Chapter 45 : The Narasimha Rao Years (1991-96)

The Narasimha Rao Years (1991-96)

Political Background and Formation of Government

• Pamulaparti Venkata (P.V.) Narasimha Rao was chosen to lead the Congress (I) following the assassination of Rajiv Gandhi.
• Background of P.V. Narasimha Rao:
• An erudite scholar and polyglot.
• A Congress loyalist who held key ministerial portfolios (external affairs, defence, human resource development, and home affairs) in the governments of Indira Gandhi and Rajiv Gandhi.
• Government Formation (June 1991):
• Formed a minority government.
• He had not contested the 1991 elections. After being sworn in as Prime Minister, he won a by-election from Nandyal in Andhra Pradesh to enter the Lok Sabha.

📌 Exam Tidbits

• P.V. Narasimha Rao formed a minority government in June 1991.
• He entered the Lok Sabha by winning a by-election from Nandyal (Andhra Pradesh).

Economic Reform

• Leadership: Prime Minister Narasimha Rao inducted Manmohan Singh (a non-political economist and then Chairman of the University Grants Commission) as Finance Minister. Rao himself undertook reforms as Industries Minister.
• Causes/Context for Reforms:
• Indian economy was in shambles with a precarious balance of payment situation and high inflation.
• The Soviet economic model was discredited globally.
• China, under Deng Xiao Ping, had successfully undertaken market-oriented reforms.
• The "Middle Path" Approach:
• Rao opted for market reforms combining high economic growth rates with the least suffering to the masses (avoiding a pure free-market type).
• Exceptions: Banks were not privatised, and the farm sector was not opened up.
• Rao successfully managed unfavourable reactions from socialist-leaning members of his own party.

The New Economic Policy of 1991

Industrial Policy of 1991

Presented personally by Narasimha Rao, this policy was considered revolutionary for its time.

Financial and Capital Market Reforms

• Abolished the Controller of Capital Issues (which previously governed capital issues in India).
• Introduced the Security and Exchange Board of India (SEBI) Act of 1992 and the Security Laws (Amendment) to regulate all security market intermediaries.
• Started the National Stock Exchange as a computer-based trading system.

Limitations and Criticisms of Economic Reforms

• Bureaucratic controls remained → it took much more time to start a business in India compared…