The Rao government and the New Economic Policy (1991-96)

Detail

1. The Rao government (June 1991 – May 1996)

• Who governed: A Congress government led by P.V. Narasimha Rao ruled from June 1991 to May 1996.
• Support: The AIADMK and some smaller parties supported it (NCERT table of Central Governments).
• Minority to majority:
• A minority government has fewer than half the seats in the Lok Sabha. It stays in power only while other parties support it or stay neutral.
• Rao's government began as a minority government.

• It later gained a majority in the Lok Sabha.

• Why this matters: This government came between the unstable National Front (1989-91) and Chandra Shekhar (1990-91) governments and the coalition period after 1996. It was the last Congress-led government until 2004 to complete a full five-year term.

2. The JMM bribery case and MPs' immunity (beyond NCERT)

• No-confidence motion: This is a motion in the Lok Sabha saying the House no longer trusts the Council of Ministers. If a simple majority passes it, the government must resign. This follows from collective responsibility (Art. 75(3): ministers answer to the Lok Sabha as one team).
• The 1993 vote:
• Rao's government faced a no-confidence motion in July 1993 and survived.

• Later, people alleged that some MPs, including MPs of the Jharkhand Mukti Morcha (JMM), took bribes to vote against the motion.

• Article 105(2): No MP can be taken to any court for anything they say, or any vote they give, in Parliament or its committees [3]. This is a parliamentary privilege (a special legal protection that lets members speak and vote freely). Article 194 gives state MLAs the same protection.

• P.V. Narasimha Rao v. State (CBI/SPE) (1998): [5]
• A five-judge bench decided by a 3:2 majority.
• MPs who took a bribe and voted as agreed were protected by Art. 105(2).

• The MP who took a bribe but did not vote had no such protection.

• Sita Soren v. Union of India (4 March 2024, 2024 INSC 161):

• Bench: Seven judges heard the case. A smaller bench had earlier doubted whether the 1998 ruling was correct [2].
• Facts: Sita Soren was a JMM MLA in Jharkhand. She was accused of taking a bribe to vote in the 2012 Rajya Sabha election [2].
• Ruling: The Court overruled the 1998 judgment. MPs and MLAs cannot claim immunity under Arts. 105 and 194 from prosecution for bribery linked to a vote or speech [2][4].
• Why the old rule was strange: Under the 1998 rule, a member who took a bribe and voted as paid was protected. A member who took a bribe but voted freely could be prosecuted [4].
• Key principle: Bribery is complete when the member accepts the bribe. It does not matter how they vote later, or whether they vote at all [2][4].

Point	P.V. Narasimha Rao (1998)	Sita Soren (2024)
Bench	5 judges (3:2)	7 judges (unanimous)
Bribe-taker who votes as agreed	Protected by Art. 105(2)	Not protected
When is the offence complete?	Linked to the vote	When the bribe is accepted [2]
Status today	Overruled	Current law

3. Other Rao-era landmarks

• 73rd and 74th Constitutional Amendments (1992):
• Parliament passed them in 1992. They came into force in 1993.
• The 73rd gave constitutional status to Panchayati Raj (Part IX, Eleventh Schedule).

• The 74th did the same for municipalities (Part IX-A, Twelfth Schedule).

• Look East policy (early 1990s): India built closer economic and strategic ties with Southeast Asia (ASEAN) after the Cold War ended.

• 1992 Punjab election: An elected government returned to Punjab after a long period of President's rule during militancy.
• Ayodhya demolition (December 1992): This is covered in §9.

4. The 1991 crisis (beyond NCERT)

• Balance of payments (BoP) crisis: A country runs short of foreign currency. It then cannot pay for imports or repay foreign loans.
• How bad the reserves were:
• End-March 1990: Foreign exchange reserves covered a little under two months of imports [6].
• End-December 1990: They covered only three weeks of imports [6].

• July 1991: The Finance Minister said reserves were about ₹2,500 crore, enough for only a fortnight of imports [7].

• Gold pledged: In July 1991 the RBI pledged gold for a short time to raise loans. This showed the world that India would meet all its foreign payments [6].

• Fiscal deficit: This is the gap between what the government spends and what it earns, which it fills by borrowing.
• The Centre's fiscal deficit was more than 8% of GDP in 1990-91 [7].
• The 1991-92 Budget aimed to cut it from about 9% to 6.5% of GDP [8].

5. The New Economic Policy, 1991

• New Economic Policy (NEP) 1991: This is the set of Liberalisation, Privatisation and Globalisation (LPG) reforms.
• Liberalisation: fewer government controls on business.
• Privatisation: a larger role for private firms and a smaller role for the public sector.

• Globalisation: more trade with, and investment from, the rest of the world.

• Leaders: PM Narasimha Rao and Finance Minister Manmohan Singh. The NCERT chapter carries a photo of the two together.

• Structural adjustment: These are deep changes to how an economy works, not just short-term fixes. They are often tied to IMF and World Bank lending.

Main steps (in order):

• Rupee devaluation (July 1991):
• Devaluation means the government officially lowers the value of the rupee against foreign currencies. Exports become cheaper and imports dearer.
• The rupee was devalued by about 19% in mid-1991 to restore confidence and stop money flowing out of India [8].

• Exporters also got tradable import licences, which in practice created a dual exchange rate [8].

• Union Budget 1991-92: Manmohan Singh presented it on 24 July 1991 [7].

• Statement on Industrial Policy (24 July 1991): It was announced the same day as the Budget.
• Industrial licensing (government permission needed to set up or expand a factory) was abolished for all except 18 industries [9].
• Fewer industries were reserved for the public sector, and the public and private sectors had to compete [9].
• FDI (foreign direct investment, meaning foreigners owning and running businesses in India) got automatic approval up to 51% foreign equity in 34 priority industries [9].
• The Foreign Investment Promotion Board (FIPB) was set up to approve investment above 51% [9].

• The MRTP Act, 1969 (Monopolies and Restrictive Trade Practices Act, which limited the growth of big business houses) was relaxed [9]. The Competition Act, 2002 later replaced it.

• Trade reform: Import duties and import controls were cut.

• Financial-sector reform: Banking and capital markets were reformed. The details belong to the economy subject.

6. NCERT's view and the politics of reform

• Origin: The reforms started under Rajiv Gandhi. They became visible in 1991.
• Impact: NCERT says they "radically changed the direction" the economy had followed since independence, moving away from state-led planning and the licence system.
• Criticism: Many movements and organisations criticised the policies. Their concerns included jobs, farmers, the public sector and economic sovereignty.
• Continuity: Every later government continued the reforms: United Front (1996-98), NDA (1998-2004), UPA (2004-14) and NDA (2014 onwards).
• New consensus: This continuity is the first element of the "new consensus" (§12). The major parties now agree on the basic economic path.
• Debate: Critics argue that the reforms were pushed through during a crisis, by a minority government, without a full political debate or a clear mandate from voters.

Prelims Hooks

• Art. 105(2): MPs cannot be taken to court for anything said or any vote given in Parliament. Art. 194 does the same for MLAs.
• Sita Soren v. UoI (2024): A seven-judge bench overruled P.V. Narasimha Rao (1998). Bribery is not protected by Arts. 105/194.
• Trap: Under Sita Soren, bribery is complete when the bribe is accepted. Whether the member votes as agreed does not matter.
• Trap: Sita Soren concerned an MLA's vote in a Rajya Sabha election (2012), not a Lok Sabha no-confidence vote.
• Union Budget 1991-92 and Statement on Industrial Policy: Both came on 24 July 1991. Both were presented in the Rao–Manmohan Singh period.
• Industrial Policy 1991: Licensing remained for only 18 industries. FDI got automatic approval up to 51% in 34 priority industries. The FIPB was created.
• July 1991: The RBI pledged gold. The rupee was devalued by about 19%.
• Rao government support: It was a Congress government supported by the AIADMK (NCERT). It began as a minority government.
• 73rd and 74th Amendments: Passed in 1992, under Rao. They added the Eleventh and Twelfth Schedules.

Mains Points

• Crisis-driven reform and democracy: The 1991 reforms came from a BoP emergency under a minority government. They were not first put to voters. Yet every later government kept them, which shows a lasting elite and party consensus (§12). Critics say this narrowed the space for economic debate in elections.
• Minority governments can achieve major change: The Rao government achieved the LPG reforms and the 73rd and 74th Amendments. This challenges the idea that minority or coalition governments cannot take big decisions.
• Probity in Parliament: The JMM case showed the risk of buying votes in no-confidence motions. Sita Soren (2024) restored the rule that privilege protects free speech and free voting, not corruption. Linked reforms include anti-defection law (Tenth Schedule) and stronger ethics committees.
• Social impact versus growth: Movements criticised the NEP over jobs, farm distress and the shrinking public sector. A balanced answer sets these concerns against the gains in growth and foreign reserves after 1991.