Chidambaram: India could have reformed economy in 1981, but not in Rajaji's time

Former Union Finance Minister P. Chidambaram has stated that India could have introduced economic reforms as early as 1981, a full decade before the landmark 1991 liberalisation, but not during the lifetime of C. Rajagopalachari, the founder of the Swatantra Party and the first Indian Governor-General of independent India.

Responding to a question during an interview with The Hindu 360, the Tamil YouTube channel of The Hindu, Mr. Chidambaram was asked whether India would have been better off had it adopted Rajagopalachari's vision of an open economy in the late 1950s and 1960s. He said that while reforms could have been undertaken in 1981, the political environment at the time was not conducive.

"At that time, [then Prime Minister] Indira Gandhi had made an attempt. But her Ministers and political leaders around her did not allow her to [get it done]... Even in 1985, it did not happen. If you go through the presidential address of the AICC [All India Congress Committee] chief and Prime Minister Rajiv Gandhi at the Mumbai session of the Congress, he said all of what was talked about in 1991. He did not have a [conducive] political situation," Mr. Chidambaram said.

Rajiv Gandhi's address at the Congress centenary session in Mumbai in December 1985 did indeed contain several elements that later featured in the 1991 reforms, including economic modernisation and a push for technology. However, his government faced resistance from within the party and from vested interests.

Mr. Chidambaram also pointed out that in the period before 1981, the global economy lacked a rules-based order. The World Trade Organisation (WTO), which came into being in 1995, did not exist. "They [capitalist countries] had capital and technology. They called theirs an open economy. But the poor and middle-income countries could not have followed this...," he said.

Conceding that India lost a decade by not beginning reforms in 1981, the former Finance Minister, who presented nine Union Budgets, argued that during Rajaji's era, which ended with his death in 1972, India lacked the necessary capital and technology to integrate with the global economy.

Rajagopalachari, a close associate of Mahatma Gandhi, served as Governor-General from 1948 to 1950, and later founded the Swatantra Party in 1959. The party advocated free enterprise, limited government and a market-driven economy, in contrast to the prevailing socialist consensus.

The 1991 economic reforms, introduced by Prime Minister P.V. Narasimha Rao and then Finance Minister Manmohan Singh in response to a severe balance-of-payments crisis, dismantled industrial licensing, opened the economy to foreign investment and reduced tariffs. Mr. Chidambaram later played a key role in sustaining and deepening these reforms as Finance Minister in the United Progressive Alliance government.

Mr. Chidambaram's comments add to a longstanding debate among economists and historians about the optimal timing of India's liberalisation. While some argue that earlier reforms would have accelerated growth and poverty reduction, others maintain that the absence of a global rules-based regime and domestic political consensus made it impossible before 1991.