Read To the Brink and Back: India’s 1991 Story for Free Online Page A

of Modern India
(New Delhi: Tranquebar, 2010) that the night before the devaluation, Indira Gandhi tried to relax by watching
Doctor Zhivago
and
Those Magnificent Men in Their Flying Machines
, but she admitted, ‘I am scared stiff’.
    37 The 6 June 1966 decision was taken by the prime minister on the advice of four key officials—L.K. Jha (the prime minister’s secretary), S. Bhoothalingam (the finance secretary), I.G. Patel (the chief economic adviser) and P.C. Bhattacharya (the governor of the RBI)—and ratified by the cabinet the previous day, on a Sunday. ‘The prime minister had agreed more by faith than understanding’; based on theinterviews of the author with S. Bhoothalingam, 14 April 1983, and L.K. Jha, 27 April 1983.
    38 The interview appeared in
The Hindu
on 10 July 1991.

7
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The ContinuingGold Sales Controversy
    othing exemplified the magnitude of India’s financial crisis in the early part of 1991 better than the need to use our gold reserves to raise money to pay for the country’s imports. This showed that we had become totally bankrupt. Of course, under Section 33(5) of theReserve Bank of India (RBI) Act, 1934, the RBI had the power to keep 15 per cent of its gold outside India 39 and it could exercise that power on its own. But that power had never been exercised till the early months of 1991.
    It was Prime MinisterChandra Shekhar and Finance MinisterYashwant Sinha—on the advice of the RBI GovernorS. Venkitaramanan—who first decided to use our gold reserves to raise foreignloans to keep the wheels of the economy moving. On 16 May 1991, 20 metric tonnes of confiscated gold held by the Government of India was leased to theState Bank of India (SBI). Two days later, SBI entered into a sale transaction with a repurchase option with the United Bank of Switzerland. This was before the Rao government came to power. This helped raise about US$200 million.
    Once the new government came to power, gold transfers continued. This time it was the RBI that transported a total of 46.91 tonnes of gold to the Bank of England over four days—4, 7, 11 and 18 July 1991 (the last of which took Parliament by surprise). This enabled the country to borrow ‘for a period of one month at a time a total sum of about $400 million to help us tide over the serious liquidity problems we were facing.’ 40
    TheSBI transaction involved the sale of confiscated gold at the prevailing market price with the option to repurchase it within six months. The four RBI transactions, on the other hand, did not mean outrightsales but were meant only for ‘parking’ thatgold in the vaults of the Bank of England, permissible by law, against which the Bank of England advanced the RBI some temporary financial assistance.
    Right from the start, Parliament was agitated about the gold transfer issue. Members cutting across party lines protested loudly. Congress MPs did not spare their own government. On 12 July, the matter rocked question hour and there were heated exchanges between the finance minister, andK.P. Unnikrishnan andChandrajeet Yadav, both of whom had been leading lights of the Congress in the past.
    K.P. Unnikrishnan (Kerala; JD [Janata Dal]): Sir, the distinguished Finance Minister for whom I have high respect, regard and affection […] I would also request him not to quibble around and acquire the habit of politicians and to be straightforward in this House and tell the truth […] There has been another transaction. It is said that it had been taken for safe custody of Bank of England walls, as though our walls are not protected. A former Reserve Bank Governor, his former colleague has called it a national humiliation. I would like to know why the second transaction was necessary.
    Dr. Manmohan Singh: […] He has made a reference to the statement of my distinguished predecessor as the Governor of the Reserve Bank,Dr. I.G. Patel. I had spoken to him this morning […and] he has been grossly misquoted. He had not said that