"The rupee has fallen so much, or is this a typing mistake", came a shout from one of the subeditors. The day, July 1, 1991; the place, the damp stuffy newsroom of The Economic Times. Soon, other seniors gathered near the PTI and Reuters teleprinters and discussed animatedly. The forex reporter Mohan ran to the telephone and dialled furiously.
I was one month into my first newspaper job and couldn't make any sense of this buzz over the rupee rate. This flurry of activity repeated on July 3 and by the end of the week, I realised that the Reserve Bank had done something not seen in a long time.
It had allowed the rupee to be devalued versus the dollar. Indians needed 24 rupees to buy a dollar versus 20 rupees just three days ago. The "desk" of which I was a part was more interested in discussing headlines: "How about rupee takes a pounding," said someone. "Millions Lost, Millions Made in Minutes," said somebody else.
Days of Drama
But the drama in the first week of July was nothing compared to the drama in the last week of July. The budget speech at 5 pm on July 24, 1991, was preceded at 4 pm by an industrial policy that removed licencing for all but 18 items.
The budget itself spoke of allowing foreign competition in most sectors and freeing Indian industry of controls. Our headlines were tame, emphasising that the budget sought to bring down the indirect taxes kitty below direct taxes so as to be kinder to the common man. It was only a few days later that editors and much later minions like me realised the significance of the announcements of July 24.
Also Read: 30 Years of Economic Reforms | Forced to change for the good
The sudden freeing up of industry and opening up to the foreign competition were greeted by angry press conferences. Industry bodies predicted India would be de-industrialised as foreign goods take over our markets.
Some academic conferences said the exact opposite—that politicians are catering to cronies and forgetting goals of equity. Others said the budget changes were because of IMF conditionalities.
Enter Harshad Mehta
But the stock markets were wiser. The wisest statements came from an unexpected quarter, a certain suddenly famous broker called Harshad Mehta who said, "India is a turnaround scrip." Mehta may have been wrong about many things, but on this point he was right.
After the passage of many weeks, Indians slowly realised the intellectual, economic, and even emotional significance of the events of July 1991. In the face of a huge foreign exchange crisis, India instead of conserving its reserves and shutting its doors, bravely did the opposite - it opened its doors to foreign companies and foreign capital and changed the grammar of its economy.
Also Read: 1991 Reforms | Per capita income, consumption expenditure have risen but neighbours have done better
Thereafter, each day was a learning day for me. We learnt a term called LERMS or liberalised exchange rate management system. This allowed exporters to sell 40% of their forex earnings at market rates and surrender 60% to RBI at the administered rate.
In two years, a unified exchange rate system came in and we no longer stood at the PTI ticker to check what is the rupee rate announced by RBI for the day. (Of course, by 1994, PTI and Reuters were available on our computers.)
The conversion of an administered rupee by a foreign exchange market was a huge change, something China hasn't achieved to this day. But changes in the real economy were more revolutionary.
The abolition of licencing made Indian industrialists suddenly free and yet scared. It was like adolescence came overnight to an over-protected teenager. Economist Raja Chellaiah was asked by finance minister Manmohan Singh to draw up a timetable for bringing down tariffs from over 200% to 20%.
What Rahul Bajaj said
I reported on a press conference by businessmen like Rahul Bajaj who complained India would be de-industrialised if so much foreign competition was allowed. But Bajaj himself converted the challenge into an opportunity. He tied up with Kawasaki, TVS tied up with Suzuki. The mid-nineties were the golden period of JVs.
I was negotiating a personal problem. My Ph.D, which I began in the end-eighties, was about how India was using the licencing and MRTP Acts to force its richest conglomerates to serve the public good.
I was assessing to what extent income redistribution can be achieved in a liberal democratic polity and a semi-market economy. Suddenly, the licencing policy and the MRTP Acts were abolished when I was still writing the last chapter of my thesis. What a struggle that the last chapter was.
Amid all this pell-mell, India continued to build markets where there were none. The government was forced to stop the "ad hoc treasury bills".
This was a practice of RBI replenishing the government's account to ensure a balance of Rs 50 crore every Friday. Though it sounds innocuous, it was a loophole that allowed unlimited monetising of deficit.
RBI’s many actions
RBI governor Bimal Jalan's predecessor C Rangarajan and his deputy governor YV Reddy worked hard to end the ad hoc. It took an economist finance minister (and former RBI governors) like Manmohan Singh to convince Parliament of the ills of unlimited government borrowing.
At a press conference, Singh explained to us the importance of the move. "Do you know what we have done? The government has voluntarily accepted curbs on its spending—this is unprecedented."
The gravity of this reform hit home in later years. We finally had a money market, a g-sec market, and a yield curve.
The birth of FIIs
The year 1993 also saw the birth of a new acronym—the "FII", or the foreign institutional investor. Foreign brokerages like Credit Suisse, Jardine Fleming, Morgan Stanley all opened offices in Mumbai.
Every time we saw a white-skinned foreigner in the streets, my colleagues and I would nudge each other and say " FII hai". The Sensex went from under 1000 in the late eighties to over 4600 by 1994.
By 1995, I moved to Dow Jones Newswires as a markets reporter and stayed there until the turn of the century. Those were six earth-shattering years that I captured in a myriad of one-line tickers.
Also Read: 30 years of reforms | Taking stock of Indian banking
Practically every month something historic was being created—the birth of a wholly electronic stock exchange called NSE, the amazingly swift transformation of the BSE into an electronic exchange, the birth of NSDL or the National Securities Depositories Ltd, the calibrated conversion of paper/physical securities into dematerialised electronic units, the end of "badla" or archaic leveraged trading, its replacement by futures and options.
All this within a space of three years—1995-1998. Outside the Dow Jones newsroom, these momentous changes shook investors from their roots.
Old brokers, used to outcry trading, were dragged screaming and kicking into computerised trading. The death of "badla" was mourned like the loss of a relative.
It was no easier for small investors. Elderly relatives, horrified at their physical shares taken away, asked me if they had to go to the bank and take the banker's nod every time they wanted to sell dematerialised shares.
On hindsight, it is amazing how much India accomplished in a span of three or four years in the late nineties.
And these momentous changes were happening as Asia was rocked by a huge foreign exchange and economic crisis. In July 1997, the Thai baht crashed as the central bank was no longer able to defend it.
The much-loved FIIs bolted from Asia. India, in addition, had a string of unstable coalition governments.
Every other day, on our Dow Jones ticker we flashed "Indian Rupee Hits New Low", until, Jalan, who had recently taken over as RBI governor, chided us for sensationalising routine market movements.
Jalan raised the CRR, or cash reserve ratio, the minimum amount that banks must part with the RBI, by a massive 200 basis points on January 15, 1998 as also the repo rate (the rate at which banks borrow from RBI). The call rate went to 120% on that day.
Nervous moments
There were moments when my hands used to shake when I sent flashes lest I make mistakes and mis-inform the market. The Dow Jones editors maintained a strict vigil on our language.
No sensationalism was allowed. "Rupee is higher, lower or unchanged". We were forbidden to use words like crash and tumble.
Why such colourless language, I used to complain to my editor. "Latha, if you use crash for a 3% fall, what will you call a 5% fall, and a 10% fall?" The importance of objective reporting hit home.
It was 1999, but the theatrical nineties had two more dramatic acts—India's nuclear blast and the Kargil war. The nuclear blast meant more rockiness in the Sensex and the rupee.
For the RBI, it was fighting US sanctions and arranging for foreign exchange through resurgent India bonds. We slowly learnt the constraints that open financial markets impose on a nation's polity.
As for Kargil, we at Dow Jones, kind of broke that story to the Indian market. We were the first to flash a headline from Associated Press that bombing was reported on the Indo Pak border.
Oh, there was a war too
It was May of 1999. Dow Jones Newswires wasn't available in so many dealing rooms. Important brokers, who normally wouldn't take my call, phoned me to check what exactly the news was.
The markets crashed some 3%. It was a tense day of flashes and news that had to be read, and re-read to editors in Singapore, before flashing. "Don't start a war with overzealous reporting," barked my boss, Ed Lane.
Late in the evening that day, a young broker called me and said, "Latha years from now, when you dangle your grandchildren on your knees, you can tell them that you brought down the market by 3%".
By then I was old enough to know that the journalist is a messenger and only her news is important. India was to win that war and enter a period of stable strong growth in the new millennium.
Today as the nation celebrates the 30th anniversary of the 1991 reforms, I feel proud of how our country emerged from teenage to adolescence through the glorious nineties.
I must have done something right in my previous birth that I was allowed to be a part of that glorious period of India's economic history.
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