
25. While RBI’s holdings of foreign exchange reserves are in the major
hard currencies, namely US dollar, euro, yen and British pounds, it
 would be reasonable to guess that since the US dollar has the largest and
most liquid government debt markets, India’s reserves are to a large
extent invested in US dollar–denominated debt securities.
26. From 1999 to 2002, I was the joint secretary for capital markets,
external commercial borrowings and pension reforms in the department
of economic affairs, Ministry of Finance.
27. Derivatives can be used to speculate by effectively going long or short
on stocks or other financial instruments. The buyer or seller of
exchange-traded futures or options has to pay margin money to the
exchange in line with movements of stock prices.
28. Mr Yashwant Sinha was FM for most of the time that I served in the
MoF. Mr Sinha and Mr Jaswant Singh exchanged places after the UTI
scam of 2001. Mr Sinha moved across Rajpath to South Block to
become the external affairs minister, and Mr Jaswant Singh became the
finance minister.
29. The Hindu, Business Line, 13 June 2002,
https://www.thehindubusinessline.com/2002/06/13/stories/20020613026
50100.htm
30. Subramanyam was an executive director in IDBI immediately prior to
becoming chairman UTI on 12 August 1998.
31. Currently chairman of the Housing Development Finance Corporation
Limited and well known in Mumbai for decades as a financial-sector
expert.
32. These included the chairpersons of IDBI, LIC, SBI, and an RBI deputy
governor.
33. The ACC consists of the PM, the minister concerned, in this case, the
FM, and the home minister.
34. It is ironic that in October 2018 the Central government appointed G.N.
Bajpai as a board member of IL&FS. IL&FS has defaulted on several of
its borrowings and cast a long shadow over the health of the entire non-
bank finance company (NBFC) sector.
35. As mentioned earlier in this chapter I had briefed Finance Secretary Ajit
Kumar in person immediately after Subramanyam had left my room on
29 June 2001.
36. This so-called cash-neutral mechanism works in the interim period
because the Indian government does not follow accrual-based
accounting, and its budget and other financial statements are cash based.
37. Though a substantial digression, I have included this detailed account of
UTI-related events of 2000–2002 so that readers can judge for
themselves how and why egregious mistakes are made in India’s public-
sector-dominated financial sector which have to be ultimately paid for
by taxpayers.
38. A Rakesh Mohan Committee had made this recommendation in 1996.
39. Pradhan Mantri Gram Sadak Yojana, Online Management, Monitoring
and Accounting System (OMMAS). Refer http://omms.nic.in/. Table
9.2 in the Appendices provides the PMGSY road length completed
since 2000–01.
40. Source: International Energy Agency. All numbers are for 2016.
41. Companies have to follow accrual-based accounting, while Railways
and the Central government use cash-flow-based accounting. Accrual-
based accounting considers contingent liabilities and provides a more
accurate picture of the financial health of the entity concerned.
42. The situation has remained the same as of May 2019.
43. In 2008 the allocation of telecom licences was done on a first come,
first served basis. Economic Times, ‘2G Spectrum Allocation Case: The
Key Accused Who Were Acquitted’, 21 December 2017.
44. https://www.forbes.com/sites/saritharai/2016/01/06/india-just-crossed-
1-billion-mobile-subscribers-milestone-and-the-excitements-just-
beginning/#30eaa1a07db0
45. From the tables, it can be seen that exports as a percentage of GDP
stagnated during 2010–2014 and have gone down steadily since then to
11.7 per cent, which was the level achieved as far back as 2004.

Chapter X: Manmohan Singh: Long-lasting Achievements Yet PM in Name

1. Dr Singh was born on 26 September 1932 in Gah (Punjab, now in
Pakistan), and his family moved to Amritsar post-Partition. He studied
economics in Hindu College, Amritsar, and Punjab University,
Hoshiarpur, and obtained his master’s degree in 1954. He went on to
complete his tripos in economics at St John’s College, Cambridge
University, by 1957. Dr Singh did his doctorate at Oxford University, and
his thesis was on ‘India’s export performance, 1951–1960, export
prospects and policy implications’.
2. Atal Bihari Vajpayee had opted to include the All India Anna Dravida
Munnetra Kazhagam (AIADMK) in his government’s NDA coalition.
AIADMK did not win a single Lok Sabha seat in the 2004 elections.
3. US law does not allow naturalized citizens to be head of government in
that country.
4. The Accidental Prime Minister: The Making and Unmaking of
Manmohan Singh, Sanjaya Baru, Penguin, 2014.
5. As in the case of the Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA).
6. Business Standard, 14 June 2013, https://www.business-
standard.com/article/economy-policy/manmohan-is-politically-shrewd-
dr-ig-patel-104052001025_1.html
7. Economic Times, 12 April 2014,
https://economictimes.indiatimes.com/news/politics-and-nation/pm-had-
little-control-over-cabinet-sonia-decided-on-files-writes-manmohan-
singhs-ex-media-advisor-sanjay-baru/articleshow/33615246.cms
8. Also known as the 123 Agreement. An exception had to be made to
Section 123 of the United States Atomic Energy Act of 1954 to permit
nuclear cooperation with a nuclear weapon power, namely India, which
had chosen not to be a signatory to the 1968 Non-proliferation of Nuclear
Weapons Treaty (NPT). See the chapters on Morarji Desai and Vajpayee
for the historical details.
9. This is George W. Bush, son of former US President George H.W. Bush.
Bush Junior was US President from January 2001 to January 2009. Bush
Senior was President from January 1989 to January 1993.
10. M.K. Narayanan joined the Indian Police Service (IPS) in 1955 and was
director IB from 1987 to 1990. He was the Indian NSA from 2005 to
2010.
11. I was posted in the Ministry of External Affairs in Delhi at that time and
had a ringside view of the efforts made by MEA to get the 123
Agreement concluded.
12. By 2016, India had signed similar civil nuclear agreements with
fourteen countries.
13. Five Past Midnight in Bhopal: The Epic Story of the World’s Deadliest
Industrial Disaster, Dominique Lapierre and Javier Moro, English
edition 2001.
14. Cooperation with Russia was ‘grandfathered’ under India’s 1988
agreement with the USSR to set up two VVER 1000 megawatt (water-
cooled light water reactors) at Kudankulam in Tamil Nadu. The same
agreement has been expanded to cover another four reactors proposed
for this site.
15. South Africa was not yet a member of this group.
16. Covered in the 15 June 2005 edition of the New York Times,
www.nytimes.com/2005/06/15/world/asia/gandhis-moscow-flight-
raises-questions-in-india.html
17. As of May 2019, there were eight SCO members and the other six, in
addition to India and Pakistan, were China, Russia, Kazakhstan,
Kyrgyzstan, Turkmenistan and Uzbekistan. The SCO is a multilateral
organization which focuses mostly on economic, technical,
environmental and counterterrorism-related coordination among its
members.
18. By then I was the Indian ambassador to the European Union, Belgium
and Luxembourg.
19. Later NSA in David Cameron’s government and UK ambassador to the
US since 2016.
20. Choices: Inside the Making of India’s Foreign Policy, Penguin-Viking,
November 2016. In November 2008, Menon was the foreign secretary.
21. So called because of a 1893 agreement between Mortimer Durand, a
British civil servant, and Abdur Rahman Khan, the Afghan ruler at that
time. The line became the border between Afghanistan and British India
and is about 2430 kilometres long. Afghanistan was the only country to
vote against the admission of Pakistan into the United Nations after the
emergence of the latter as a nation in 1947 because it did not accept the
Durand Line as the Afghanistan–Pakistan border.
22. The UK Foreign and Commonwealth Office’s director general
(political). Later Mr Sedwill was the equivalent of the Indian home
secretary in the UK and was appointed cabinet secretary in October
2018.
23. Source: IMF
24. https://www.middleeastmonitor.com/20180907-gulf-military-spending-
to-hit-100bn-by-2019/
25. The armed forces of the three European countries are much better
equipped and they are members of NATO, which provides a guarantee
 of collective security.
26. Borrowed from P.G. Wodehouse’s description of how the mind of Bertie
Wooster, one of the principal characters in his hilarious novels,
‘boggled’ at the thought of having to confront any tricky situation
without the help of his trusted valet Jeeves.
27. V. Prabhakaran, who headed the LTTE insurgency against the Sri
Lankan state, was killed in May 2009. The LTTE wanted to create an
independent Tamil state including the north and east of Sri Lanka where
the Tamil-speaking population is in a majority.
28. ‘India-EU Attempts to Restart Free Trade Talks Stumble on Old Issues’,
Business Line, Amiti Sen, 7 December 2018,
https://www.thehindubusinessline.com/economy/india-eu-attempts-to-
re-start-free-trade-talks-stumble-on-old-issues/article25692022.ece
29. Lehman’s shutdown on 15 September 2008 set in motion collapses or
near collapses of several other US banks and other financial institutions
such as the insurance giant AIG. Subsequently, the US government
provided financial assistance under the Troubled Asset Relief
Programme (TARP) to help stabilize its financial system.
30. www.business-standard.com/article/opinion/jaimini-bhagwat-how-
about-an-asian-investment-bank-108012501076_1.html
31. Even if this institution were based in India, China would still have had a
dominant say since it would have been the highest contributor to the US
$100 billion of capital allocated to set up this institution. Twenty per
cent of this amount is paid in, and the rest in callable. In comparison, as
of December 2018, the World Bank has a total subscribed capital of US
$269 billion, and the largest shareholder is the United States with 17.25
per cent of the subscribed capital. The paid-in capital is a small fraction
of total capital, and the remaining much larger fraction which is callable
is to be sought from member countries only in case of need.
32. Set up by the five-member BRICS grouping consisting of Brazil,
Russia, India, China and South Africa.
33. Higher GDP growth rates do not necessarily result in preferred
outcomes for all sections of Indians. However, this number does serve
as a first-order approximation of what a country is achieving in raising
the per capita income of its citizens.
34. National Institution for Transforming India (NITI); ‘aayog’ is
‘commission’ in Hindi. The erstwhile Planning Commission was
 replaced by the NITI Aayog after Narendra Modi became prime
minister in May 2014.
35. Towards Economic Crisis (2012–14) and Beyond, Shankar Acharya,
Academic Foundation, 2015.
36. Following the 2008 financial-sector crisis, the central banks of the US,
the UK, Japan and the Eurozone (European Central Bank or ECB
headquartered in Frankfurt) embarked on what came to be known as
unprecedented monetary policies (UMPs). These central banks bought
their own government and privately issued debt securities to provide
solvency and liquidity support to their flailing private-sector financial
institutions. Interest rates in hard currencies plummeted to
unprecedented low levels and even turned negative in some countries.
Low returns on hard-currency debt investments and the easy availability
of liquidity resulted in higher foreign investor purchases of Indian
government debt securities and stocks.
37. ‘India and the Global Crisis, Global Economics in Extraordinary
Times’, Shankar Acharya, Peterson Institute for International
Economics, Washington DC, November 2012.
38. Three-time chief minister of Puducherry, elected thrice to the Lok Sabha
and governor of Jharkhand and Kerala. He passed away in 2012.
39. India’s Tryst with Destiny, Jagdish Bhagwati and Arvind Panagariya,
Collins Business, 2012, Chapter 10, ‘Infrastructure’.
40. Government expenditure well above revenue results in fiscal deficits
which can lead to inflation. Excessive fiscal deficits and short-term
borrowings in hard currencies can lead to a balance of payments crisis.
This is what happened to India during 1989–91.
41. Robert Vadra is Sonia Gandhi’s son-in-law. He has been accused of
acquiring farmland in Haryana at low prices, then having land use
converted to urban, and later selling this land at much higher prices. It is
alleged that this was done with the covert help of B.S. Hooda, then chief
minister of the state. Times of India, 1 September 2018,
https://timesofindia.indiatimes.com/india/land-grab-case-fir-registered-
against-robert-vadra-former-haryana-cm-bhupinder-
hooda/articleshow/65638269.cms
42. The right of governments to acquire private property, with due
compensation, for public use.
43. ‘The Distribution of Firm Size in India: What Can Survey Data Tell
Us?’, ADB Economics Working Paper Series, Rana Hasan and Karl
Robert L. Jandoc, No. 213, August 2010; also, ‘Labour Costs in India’s
Organized Manufacturing Sector’, Jessica R. Sincavage, Carl Haub and
O.P. Sharma, Monthly Labour Review, May 2010,
https://www.bls.gov/opub/mlr/2010/05/art1full.pdf
44. The Modi government finally repealed SICA on 25 November 2016
after passing the Insolvency and Bankruptcy Act in July 2016.
45. ‘Confront the Harsh Reality: The Only Way We Can Really Help
Farmers Is to Take Most of Them Out of Farming’, Arvind Panagariya,
10 January 2019, Times of India.
46. http://www.agricoop.nic.in/sites/default/files/NCF3.pdf
47. Sources: Policy Research Working Paper 6258, ‘What Does Debt Relief
Do for Development? Evidence from India’s Bailout Program for
Highly-Indebted Rural Households’, Martin Kanz, November 2012, The
World Bank Development Research Group Finance and Private Sector
Development Team,
http://documents.worldbank.org/curated/en/589181468044056902/pdf/
wps6258.pdf; Statement 4 of Expenditure Budget 2008–09, Volume 1,
p. 15, Government of India, https://www.indiabudget.gov.in/ub2008-
09/eb/stat04.pdf
48. ‘Status of Genetically Modified (GM) crops in India’, Uttara Shankar,
Project Associate, TERI, 2016, https://www.teriin.org/library/files/GM-
crops-in-India.pdf
49. US company which was at the forefront as a supplier of GM seeds and
was acquired by Bayer in 2018.
50. ‘Suresh Kalmadi Arrested’, The Hindu, Vinay Kumar, 25 April 2011,
https://www.thehindu.com/news/national/Suresh-Kalmadi-
arrested/article14696689.ece
51. https://www.ndtv.com/india-news/coal-scam-case-in-detailed-judgment-
huge-relief-for-manmohan-singh-1696214
52. ‘Did ex-PM Manmohan Singh Forgo Duties as Coal Minister? Deputy
Approved Coal Block Allocation, Says Probe’, Meetu Jain, Business
Today, 6 December 2017,
https://www.businesstoday.in/current/economy-politics/manmohan-
singh-coal-minister-deputy-approved-coal-block-allocation-
scam/story/265387.html
53. ‘Coal Scam Case: IAS Officers Feel Betrayed by H.C. Gupta
Conviction—They Feel Coal and 2G Scams Show How They’ve Been
Scapegoats While Political Masters Walk Free’, Subhomoy
Bhattacharjee, Business Standard, 20 May 2017, https://www.business-
standard.com/article/economy-policy/is-h-c-gupta-being-made-a-
scapegoat-in-the-coal-scam-117051900632_1.html; and ‘IAS Officers
to Extend Support to Convicted ex-Coal Secretary Gupta’, Times of
India, Surojit Gupta, 2 December 2018,
https://timesofindia.indiatimes.com/india/ias-officers-association-to-
extend-support-to-convicted-ex-coal-secretary-
gupta/articleshow/66902204.cms
54. ‘CAG Submits Report on 2G Spectrum to Govt: Vinod Rai’, Economic
Times, 10 November 2010,
https://economictimes.indiatimes.com/news/politics-and-nation/cag-
submits-report-on-2g-spectrum-to-govt-vinod-
rai/articleshow/6900822.cms
55. Not Just an Accountant: The Diary of the Nation’s Conscience Keeper,
Vinod Rai, Rupa Publications, 2014.
56. ‘What Was the 2G Spectrum Scam? 10 Things to Know’, India Today,
21 December 2017, https://www.indiatoday.in/fyi/story/what-is-2g-
scam-in-india-2g-scam-verdict-upa-a-raja-cbi-judge-op-saini-verdict-
things-to-know-1113444-2017-12-21
57. Press interaction with Dr Singh, The Hindu,
https://www.thehindu.com/news/resources/Prime-Minister-Manmohan-
Singhs-interaction-with-Editors-of-the-Electronic-Media-on-Feb.16-
2011/article15446992.ece
58. https://www.deccanherald.com/content/139607/manmohan-singh-weak-
kneed-jayalalithaa.html
59. https://www.outlookindia.com/newswire/story/bofors-court-pulls-up-
cbis-malafide-intentions/707452
60. In 2018 this amount has ballooned to Rupees 221 billion including
penalties and interest.
61. A detailed article about this case in The Wire is at
https://thewire.in/business/air-india-well-researched-scandal
62. ‘Supreme Court Strikes Down Thomas Appointment as CVC’, J.
Venkatesan, 3 March 2011,
 https://www.thehindu.com/news/national/Supreme-Court-strikes-down-
Thomas-appointment-as-CVC/article13729316.ece
63. ‘Coal Scam: “Ashwani Kumar Did Call Me for a Meeting to Examine
Draft Status Reports,” Says Ranjit Sinha’, Aman Sharma, Economic
Times, 3 May 2013,
https://economictimes.indiatimes.com/news/politics-and-nation/coal-
scam-ashwani-kumar-did-call-me-for-a-meeting-to-examine-draft-
status-report-says-ranjit-sinha/articleshow/19847710.cms
64. https://www.outlookindia.com/magazine/story/a-new-found-
agency/285354
65. ‘Mahesh Kumar Struck Rs 10 Crore Deal for Post: FIR’, Devesh K.
Pandey and Jiby Kattakayam, The Hindu, 5 May 2013,
https://www.thehindu.com/news/national/mahesh-kumar-struck-rs-10-
crore-deal-for-post-fir/article4684202.ece
66. ‘ED Attaches “Bribe” Cash Seized from Former Rail Min Pawan
Bansal’s Nephew’, Economic Times, 7 May 2019,
https://economictimes.indiatimes.com/news/politics-and-nation/ed-
attaches-bribe-cash-seized-from-former-rail-min-pawan-bansals-
nephew/articleshow/69218037.cms
67. According to the Lokpal Act, it can have a maximum of eight members.
Of this number, 50 per cent have to be judicial members and 50 per cent
must be SCs, STs, OBCs, other minorities and women.
68. In 2004 the Congress party had won 145 Lok Sabha seats, and in 2009
its tally rose to 206.
69. During Vajpayee’s tenure as PM, a mechanism called Group of
Ministers (GoM) was devised to get a few of the ministers who were
directly involved with the issues under consideration to make their
recommendations. The cabinet committees are larger bodies, and it was
felt that the smaller GoMs would first thrash out contentious issues so
that the cabinet committees would be able to take final decisions faster.
70. ‘Modi Govt Abolishes All EGoMs, GoMs’, Shishir Sinha, Business
Line, 24 November 2017,
https://www.thehindubusinessline.com/economy/Modi-Govt-abolishes-
all-EGoMs-GoMs/article20788283.ece
71. The Accidental Prime Minister by Sanjaya Baru.
72. ‘Rahul Gandhi Trashes Ordinance, Shames Government’, Times of
India, 28 September 2013,
 https://timesofindia.indiatimes.com/india/Rahul-Gandhi-trashes-
ordinance-shames-government/articleshow/23180950.cms
73. ‘The Lalu Factor Behind Rahul Gandhi’s Ordinance Rap’, Shantanu
Bhattacharji, Business Standard, 27 September 2013,
https://www.business-standard.com/article/politics/the-lalu-factor-
behind-rahul-gandhi-s-ordinance-rap-113092700666_1.html

Chapter XI: Narendra Modi: Result Oriented, Charismatic Orator and

Controversial
1. Narendra Modi was born on 17 September 1950 in Vadnagar in Gujarat
into a family of modest means. Modi was an RSS worker (pracharak),
and in that capacity he travelled extensively within India and to several
countries including the US.
2. Except that after Indira Gandhi became PM in 1967, there was a split in
the Congress party and she depended on CPI members to cross the
halfway mark in the Lok Sabha.
3. ‘Economic Freedom of the States of India’,
https://object.cato.org/sites/cato.org/files/economic-freedom-india-
2013/economic-freedom-states-of-india-executive-summary.pdf
4. ‘Did Gujarat’s Growth Rate Accelerate under Modi?’, Maitreesh Ghatak
and Sanchari Roy, Economic & Political Weekly, Vol. 49, Issue No. 15,
12 April 2014.
5. 12 January 2011, https://www.ndtv.com/photos/business/vibrant-gujarat-
2011-lures-investors-8950#photo-112986; also, Economic Times 12
January 2013, https://economictimes.indiatimes.com/news/politics-and-
nation/india-inc-praises-narendra-modi-at-vibrant-gujarat-summit-
congress-plays-down-the-uproar/articleshow/17988483.cms
6. Kar sevaks is a term for activists who offer their services free for a Hindu
cause.
7. ‘The Facts from Godhra’, Frontline, Vol. 19, 10 July–2 August 2002,
https://frontline.thehindu.com/static/html/fl1915/19150110.htm; also,
India Today, 20 March 2019, https://www.indiatoday.in/india/story/2002-
godhra-train-burning-case-court-sentences-convict-yakub-pataliya-to-
life-imprisonment-1482446-2019-03-20
8. The Hindu dated 20 April 2018,
https://www.thehindu.com/news/national/the-2002-gujarat-riots-cases-
 and-their-statuses-so-far/article23617950.ece
9. ‘Supreme Court Relief for Gujarat Riots Victim Bilkis Bano’, Anupama
Katakam, 2 May 2019,
https://frontline.thehindu.com/dispatches/article27014150.ece
10. Narendra Modi: A Political Biography, Andy Marino, HarperCollins,
2014.
11. Malevolent Republic: A Short History of the New India, K.S.
Komireddi, C. Hurst & Co., 2018.
12. Livemint, 10 June 2013.
https://www.livemint.com/Politics/P60JH8i6a3oxUgsfinOcVM/Narendr
a-Modi-to-head-BJPs-election-campaign-committee-Raj.html
13. Regional parties such as Trinamool Congress in West Bengal,
AIADMK in Tamil Nadu and Naveen Patnaik’s BJD in Orissa won
thirty-four, thirty-seven and twenty seats respectively.
14. Pathankot is located in Punjab close to the India–Pakistan border, and
the distance by road to Chandigarh is about 230 kilometres.
15. Chronology of events provided in The Hindu article dated 3 January
2016, https://www.thehindu.com/news/national/Pathankot-attack-All-
terrorists-dead/article13982714.ece; also, ‘The Next Pathankot’, Sumit
Ganguly, Foreign Affairs, 6 January 2016,
https://www.foreignaffairs.com/articles/india/2016-01-06/next-
pathankot
16. Uri is situated in the Indian state of Jammu and Kashmir near the LoC,
and the distance by road to Srinagar is 108 kilometres. ‘17 Soldiers, 4
Militants Killed in Uri Army Base Terror Attack, Live Mint, 16
September 2016,
https://www.livemint.com/Politics/TUmQJ8kOTaQxr0Oira2RuN/Milita
nts-attack-Armys-battalion-HQ-10-Army-men-injured.html
17. For example, Burhan Muzaffar Wani, who had come to be well known
in social media in Kashmir, was killed on 8 July 2016, along with two
others. They were said to belong to Hizbul Mujahideen which is
categorized as a terrorist group by India, the EU and the US.
18. Waters from the three eastern tributaries of the Indus, namely, Ravi,
Beas and Sutlej, were assigned fully to India under the India-Pakistan
Indus Water Treaty of 1960. Business Today, 7 December 2018,
https://www.businesstoday.in/top-story/govt-nod-to-ravi-dam-project-
 in-punjab-to-help-india-arrest-access-water-flowing-into-
pakistan/story/298334.html
19. The Hindu, 24 July 2016,
https://www.thehindu.com/news/national/otherstates/JampK-gets-10-of-
Central-funds-with-only-1-of-population/article14506264.ece
20. RBI, https://rbi.org.in/scripts/PublicationsView.aspx?Id=18277; and
https://www.prsindia.org/parliamenttrack/budgets/jammu-and-kashmir-
budget-analysis-2018-19
21. Economic Times, 11 July 2018,
https://economictimes.indiatimes.com/news/defence/the-indian-army-
also-has-its-own-kashmir-story-to-tell/articleshow/58678889.cms
22.
www.ohcr.org/Documents/Countries/IN/DevelopmentsInKashmirJune2
016ToApril2018.pdf
23. The Madhesis live in the outer terai regions of that country, and they
speak Maithili and Bhojpuri more than Nepalese. In local parlance, the
people living on both sides of the India–Nepal border in the terai area
have a ‘roti-beti ka rishta’ (relationships that involve exchanges of
foodgrains and daughters in marriage).
24. The Hindu, 27 January, 2018,
https://www.thehindu.com/news/national/what-is-the-doklam-issue-all-
about/article22536937.ece; also, Washington Post, 30 August 2017,
https://www.washingtonpost.com/news/worldviews/wp/2017/08/30/who
-blinked-in-china-india-military-standoff/?
noredirect=on&utm_term=.7ebdc1c2a110
25. New York Times, 12 May 2019,
https://www.nytimes.com/2019/05/12/us/politics/trump-us-china-
economy.html
26. Twenty-nine heads of government and state and representatives from
130 countries and most major international organizations participated in
these May 2017 meetings in Beijing.
27. 2011 census data,
http://censusindia.gov.in/Census_And_You/age_structure_and_marital_
status.aspx
28. ‘Rafale Fighter Jet Deal: Chronology of Events’, Times Now, 10 April
2019, https://www.timesnownews.com/india/article/rafale-fighter-jet-
deal-chronology-of-events/397774
29. Business Standard, 10 May 2019, https://www.business-
standard.com/article/current-affairs/sc-reserves-verdict-on-petitions-
seeking-review-of-verdict-on-rafale-deal-119051001221_1.html
30. The Hindu, 6 May 2016, https://www.thehindu.com/opinion/op-ed/no-
longer-at-sea/article8561775.ece
31. Indian Fiscal Federalism, Y.V. Reddy and G.R. Reddy, Oxford
University Press, 2019.
32. Press Information Bureau release dated 4 April 2016,
http://pib.nic.in/newsite/PrintRelease.aspx?relid=138555
33. RBI Annual Report 2017–18, p. 17.
34. ‘Demonetisation: All Cost and Little Benefit’, Economic Times, 2
September 2018,
https://economictimes.indiatimes.com/news/economy/policy/demonetis
ation-all-cost-and-little-benefit/articleshow/65639832.cms?from=mdr
35. ‘Over 99 Per Cent Demonetised Currency Returned to Banks’, India
Today, 30 August 2018, https://www.indiatoday.in/india/story/over-99-
per-cent-demonetised-currency-returned-to-banks-rbi-report-1327126-
2018-08-30
36. RBI Annual Report 2017–18, p. 66,
https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/0ANREPORT2017
18077745EC9A874DB38C991F580ED14242.PDF
37. The five rates in per cent, as initially decided, were 0, 5, 12, 18 and 28.
38. State governments often feel that the Central government does not
consult them enough on centrally sponsored schemes (CSSs). With the
GST Council set up as a constitutional body, it is an appropriate
institution to work as a coordinator with the National Development
Council and the Finance Commission.
39. Indian Fiscal Federalism, Y.V. Reddy and G.R. Reddy, Oxford
University Press, 2019, pp. 20–21.
40. Except for Gujarat, Maharashtra and Karnataka, the others are Hindi-
speaking states.
41. Economic Times, 29 November 2018,
https://economictimes.indiatimes.com/news/et-explains/all-you-wanted-
to-know-about-the-ongoing-gdp-data-row/articleshow/66863249.cms?
from=mdr
42. ‘Measuring India’s GDP Growth: Unpacking the Analytics & Data
Issues behind a Controversy that Refuses to Go Away’, National
 Council of Applied Economic Research (NCAER), 12–13 July 2016,
http://www.ncaer.org/events/ipf-2016/IPF-2016-Paper-RNagaraj-
TNSrinivasan.pdf
43. Economic Times, Kirtika Suneja, 30 January 2019,
https://economictimes.indiatimes.com/news/economy/policy/2-more-
members-of-nsc-quit-on-feeling-sidelined/articleshow/67748951.cms
44. Details at https://www.businesstoday.in/current/economy-politics/2-non-
govt-national-statistical-commission-members-resign-over-delay-in-
release-of-nsso-data/story/314979.html
45. A reconstituted National Statistical Commission (NSC) could be given
statutory status with fixed tenure for its members. Such an NSC would
be fully independent of MoSPI and the NITI Aayog.
46. RBI Annual Report 2017–18, p. 245.
47. Extract from finance minister’s budget speech on 1 February 2017: ‘As
against estimated 42 million persons engaged in organised sector
employment, the number of individuals filing return for salary income
are only 17.4 million. As against 56 million informal sector individual
enterprises and firms doing small business in India, the number of
returns filed by this category are only 18.1 million . . . Of the 7.6
million individual assesses who declare income above Rupees 0.5
million, 5.6 million are in the salaried class. The number of people
showing income more than Rupees 5 million in the entire country is
only 0.172 million. We can contrast this with the fact that in the last five
years, more than 12.5 million cars have been sold, and number of Indian
citizens who flew abroad, either for business or tourism, is 20 million in
the year 2015.’ https://www.indiabudget.gov.in/ub2017-18/bs/bs.pdf
48. Economic Survey 2015–16, p. 108.
49. Full speech available at Prime minister’s official website.
50. Details at
https://www.moneycontrol.com/news/business/economy/flashback-
2018-when-ilfs-nearly-sank-the-financial-system-3300731.html; also,
https://thewire.in/business/ilfs-downfall-banking-india-economy
51. Government of India, Ministry of Power,
https://powermin.nic.in/en/content/power-sector-glance-all-india
52. Electricity Distribution Company.
53. Government of India, Ministry of Power, Central Electricity Authority
(CEA) Report, p. 31,
 http://www.cea.nic.in/reports/monthly/executivesummary/2018/exe_su
mmary-03.pdf
54. World Bank,
https://www.worldbank.org/en/news/feature/2018/12/17/new-report-
power-sector-distortions-cost-india-billions
55. https://timesofindia.indiatimes.com/india/nda-pips-upa-ii-in-building-
roads-but-most-are-2-lanes/articleshow/66112824.cms; also,
https://www.businesstoday.in/sectors/infra/modi-government-
constructed-73-percent-more-highways-compared-upa-last-4-
years/story/279060.html
56. https://indianexpress.com/article/india/four-years-of-modi-government-
railways-piyush-goyal-5187436/
57. ‘Supreme Court Quashes Allocation of 214 Coal Blocks’, The Hindu,
Krishnadas Rajagopal,
https://www.thehindu.com/news/national/supreme-court-quashes-
allocation-of-all-but-four-of-218-coal-blocks/article6441855.ece
58. https://www.ibef.org/industry/renewable-energy.aspx
59. ‘AAP Government Fixed a Broken State Schooling System, But
Glitches Remain’, Outlook, 27 May 2019,
https://www.outlookindia.com/magazine/story/india-news-a-for-
aaplause-b-for-boos/301297
60. The Hindu Business Line, 4 October 2019,
https://www.thehindubusinessline.com/opinion/columns/a-clean-up-for-
make-in-india/article22992083.ece
61. OECD-FAO Agricultural Outlook (2017 Edition).
62. Numbers for 1998 and 2014 are from the Directorate of Economics and
Statistics, Ministry of Agriculture and Farmer Welfare, Govt. of India,
http://eands.dacnet.nic.in/. Data for 1964 is from Indian Agriculture:
Four Decades of Development by G.S. Bhalla and Gurmail Singh.
63. New Indian Express, 12 January 2018,
http://www.newindianexpress.com/nation/2018/jan/12/four-senior-sc-
judges-call-unprecedented-press-conference-all-you-need-to-know-as-
it-happened-1751713.html
64. https://economictimes.indiatimes.com/news/politics-and-nation/after-
lok-sabha-rajya-sabha-approves-quota-bill-for-economically-weak-in-
general-category/articleshow/67455461.cms
65. Economic Times, 11 August 2018,
https://economictimes.indiatimes.com/news/politics-and-
nation/maharashtra-ats-arrests-three-for-planning-terror-
attack/articleshow/65361533.cms
66. 2 September 2018, https://scroll.in/article/892850/from-pune-to-paris-
how-a-police-investigation-turned-a-dalit-meeting-into-a-maoist-plot
67. The Hindu, 14 July 2016, https://www.thehindu.com/news/national/FIR-
for-cow-slaughter-ordered-against-Dadri-lynching-victim-Akhlaqs-
family/article14488640.ece
68. India Today, 6 April 2017, https://www.indiatoday.in/india/story/alwar-
gau-rakshak-attack-murder-cattle-farm-owner-pehlu-khan-969763-
2017-04-06
69. Economic Times, 20 January 2019,
https://economictimes.indiatimes.com/news/politics-and-nation/what-
made-rural-india-abandon-its-cattle-in-
droves/articleshow/67604493.cms
70. Hindustan Times, 16 May 2019, https://www.hindustantimes.com/lok-
sabha-elections/outrage-as-bjp-s-pragya-calls-mahatma-killer-godse-a-
patriot/story-mUy7Tnk8X5hL08veZxQHoM.html
71. Interim budget presented by acting finance minister Piyush Goyal,
https://www.indiabudget.gov.in/ub2019-20/bs/bs.pdf
72. Live Mint, 29 May 2019, https://www.livemint.com/news/india/the-
macroeconomic-dilemma-for-india-s-new-government-
1559029581234.html
73. The Elusive Quest for Growth, William Easterly, MIT Press, 2001.
74. Handbook of Statistics on Indian Economy, RBI,
https://rbi.org.in/Scripts/PublicationsView.aspx?id=7704; World Bank,
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=IN;
Directorate General of Foreign Trade (DGFT): http://commerce-
app.gov.in/eidb/ergnq.asp
75. Economic Times, 3 April 2019,
https://economictimes.indiatimes.com/industry/banking/finance/banking
/supreme-court-strikes-down-rbis-february-12-circular-on-defaulting-
firms-calls-it-illegal/articleshow/68682597.cms
76. Business Standard, 3 April 2019, https://www.business-
standard.com/article/economy-policy/sc-order-on-rbi-circular-might-
prolong-the-debt-resolution-process-119040201175_1.html
77. For example, Times of India editorial, dated 7 June 2018.
78. Indian Express, dated 23 January 2019.
79. ‘Pulwama Attack 2019’, India Today, 16 February 2019,
https://www.indiatoday.in/india/story/pulwama-attack-2019-everything-
about-jammu-and-kashmir-terror-attack-on-crpf-by-terrorist-adil-
ahmed-dar-jaish-e-mohammad-1457530-2019-02-16
80. Foreign secretary’s statement, https://mea.gov.in/Speeches-
Statements.htm?
dtl/31089/statement+by+foreign+secretary+on+26+february+2019+on+
the+strike+on+jem+training+camp+at+balakot
81. Business Standard, 28 February 2019, https://www.business-
standard.com/article/news-ians/pakistan-targeted-military-installations-
lied-on-use-of-f-16-services-119022801118_1.html
82. The Hindu, 14 April 2019,
https://www.thehindu.com/news/national/did-india-shoot-down-an-f-16-
of-the-pakistan-air-force/article26830937.ece
83. ‘Pakistan Intelligence Services “Aided Mumbai Terror Attacks”’,
Guardian, 18 October 2010,
https://www.theguardian.com/world/2010/oct/18/pakistan-isi-mumbai-
terror-attacks
84. Business Standard, 1 May 2019, https://www.business-
standard.com/article/pti-stories/un-decision-to-declare-masood-azhar-
global-terrorist-big-success-for-india-pm-modi-119050101065_1.html
85. https://www.bloomberg.com/news/articles/2019-04-28/xi-jinping-s-
wins-and-losses-at-his-second-belt-and-road-forum

Epilogue
1. The poem ‘These My Words’ is by Hiren Bhattacharya (translated from
Assamese by D.N. Bezboruah) and included in Another India: An
Anthology of Contemporary Indian Fiction and Poetry, selected and
edited by Nissim Ezekiel and Meenakshi Mukherjee, Penguin, 1990.
2. No Full Stops in India, Mark Tully, Penguin, 1992.
3. http://loksabhaph.nic.in/Members/AlphabeticalList.aspx
4. ‘In India, Who Speaks in English, and Where?’, Mint, 15 May 2019.
https://www.livemint.com/news/india/in-india-who-speaks-in-english-
and-where-1557814101428.html
5. Literal meaning: An army officer whose rank is below that of a captain.
Used here in the sense of those who were earlier from weaker economic
and/or social groupings.
6. Economic and Political Weekly, Vol. 54, No. 21, 25 May 2019,
https://www.epw.in/journal/2019/21/special-articles/factors-contributing-
income-inequalities-among.html
7. https://www.nabard.org/PressReleases-article.aspx?
id=25&cid=554&NID=43
8. Lucas Chancel and Thomas Piketty, Indian Income Inequality, 1922-
2015: From British Raj to Billionaire Raj?, Wid.world Working Paper
Series No. 2017/11 July 2017, http://wid.world/wp-
content/uploads/2017/12/ChancelPiketty2017WIDworld.pdf
9. Arghya Sengupta, Independence and Accountability of the Higher Indian
Judiciary, Cambridge University Press, 2019.
10. A satirical 2010 film called Peepli Live is unnervingly close to reality
about passing the buck to the judiciary.
11. Court News—Quarterly Newsletter of the Supreme Court.
12. https://www.livelaw.in/sc-sets-aside-hc-judgment-poor-english/
13. Justice Dipak Misra’s judgment is at
https://indiankanoon.org/doc/1836522/. Justice Misra later became the
Chief Justice of India from August 2017 to October 2018.
14. https://www.thehindubusinessline.com/news/national/disproportionate-
assets-case-a-timeline-of-events/article9541095.ece
15. https://www.thehindu.com/news/national/fodder-scam-case-sc-rejects-
bail-to-lalu-prasad-yadav/article26789802.ece
16. https://www.thehindu.com/specials/in-depth/njac-vs-collegium-the-
debate-decoded/article10050997.ece
17. US measures against Chinese telecommunications equipment and
smartphone giant Huawei, suspected of being an espionage accomplice,
include cutting off its linkages with all US companies. China has been
developing its own capabilities in quantum computing and artificial
intelligence. Currently, Huawei depends on US companies for supply of
microchips and is probably preparing to manufacture such chips in
China.
18. Bay of Bengal Initiative for Multi-sectoral Technical and Economic
Cooperation set up in 1997. Members are Bangladesh, India, Myanmar,
Sri Lanka, Thailand, Nepal and Bhutan.
19. Foreign Policy, 23 July 2018,
https://foreignpolicy.com/2018/07/23/india-is-the-weakest-link-in-the-
quad/
20. U.R. Ananthamurthy, Samskara: A Rite for a Dead Man, Oxford
University Press, 1976.
21. V.S. Khandekar, Yayati: A Classic Tale of Lust, Orient Paperbacks,
1959.
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 Acknowledgements

Several of my former colleagues in government and friends were generous

with their time and spoke to me at length about their perceptions of
government decisions on significant issues. I thank all who provided
background briefings. For instance, former Foreign Secretary and
Ambassador M. Rasgotra, Ambassadors K.S. Bajpai, Chinmaya Gharekhan,
Chandrashekhar Dasgupta, Kuldip Sahdev, Ronen Sen and former Foreign
Secretary and National Security Adviser Shivshankar Menon.
Former Foreign Secretary and Ambassador Shyam Saran, former
Secretary (Economic Affairs), Chief Economic Adviser and Deputy
Governor RBI Dr Rakesh Mohan, former Chief Economic Adviser Dr
Shankar Acharya and well-known chairman of Business Standard and
journalist T.N. Ninan took the time to look through the manuscript and
provide detailed comments.
Ambassador Rakesh Sood and Manoj Raman are friends from my student
days. Rakesh and I were first together at St Stephen’s College and then in
the Indian Foreign Service. Manoj studied with me at Tufts University and
is widely read. Both have done me the favour of reading through the
manuscript and putting me right on a number of issues.
Most of this book was written while I was the Reserve Bank of India
chair professor at the Indian Council for Research on International
Economic Relations (ICRIER). I thank Shuheb Khan, Mohit Srivastava,
Ramakrishna Reddy, Barkha Gupta and Akshaya Aggarwal, research
associates at the ICRIER, for assisting me in tabulating the numbers.
This book would not have been possible without the active
encouragement of my wife Rita, former Reserve Bank of India and World
Bank economist, and daughter Jahnavi, an investment banker with a flair
for poetry. Rita painstakingly read through the manuscript line by line and
made detailed suggestions both on content and idiom. My younger brother
Dr Satyakam Bhagwati is a neurologist based in New York, and he gave me
useful feedback.
I dedicate this book to my father Bijoy Chandra Bhagwati who spent
over seven years of his youth, on three separate occasions, in jails in
Assam1 during India’s freedom struggle. Among his achievements in pre-
independent India was the mobilization of Assam tea garden labour to form
trade unions. These unions were later able to successfully bargain with tea
estate owners to obtain pensions, healthcare and education benefits. The
Assam Chah Karamchari Sangh (Tea Workers’ Union) was set up on 9
February 1947 in Tinsukia in upper Assam. This trade union was and
continues to be headquartered in Dibrugarh, and they have erected a
monument, in front of the deputy commissioner’s office, in my father’s
name with his bust in stone. He was the first president of the Chah
Karamchari Sangh.2
Assam narrowly escaped becoming part of East Pakistan at the time of
Partition. Gopinath Bordoloi was the premier of Assam and was in
correspondence for some time with Nehru about this matter. Jinnah argued
strenuously that Assam, with a higher proportion of Muslim population,
should belong to East Pakistan. It is likely that Jinnah was also swayed by
the consideration that Assam, with its lower density of population, tea
gardens, coal, bamboo and oil, would complement East Pakistan
demographically and economically. Bordoloi wrote several times to Nehru
and was concerned that Jinnah may win the argument. On 17 December
1946, Bordoloi sent Mahendra Mohan Choudhury3 and my father to
Noakhali to appeal to Gandhi (Gandhi was then in Noakhali to douse
communal fires). Gandhi’s only question to Choudhury and my father was
whether an overwhelming majority of the people of Assam wanted to be
part of India. Since their reply was in the affirmative, Gandhi remarked that
Assam needed to ‘lodge its protest and retire from the Constituent
Assembly. It will be a kind of Satyagraha against the Congress for the good
of the Congress.’4
 Gandhi asked my father to draft a note which would explain the
Mahatma’s advice in this matter. Subsequently, this note appeared in the
press on 23 December 1946.5 Nehru is said to have shown the Mahatma’s
advice to Jinnah who then gave up on Assam. It was by that slender thread
of chance that Assam is today proudly a part of India.
My father was elected unopposed to the Lok Sabha from Tezpur in
Assam in 1957, 1962 and then in 1967 by a considerable margin. Later he
was a member of the Rajya Sabha from 1971 to 1977 and was the president
of the Indian National Trade Union Congress (INTUC) from 1971 to 1988.
I also offer this book as homage to my mother Bimal Bhagwati, a tireless
perfectionist, who wrote widely read short stories in Assamese and
translated The Spirit’s Pilgrimage, the 1960 autobiography of Madeleine
Slade,6 into Assamese. She won a Sahitya Akademi award for translating
V.S. Khandekar’s Jnanpith award-winning 1959 Marathi novel Yayati into
Assamese.
 THE BEGINNING

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This collection published 2019

Copyright © Jaimini Bhagwati 2019
The moral right of the author has been asserted
Jacket images © Saurabh Garge
This digital edition published in 2019.
e-ISBN: 978-9-353-05615-5
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