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As a Prime Minister

Adopted to avert impending 1991 economic crisis, the reforms progressed furthest in the areas of opening up to foreign investment, reforming capital markets, deregulating domestic business, and reforming the trade regime. Rao’s government’s goals were reducing the fiscal deficit, Privatization of the public sector and increasing investment in infrastructure. Trade reforms and changes in the regulation of foreign direct investment were introduced to open India to foreign trade while stabilising external loans. Rao wanted I.G. Patel as his Finance Minister. Patel was an official who helped prepare 14 budgets, an ex-governor of Reserve Bank of India and had headed The London School of Economics. But Patel declined. Rao then chose Manmohan Singh for the job. Manmohan Singh, an acclaimed economist, played a central role in implementing these reforms.

Major reforms in India’s capital markets led to an influx of foreign portfolio investment. The major economic policies adopted by Rao include:

  • Abolishing in 1992 the Controller of Capital Issues which decided the prices and number of shares that firms could issue.
  • Introducing the SEBI Act of 1992 and the Security Laws (Amendment) which gave SEBI the legal authority to register and regulate all security market intermediaries.
  • Opening up in 1992 of India’s equity markets to investment by foreign institutional investors and permitting Indian firms to raise capital on international markets by issuing Global Depository Receipts (GDRs).
  • Starting in 1994 of the National Stock Exchange as a computer-based trading system which served as an instrument to leverage reforms of India’s other stock exchanges. The NSE emerged as India’s largest exchange by 1996.
  • Reducing tariffs from an average of 85 percent to 25 percent, and rolling back quantitative controls. (The rupee was made convertible on trade account.)
  • Encouraging foreign direct investment by increasing the maximum limit on share of foreign capital in joint ventures from 40 to 51% with 100% foreign equity permitted in priority sectors.
  • Streamlining procedures for FDI approvals, and in at least 35 industries, automatically approving projects within the limits for foreign participation.

The impact of these reforms may be gauged from the fact that total foreign investment (including foreign direct investment, portfolio investment, and investment raised on international capital markets) in India grew from a minuscule US$132 million in 1991–92 to $5.3 billion in 1995–96. Rao began industrial policy reforms with the manufacturing sector. He slashed industrial licensing, leaving only 18 industries subject to licensing. Industrial regulation was rationalized.

National security, foreign policy and crisis management

  1. V. Narasimha Rao at an awards function, 1993

Rao energized the national nuclear security and ballistic missiles program, which ultimately resulted in the 1998 Pokhran nuclear tests. It is speculated that the tests were actually planned in 1995, during Rao’s term in office, and that they were dropped under American pressure when the US intelligence got the whiff of it.Another view was that he purposefully leaked the information to gain time to develop and test thermonuclear device which was not yet ready. He increased military spending, and set the Indian Army on course to fight the emerging threat of terrorism and insurgencies, as well as Pakistan and China’s nuclear potentials. It was during his term that terrorism in the Indian state of Punjab was finally defeated. Also scenarios of aircraft hijackings, which occurred during Rao’s time ended without the government conceding the terrorists’ demands. He also directed negotiations to secure the release of Doraiswamy, an Indian Oil executive, from Kashmiri terrorists who kidnapped him, and Liviu Radu, a Romanian diplomat posted in New Delhi in October 1991, who was kidnapped by Sikh terrorists. Rao also handled the Indian response to the occupation of the Hazratbal holy shrine in Jammu and Kashmir by terrorists in October 1993. He brought the occupation to an end without damage to the shrine. Similarly, he dealt with the kidnapping of some foreign tourists by a terrorist group called Al Faran in Kashmir in 1995 effectively. Although he could not secure the release of the hostages, his policies ensured that the terrorists demands were not conceded to, and that the action of the terrorists was condemned internationally, including Pakistan.

Rao also made diplomatic overtures to Western Europe, the United States, and China. He decided in 1992 to bring into the open India’s relations with Israel, which had been kept covertly active for a few years during his tenure as a Foreign Minister, and permitted Israel to open an embassy in New Delhi. He ordered the intelligence community in 1992 to start a systematic drive to draw the international community’s attention to Pakistan’s sponsorship of terrorism against India and not to be discouraged by US efforts to undermine the exercise. Rao launched the Look East foreign policy, which brought India closer to ASEAN. According to Rejaul Laskar, a scholar of India’s foreign policy and ideologue of Rao’s Congress Party, Rao initiated the Look East policy with three objectives in mind, namely, to renew political contacts with the ASEAN-member nation; to increase economic interaction with South East Asia in trade, investment, science and technology, tourism, etc.; and to forge strategic and defence links with several countries of South East Asia. He decided to maintain a distance from the Dalai Lama in order to avoid aggravating Beijing’s suspicions and concerns, and made successful overtures to Tehran. The ‘cultivate Iran’ policy was pushed through vigorously by him. These policies paid rich dividends for India in March 1994, when Benazir Bhutto’s efforts to have a resolution passed by the UN Human Rights Commission in Geneva on the human rights situation in Jammu and Kashmir failed, with opposition by China and Iran.

Rao’s crisis management after 12 March 1993 Bombay bombings was highly praised. He personally visited Bombay after the blasts and after seeing evidence of Pakistani involvement in the blasts, ordered the intelligence community to invite the intelligence agencies of the US, UK and other West European countries to send their counter-terrorism experts to Bombay to examine the facts for themselves.

Economic crisis and initiation of liberalisation

Rao decided that India, which in 1991 was on the brink of bankruptcy, would benefit from liberalising its economy. He appointed economist Dr. Manmohan Singh, a former governor of the Reserve Bank of India, as Finance Minister to accomplish his goals. This liberalisation was criticised by many socialist nationalists at that time.

He is often referred as ‘Father of Indian Economic Reforms’.PVNarasimha Rao: The 10th Prime Minister who changed the face of Indian economy With Rao’s mandate, then finance minister Manmohan Singh launched a series of pro-globalisation reforms, including International Monetary Fund (IMF) policies, to rescue the almost-bankrupt nation from economic collapse.PV Narasimha Rao’s 97th birth anniversary: Remembering India’s ‘modern-day Chanakya’

Father of Indian nuclear Program

Dr. Kalam recalls that Rao ordered him not to test, since “the election result was quite different from what he anticipated”. The BJP’s Atal Bihari Vajpayee took over as prime minister on 16 May 1996. Narasimha Rao, Abdul Kalam and R Chidambaram went to meet the new prime minister “so that”, in Kalam’s telling, “the smooth takeover of such a very important programme can take place”.

Rao knew he had only one chance to test before sanctions kicked in, i.e., he could not both test conventional atomic bombs in December 1995 as well as the hydrogen bomb separately in April 1996. As Shekhar Gupta – who has had unprecedented access to Rao as well as the nuclear team – speculates: “By late 1995, Rao’s scientists told him that they needed six more months. They could test some weapons but not others…thermonuclear etc. So Rao began a charade of taking preliminary steps to test, without intending to test then.”

National elections were scheduled for May 1996, and Rao spent the next two months campaigning. On 8 May at 9 PM, Abdul Kalam was asked to immediately meet with the prime minister. Rao told him, “Kalam, be ready with the Department of Atomic Energy and your team for the N-test and I am going to Tirupati. You wait for my authorisation to go ahead with the test. DRDO-DAE teams must be ready for action.” Rao energised the national nuclear security and ballistic missiles program. His efforts resulted in the 1998 Pokhran nuclear tests.

Rao was the “true father” of India’s nuclear programme. Vajpayee said that, in May 1996, a few days after he had succeeded Rao as prime minister, “Rao told me that the bomb was ready. I only exploded it.”

“Saamagri tayyar hai,” Rao had said. (“The ingredients are ready.”) “You can go ahead.” The conventional narrative at the time was that prime minister Rao had wanted to test nuclear weapons in December 1995. The Americans had caught on, and Rao had dithered – as was his wont. Three years later, prime minister Atal Bihari Vajpayee fulfilled his party’s campaign promise by ordering five nuclear tests below the shimmering sands of Rajasthan.

Handling of separatist movements

Rao successfully decimated the Punjab separatist movement and neutralised Kashmir separatist movement. It is said that Rao was ‘solely responsible’ for the decision to hold elections in Punjab, no matter how narrow the electorate base would be. In dealing with Kashmir Rao’s government was highly restrained by US government and its president Bill Clinton. Rao’s government introduced the Terrorist and Disruptive Activities (Prevention) Act (TADA), India’s first anti-terrorism legislation, and directed the Indian Army to eliminate the infiltrators from Pakistan. Despite a heavy and largely successful Army campaign, Pakistani Media accuses that the state descended into a security nightmare. Tourism and commerce were also largely disrupted.

Babri Mosque riots

Rao’s government was facing a no-confidence motion in July 1993, because the opposition felt that it did not have sufficient numbers to prove a majority. It was alleged that Rao, through a representative, offered millions of rupees to members of the Jharkhand Mukti Morcha (JMM), and possibly a breakaway faction of the Janata Dal, to vote for him during the confidence motion. Shailendra Mahato, one of those members who had accepted the bribe, turned approver. In 1996, after Rao’s term in office had expired, investigations began in earnest in the case. In 2000, after years of legal proceedings, a special court convicted Rao and his colleague,Buta Singh (who is alleged to have escorted the MPs to the Prime Minister). Rao was sentenced to three years in prison for corruption. “I sentence the accused PV Narasimha Rao and Buta Singh to rigorous imprisonment up to three years and a fine of 100,000 rupees ($2,150),” the judge said in his order. Rao appealed to the Delhi High Court and remained free on bail. In 2002, the Delhi High Court overturned the lower court’s decision mainly due to the doubt in credibility of Mahato’s statements (which were extremely inconsistent) and both Rao and Buta Singh were cleared of the charges.