To the Brink and Back: India’s 1991 Story by Jairam Ramesh Read Free Book Online

of which 5,000 tonnes is hoarded and 5,000 tonnes have been brought into the country through smuggling. If we succeed to […] get 2,000 tonnes of gold from the public—I am not talking of 5,000 tonnes of gold but only 2,000 tonnes of gold […] it would be worth 36 billion American dollars […]
    If we sell gold worth 25 billion dollars to clear our debts and invest the rest of gold in such a way that it would fetch us 10 percent profit, then it would help us in overcoming the financial crisis.
    My view, which I shared with the prime minister, was that what theBJP leader was suggesting was unrealistic given the role gold plays in our lives; in any case, it was a suggestion for the medium-term. It was no solution for the days and months ahead. For that, the IMF route was the only way out, something that theV.P. Singh andChandra Shekhar governments had recognized. 41

    What mightRajiv Gandhi have done vis-à-vis gold? The Congress was vocally critical, no doubt, but what is to be made of this oral recollection byS. Venkitaramanan, while taking part in a symposium organized by theRajiv Gandhi Foundation in November 1994, two years after he had retired as the governor of the RBI? He recalled thus:
    I was Governor of the Reserve Bank and we had this severe crisis. I had the permission of Chandra Shekhar to interact with him [Rajiv Gandhi]. I had gone to him and said: ‘Sir, it worries me that we should have this country going through tremendous crisis of foreign exchange and we have three billion dollars’ worth of gold in our reserves. I want to use it. I know that your party colleagues are against it and publicly you have expressed, your party has expressed this view.’ He [Rajiv Gandhi] said: ‘It is nonsense. How can you allow this country to go through with this situation without using the gold you have? If you want, I will come out and say [it].’ 42
    Alas, that never came to pass.

    39 The law specifically states: ‘Of the gold coin and gold bullion held as assets, not less than seventeen-twentieths shall be held in [India].’
    40 Statement of Finance Minister Dr Manmohan Singh on gold transactions, Lok Sabha, 18:00 hours, 18 July 1991.
    41 Under various borrowing windows of the IMF, India took US$660 million during July-September 1990 and US$1.8 billion in January 1991. India was to later borrow US$221 million in July 1991, US$639 million in September 1991, US$117 million in November 1991, US$265 million in January 1992 and US$650 million in February- March 1992. This demonstrates vividly how precarious the economic situation was and how dependent we had become on the IMF for balance-of-payments financing well after the reforms blitz of July 1991.
    42 See
Rajiv Gandhi’s India
, Volume 2, volume editor V. Ramachandran (New Delhi: UBS Publishers, 1994).

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The Default Option Remembered
    n June-July 1991, one issue kept nagging the prime minister—that ofdebt rescheduling. It was obvious that some political leaders and their economist-friends had got to him. Thus, one of his early queries to me was: ‘Why can’t we renegotiate ourloans like we had done in the 1960s?’ It is not that he was suggesting a default or anything close—but certainly, the matter bothered him.
    My response was that the two situations were not comparable. In the 1960s all our debt was to multilateral institutions like the World Bank and to bilateral aid agencies. It was certainly true that the Aid-India Consortium, 43 as it was then called, had renegotiated India’sdebt obligations. But the situation in 1991 was totally different. This was short-term debt and debt owed to commercial institutions. This was more like the Latin American situation and I told the prime minister as much. I allowed myself a rare moment of levity in one of these meetings when I repeated the well-known line to him: ‘Sir, it is true that when you owe somebody 500 dollars, you should be worried; but when you owe somebody 5 billion dollars,
he
should be