India post 1991: The Wonder Years

Illustration: Chaitanya Dinesh Surpur

The 73 years after India got its independence can be broadly sliced into three phases: The three decades post-1947 till the 70s was when Jawaharlal Nehru and, then, his daughter Indira Gandhi went about the task of institution and nation-building. The 80s was arguably a lost decade, with Indira pursuing her gambits of nationalising banks and loan melas when she should have been ushering economic reform and deregulation. That eventually came in the 90s when the country’s coffers had dried up. The last three decades have transformed India, made a fraction of Indians richer, but poverty and inequality are still fetters in the eighth decade after India became a free country. Forbes India dives deep into these three phases of freedom.

You would imagine that this writer’s first throwback to the early 1990s—when he stumbled into business journalism—would be the July of 1991 when Minister of Finance Manmohan Singh, in one fell swoop, tore down the licence raj with the bulldozer of deregulation, and the catalysts of foreign investment and technology. The stage was being set for India to be unshackled and earn its competitive edge in the global league.

The process of initiating economic reforms and macro-economic stability may have doubtless been the landmark event of the ’90s. But the economic crisis—a fiscal deficit of over 8 percent of GDP, external debt of 23 percent of GDP, double-digit inflation and a hollowed-out foreign exchange coffer—wasn’t the only fire raging. The ’90s began with the Mandal Commission blowback when the VP Singh-led government attempted to implement its recommendation to give almost half of government jobs to socially or economically backward classes. What started with strikes and shutdowns quickly progressed to riots and students immolating themselves. It ended with Singh putting in his papers.

Violence of another kind reared its ugly head three months before Singh’s breakthrough Budget: The assassination of former Prime Minister Rajiv Gandhi while on the election campaign trail. Then in 1992 came the communal rampage when Hindu right-wing organisations demolished a mosque in Uttar Pradesh where they believed a temple originally stood. The carnage spread across the country, with financial capital Bombay, and its Muslims, bearing the brunt. The cycle of violence continued with the bomb blasts of 1993, ostensibly a reaction to the massacre of Bombay’s Muslims.

 Bombay later in the decade became Mumbai, and it’s never been the same city it was before December 1992. Many parts of India, too, lost its fundamental fabric. The temple dispute, raging for almost 70 years now and muddied by the destruction of 1992, is in the Supreme Court.

Every decade has its characteristics, and it’s this peculiar cocktail of economic survival and caste and communal tension that makes the 1990s a decade like no other, because of what happened in those first three years. That is also why for many Bombayites, the game-changing reforms of 1991 had a layer of their substance ripped off by the orchestrated violence of the next two years.

Dalal Street—except for regular knee-jerk ‘corrections’—seemed largely insulated from the nation’s turmoil. Perhaps it had its own mayhem to deal with, triggered by half-baked regulations and full-time fraudsters. A sea of punters would try their luck at the new trick in town: Initial public offerings (IPOs). The results on many occasions weren’t pretty. Long-term or value-investing was largely still confined to text books and Warren Buffett’s annual letters to shareholders, and a rash of IPO-ing companies flamed out obscurely in a few years.

The equity cult was quite a thing then. Dhirubhai Ambani’s first IPO in the 1970s had made millionaires of millions. The same decade saw multinationals forced to dilute their stakes by offering shares to the public, who benefitted from allotments in blue chips like Colgate and Hindustan Lever. That they got these shares at attractive rates was because the prices were determined by a ‘Controller of Capital Issues’.

The flip side was that by the early ’90s, the risk in equity was a forgotten element as adventurous promoters played up projected returns in cheerful public issue prospectuses. This writer’s initial months in the profession with a business magazine were a surreal crawl of IPO press conferences—often seven to eight in a day. Solemn questions fed by senior editors pertaining to return on net worth and return on capital were often met with blank gazes from the IPO pashas, whose minders then tried to pacify you with gift vouchers and outsized gift-wrapped boxes. Then there were those raucous ‘plant visits’ to sites on which the plant didn’t exist but on which it was expected to exist in a few years. Not all did come to exit.

The IPO tide waxed and waned a couple of times in the decade. The early ’90s’ boom was nipped in the bud with the so-called Harshad Mehta scam, which involved the broker using ill-gotten bank money to mop up shares. Then there was CR Bhansali who, in the mid-’90s, reckoned that using fictitious firms to raise fixed deposits and debentures may be a more effective fuel to buy shares. It wasn’t, and Bhansali duly found himself in the dock. Meanwhile, the much-touted foreign institutional investors (FIIs) and foreign brokerages had hit town, and expats on Enfields and in the fast-mushrooming English pubs were much sought after by business hacks and the emerging television journos. The returns for the foreigners in those early years, though, may have been nothing to write home about.

Consumers, meanwhile, were slowly but surely getting a taste of the good life—if that’s what it was—courtesy deregulation of sectors like consumer goods, financial services, automobiles, aviation, telecom, broadcast television, multiplexes and amusement parks. The foreign contribution in the ubiquitous Indian-made foreign liquor went up by a notch (think Smirnoff and Bailey’s), burgers and pizzas began competing with idli and dosa, consumers had their first (often disastrous) tryst with credit cards and ATMs, and a generation bid a grateful adieu to their Premier Padminis and Ambassadors, in anticipation of fancier—but often overpriced sedans—foreign auto labels. The first internet connections were given the status of the Second Coming, yuppies (the hipsters of the ’80s and ’90s) flashed their the brick-sized mobile phones and pretended to be cool as they took calls that cost ₹16 a minute, and laptops ushered in the ‘I am working from home’ alternative.

Almost all foreign brands parachuting in then touted a number that never existed to justify their arrival—a middle class of 300 million, which arguably may not be the case even today. A study done early this decade by policy think-tank NCAER and University of Maryland pegged the middle class at just below 6 percent of population, or well under 100 million.

Deregulation also helped a number of Indian entrepreneurs build a foundation in large-scale manufacturing. Vedanta’s Anil Agarwal built a copper smelter and refinery, and Dilip Shangvi first moved out of the family pharma business in Kolkata to Gujarat to make psychiatric drugs out of Vapi, before moving headquarters to Mumbai from where he made a global push. The Ruias of Essar and Sajjan Jindal set about to build large-scale integrated steel plants with public equity, and Sunil Mittal moved from telecom hardware to building a mobile phone network. By the late ’90s, the Ambanis had built the Jamnagar refinery, today the world’s largest. Kumar Mangalam Birla, who took charge of the Aditya Birla Group at 28 after his father’s untimely death in 1995, set about building a commodities empire.

The IT services bandwagon too had begun rolling after Infosys’ public issue in 1993, spurring a whole new generation of tech entrepreneurs who rode on the trend of global giants outsourcing their back offices to Indian firms. The East Asian financial crisis did play spoilsport in the latter half of the ’90s, although India wasn’t as badly hit as Thailand or South Korea and Indonesia. Tech entrepreneurship took a big leap in the late ’90s, when the global dotcom boom peaked. It didn’t last as the bubble burst in the early 2000s, bringing down a string of tech company founders, many with dubious businesses.

As if the bust wasn’t enough, the 9/11 attack in the US brought world business to its knees. But that may have been the darkest moment before the dawn. A surge in global liquidity—essentially a massive injection by the US Fed coupled with excess savings that found their way into developed and emerging markets—did miracles to Indian stocks and economic growth for the five years from 2003. The deluge of capital did its bit to depress long-term interest rates and increase asset values. Till 2008, the rising tide lifted all boats, even those with tattered sails.

For many—from industrialists, to brokers and fund managers to consumers—the 2003-2008 period was when the fruits of economic reform finally played out. Those who bought in early—stocks or property or assets or companies—struck bulls-eye, even as low-interest rates made loans attractive. Foreign investments—direct and portfolio—gushed in. India, unlike 1991, now had a foreign exchange reserves stash, and its industrialists were ready to buy billion dollar-worth assets in the developed world. The Indian multinational too was taking shape, and a clutch of corporations started earning more from overseas by either exporting or taking their brands and services abroad or by setting up international outposts. India’s globalisation inspired Thomas Friedman to pen the tome ‘The World is Flat’.  Free markets and capitalism had delivered, it seemed, and it would only be a matter of time before those benefits would trickle down to the lower swathes of the pyramid.

But, as a Mumbai fund manager quipped to this writer at the peak of the boom, “you can’t make love all night long”. The 2008 global financial crisis—after a boom that was a result of excessively generous monetary policies in advanced economies—first took its toll of the highly-leveraged American housing sector and, then, the financial markets. Indices tumbled down globally as Americans lost their jobs and houses. Asset prices corrected spectacularly, virtually overnight, and the billion-dollar buyouts by Indian industrialists that only months earlier were being hailed as masterstrokes and signals of global ambition now stuck out like carcasses of albatrosses. Retail investors lost their shirts, and home buyers realised that real estate appreciation can no longer be taken for granted.

It’s been a tough decade post 2008, with different governments seeming poised to revive the economy, but not quite getting there. The bigger hypothesis that deregulation and free markets would result in a spurt in India’s wealth-creating entrepreneurs, who would in turn drive development and prosperity across the masses, hasn’t fully played out yet. In fact, if anything as Minister of Finance Nirmala Sitharaman pointed out in her 2019 Budget speech, income levels are rising (she said this in the context of taxing the superrich). One indicator of that: In the mid-’90s, only two Indians figured in the Forbes billionaires list. By 2018, India had 119; only America and China had more billionaires than India. At the same time, India is considered one of the world’s most unequal economies; the 2016 Credit Suisse Global Wealth Report pointed out that India’s richest 1 percent owned 58 percent of wealth, one of the world’s starkest gaps.

The boom phase of the oughties was also when crony capitalism came to the fore, as the political and business elite colluded to capture valuable public resources. But, for a large number of such industrialists, this ‘Resource Raj’ (a term coined by former RBI governor Raghuram Rajan) wasn’t sustainable, and many of these businesses are today bankrupt or near bankruptcy.

The Narendra Modi-led government, powered by a clutch of social sector schemes—from providing houses and toilets to cooking fuel and electricity—seems keen to bridge the inequality gap. Many on Dalal Street have been rudely surprised by this apparent socialist streak, but they would do well to remember the “human face” that Manmohan Singh referred to when presenting the 1991 Budget.

“In highlighting the significance of reform, my purpose is not to give a fillip to mindless and heartless consumerism we have borrowed from the affluent societies of the West… In a society where we lack drinking water, education, health, shelter and other basic necessities, it would be tragic if our productive resources were to be devoted largely to the satisfaction of the needs of a small minority,” said Singh in his Budget speech. Almost three decades later, Sitharaman seems to have picked up the baton of development that combines “efficiency with austerity”. You have to wonder, though, why more could not be achieved on that front in the past 28 years.