Lobster as a Metaphor

In 1991, I was a professor at the Indian Institute of Foreign Trade (IIFT), Delhi. The institute hadn’t yet become a deemed university. The application for this status was pending, and we faculty members used to joke about it as a doomed cause. Since it hadn’t yet become a deemed university, IIFT used to work closely with the Commerce Ministry and undertake several projects for it. Just before the 1991 reforms, for example, I was entrusted with the task of taking a look at India’s export-import (‘exim’) policy. Few people now remember what the exim policy used to look like then. It was a huge, thick and obscure document. Its primary author was a gentleman who worked in the Directorate General of Foreign Trade—I won’t name him but old-timers will be able to identify who I mean. He used to draft it during the day. In the evening, he would author a commentary, explaining what the policy was about, and this would sell like hot cakes, much more than the official document.

Broadly, both exports and imports were of three types: ‘Prohibited’, ‘Restricted’ and ‘OGL’ (Open General Licence). ‘Prohibited’ meant you couldn’t export or import the item. ‘Restricted’ meant you needed a specific licence. ‘OGL’ meant it was free for export or import; you didn’t specifically need a licence. If OGL meant trade was free, barring tariffs, why use the word ‘licence’ in OGL? No one could explain this satisfactorily. However, I tried to make sense of some specific items. Some items could be exported, subject to a licence. In that category, a heading stated, ‘cattle and other animals’. The one just below this said, ‘donkeys’. Obviously, donkeys couldn’t be treated on par with other animals and I wanted to know why. Pomfrets could also be exported, with a licence. However, if the fish was caught in the waters of 10 ports specifically named, it could be exported if it weighed more than 300 gm. If caught anywhere else, it could be exported if it weighed more than 200 gm. How did you figure out in what waters the fish had been caught and did Customs actually weigh it? And what about bêche-de-mer, a kind of sea anemone? There was no prohibition on catching it, irrespective of length. However, you could only export it if it was more than 3 inches long. Did Customs measure the length?

In search of answers, I got hold of a marine product exporter. But this was the wrong kind of marine product exporter. Unlike most others, based in Kerala, he only exported live lobsters to Japan, no frozen or processed stuff. Twelve live lobsters were packed in each carton. If even a single one died, the Japanese would reject the entire carton. The lobsters were kept alive by reducing the temperature to sub-zero levels, forcing the lobsters into some kind of hibernation. They were then woken up in Japan. The exporter had to bribe Customs Rs 2,500 per carton at the time of shipment inspection. I naively asked, “What happens if you don’t pay?” In that event, during the course of the inspection, the Customs inspector would prod the lobsters awake prematurely. Thus prodded, several of them would die, resulting in rejection. It was far better to pay up.

At Delhi School of Economics, one of my teachers was Professor Mrinal Dutta Choudhury, universally referred to as ‘MDC’. I thought he would be able to advise an ex-student on how to go about the study. Doing nothing of the kind, he dumped a question on me, one based on a real anecdote. There was a businessman in Delhi, MDC’s friend, who imported horses from Britain. It was quite possible, since MDC had all kind of friends. The businessman would go to Chandni Chowk, buy old horses there, ones that were about to die, ship them to the Middle East and slaughter them on the beaches there. What was his business model? I didn’t have a clue. At that time, you could not import horses, unless you could show their re-export. This chap imported stud horses and sold them off at a premium. To show re-exports, obviously in connivance with Customs, he was exporting horses that were about to die. He even got an export subsidy. In addition, he got what was called a ‘rep licence’ (for imports), which could be sold off at a premium.

The liberalisation of 1991 changed all this (and the study went for a toss). If you think about 1991, and not about reforms that occurred later, there were only two components to that year’s measures: the external sector (exchange rate, quantitative restrictions, export subsidies, tariff reductions, FDI) and industrial de-licensing.

Here’s a question: who was Industry Minister in 1991? Everyone remembers Dr Manmohan Singh as Finance Minister then. Few recall who held the Industry portfolio. It was PV Narasimha Rao. Here’s a rhetorical question: why did the then Prime Minister keep this portfolio to himself?

A couple of years later, in 1993, the Department of Economic Affairs brought out a discussion paper titled, ‘Economic Reforms: Two Years After and the Task Ahead’. It’s a pity this seems to have disappeared from the documented history of economic reforms in India. (If nothing else, it had a typo for ‘public sector’, printed as ‘pubic sector’.) If you look at the agenda of pending reforms listed there, you will find we are still debating several issues mentioned then. ‘No one can resist an idea whose time has come’ is not a very good translation of what Victor Hugo wrote, but Dr Manmohan Singh made this quote famous in 1991. For some elements of reform, the time should have come in the 1970s; 1991 was too late. But for others, the time doesn’t seem to have come even now.

In 1993, Ashok Desai was a consultant to the Union Finance Ministry. This was just before Shankar Acharya became Chief Economic Adviser. At that time, there was a professor of Economics who I shan’t name. He had been invited to a conference in Paris, funded by University Grants Commission (UGC). If I recall right, the UGC per diem rate was $65. This professor wrote a letter to the Finance Minister (naturally, most famous economists knew Dr Manmohan Singh) saying that 65 was too low. Could it be raised? This file landed up at a Joint Secretary’s desk. The JS wrote—‘Why should we raise it only for one specific individual? Let’s take a look at the entire relevant section of FERA (Foreign Exchange Regulation Act) to see if the section is necessary’. The file went up to Ashok Desai. He wrote—‘Why should we only take a look at one section of FERA? Do we need FERA at all? Let’s take a relook at FERA’. The file went up to Dr Manmohan Singh. He wrote—‘Why should we only look at FERA? There must be other bits of economic legislation that are redundant and outdated. Let’s get a research project going’. I have simplified a bit. However, this is the core of what transpired. Ashok Desai was entrusted with the task of finding an economist who knew a little bit about the law to head this project. He invited me for lunch and offered me the job. I said I needed time to think. At that time, we were on soup. Ashok Desai retorted, “You have till dessert.” He bamboozled me into accepting this law reform project. From a comfortable job in IIFT (with perks, job security and superannuation benefits), I was thrust into uncertain and uncharted territory, with no guarantee about what was going to happen with my life and profession next. I suggested several names and acronyms for this project. What came to be accepted was not number 1, but number 3, on my preference list. The project came to be called LARGE (Legal Adjustments and Reforms for Globalizing the Economy).

As I look back, 1991, and its aftermath, has changed my life in more ways than one. It has changed India’s growth and development trajectory. The generation born after 1991, or the generation that grew up after 1991, will largely be unfamiliar with what the Indian economy was like before 1991. When we first moved to Delhi in 1987, we had to wait for two years before we got a telephone connection. As faculty members at IIFT, we used to carefully hoard whatever foreign exchange was left over from earlier trips. Foreign exchange was scarce. On visits abroad, you shopped for consumer goods. India possessed all the characteristics of a classic shortage economy. Whatever complaints we may have about the progress of reforms, or its lack, India has changed. Despite warts and blemishes, it is a change for the better. It is a much more uncertain and globalised world. Would I have been happier in the safe, secure and stable world of IIFT, insulated from risk and uncertainty, but with fewer opportunities? I doubt it. I think my personal take also has a bearing on the choice that was thrust on India because of a balance of payments crisis that brewed since 1989.

liberalisationManmohan SinghPV Narasimha Rao