Three former editors of this newspaper — T N Ninan, Sanjaya Baru and Ashok Bhattacharya — and I were working at the Economic Times in June 1991.
We knew that India was in the middle of its worst economic crisis since 1947.
The official story of what happened between January and July that year has been told often.
So here I want to talk about some of the lesser and unknown aspects of how that crisis was handled.
India was fortunate that it had the most pragmatic prime minister it has ever had. He handled the crisis with rare aplomb and deep courage. Some unkind people have said that it was easy for him to be pragmatic because he had no political future anyway. But Chandrashekhar not only calmed the frayed political nerves in the country, he decided, on a recommendation from Yashwant Sinha, the finance minister, to mortgage Indian gold
for much needed foreign exchange. Otherwise, India would have defaulted.
Whose gold was it anyway?
In April India had borrowed $200 million from the Union Bank of Switzerland through a sale, with a repurchase option, of 20 tonnes ofgold confiscated from smugglers.
But the decision to mortgage gold
was very different.
In pursuance of that India it shipped 47 tonnes of gold to the Bank of England
in order to raise another $405 million.
The most important point, which the RBI
should explain to the country — but doesn’t — is that government gold and RBI
gold are very different when it comes to using it for getting foreign exchange.
To begin with, it is the State Bank of India which sent out its gold. That was essentially the gold confiscated from smugglers.
Then a strange problem arose: the gold was not of uniform quality. So, all kinds of handstands were done before the gold could be actually mortgaged.
But why mortgage instead of an outright sale? Because of a highly political reason: Indians think selling the family gold is betrayal of trust of the worst kind.
The gold was thus merely mortgaged to the Bank of England
— and thereby hang some other tales.
Just India only...
Someone now discovered that the law said only 15 per cent of India’s national gold could be kept abroad. What was being pledged was more than that.
But then again, India is India and someone else found a way out: the restriction applied only to the department of the RBI
that issued the currency!
Before anyone could find another objection, some gold was transferred to another department.
Matters didn’t end there because Cabinet approval was needed. That meant telling a lot of people and a leak. And that’s exactly what happened.
A little-known publication in Orissa published the news that India was mortgaging its gold.
In the event, the bureaucrats invoked ‘supreme’ national interest and did everything without cabinet approval because, in reality, they didn’t want to wait for the legal department to know just yet.
And more India
It then turned out that India did not have the internationally accepted type of boxes to send the gold.
So a frantic SOS was sent to the Bank of England
which then loaned India empty boxes. The gold was then espatched over four or five days.
However, one day the van carrying gold broke down near Tardeo in Bombay. Somehow the situation was retrieved.
The final ignominy came when a journalist found out that gold was being shipped out. His proprietor had to be contacted to keep the story from going into print.
It did, however, in the Bombay edition of that paper.
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