(November 1990 to June 1991)

With the imminence of the fall of the V.P. Singh government, Chandra Shekhar and Devi Lal had left the Janata Dal along with several others who supported him to form the Samajwadi Janata Party. Once again, the Congress, as in the case of Charan Singh earlier, offered to support from outside a minority government, this time led by Chandra Shekhar who had just 64 MPs with him.

Chandra Shekhar won a confidence motion and was sworn in as prime minister on November 10, 1990.

Troubled Economy

The economic situation was in a bad shape, and foreign exchange levels had reduced to a dangerous low. The economic crisis was mainly due to the large and growing fiscal imbalances over the 1980s. The loans that earlier governments under Congress had taken from world financial institutions and, in Rajiv Gandhi’s case, from the market had created a huge debt. India was struggling to finance its essential imports, especially of oil and fertilisers, and to repay official debt. The situation was made worse because of the Gulf war and the resultant hike in oil prices.

By January 1991, the Chandra Shekhar government, with Yashwant Sinha as the finance minister, had convinced IMF to approve two loans. In return, the government promised to initiate economic reforms through the budget due to be presented in February. By the middle of February, it was clear that the Congress would create trouble. During the motion

of thanks to the president’s speech at the beginning of the budget session, the Congress withdrew its support to the government on some flimsy grounds, with the result that the minority government was unable to present the full budget.

In March 1991, the government was forced to pledge gold reserves of the country to manage the foreign exchange situation. According to news reports, economic advisers to the prime minister pointed out India could use the plentiful gold that it held. The State Bank of India was asked to put up a proposal to the Reserve Bank to lease gold confiscated from smugglers on the government account. The central bank approved the proposal and the government approved it too. By mid-March, global credit-rating agencies had placed

India on watch. It was impossible to raise even short-term

funds. In the absence of a full budget and a firm commitment to reforms, there was no more funding available from multilateral institutions such as the IMF and the World Bank.

It was in these circumstances of a severe liquidity crisis with the possibility of a default in sovereign payments that Chandra Shekhar, though only a caretaker prime minister at the time, authorised the decision to pledge the gold to raise money; it was an inevitable move. Though there was a public outcry when it came to be known, and criticism that it had humiliated India, it was this move that helped meet the balance of payment crisis besides helping the next government begin its much vaunted process of economic reform.

With Chandra Shekhar’s resignation in March 1991, the Lok Sabha was dissolved and fresh elections announced. President Venkataraman asked Chandra Shekhar to continue as caretaker prime minister till June when the new government would take over.