Manmohan Singh 87th Birthday: How The Then Finance Minister Had Liberalised Indian Economy in 1991

Manmohan Singh, who served as the two-term Prime Minister of India between 2004-2014, had earned a reputation for being an "out-of-the-box" thinker way before that. Nearly 13 years before his ascent as the PM, it was the Finance Minister Manmohan Singh who saved the Indian economy from an imminent doom. At a time when the country was plunged into a financial emergency and the resources turning scarce, Manmohan took the brave step of bringing the nation out of Nehruvian-Socialism. Manmohan Singh Blames 'Mismanagement' by Modi Government For Economic Slowdown, Urges Centre to Shun Vendetta Politics.

In 1991, the country had elected Narasimha Rao as the Prime Minister, months after the assassination of the then Congress president and former PM Rajiv Gandhi. Under the new Cabinet, Manmohan - a former RBI Governor - was tasked to head the Finance Ministry under critical circumstances.

With "time running out", as Manmohan himself recalled, it was imperative upon him to take decisive measures to turn around the state of economy. He decided not to hold back and embrace an idea whose time had arrived way back in India. The idea was capitalism and opening up of the Indian market.

The date of July 24,  1991 would always be remembered in the course of history as the day when India formally stepped out from the shadows of the then defunctant Soviet Union. Although New Delhi was not part of the conglomerate, the country had largely aligned itself with the quasi-welfare state policies for most of its history post-independence.

Manmohan, on the above-mentioned date, stood in the August House to present the first-ever Budget of the Narsimha Rao government. The then FM began his speech by attempting to allay concerns raised by the Left, as well as a section of the Congress old guard which was reluctant to discard the Nehruvian economic policies.

In an attempt to placate them, Singh began by saying, "I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, 'no power on earth can stop an idea whose time has come.' I suggest to this August House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome."

For most of the decade leading to the 1991 financial emergency, Indian economy grew at a mere 3.5 per cent, with unemployment continuing to loom as the state was losing its capacity to fulfill the job aspirations of a growing educated class. The time had come for 'liberalisation, privatisation and globalisation or LPG', which played a crucial role in putting off the burden of employment from the shoulders of the government.

In 1991, the external debt had accumulated to 23 per cent of the Gross Domestic Product (GDP), internal public debt had climbed to 55 per cent of the GDP, retail inflation was surging at 17 per cent, and fiscal account deficit stood at eight percent of the GDP.

The most critical aspect of the economic was the state of foreign exchange reserves, which had slipped to Rs 2,500 crore, nearly 75 per cent lower as compared to a year earlier in 1990.

Manmohan, who took over the mammoth task of reviving the Indian economy, began with the following spree of steps in 1991:

- Devaluation: The then FM implemented a two-step devaluation programme to boost trade and dealings with the international market. Manmohan had first devalued the Indian currency by 9 per cent, followed by another decision in which the Rupee was further lightened by 11 per cent.

- Gold Holdings: Considering the immediate liquidity crisis before the nation, Manmohan sanctioned the mortgaging of Reserve Bank of India's gold reserves with the Bank of England. The mortgaging was carried out in four tranches, and significantly improved the cash-crunch situation.

- Foreign Investment: To counter the negative employment rate, the Rao government was in favour of attracting massive foreign investment. With India opening up its economy for the first time after 44 years of independence, Manmohan decided the move should not be a half-attempt. Instead, he pitched for the abolition of "license raj" and smooth inflow of funds to allow industrialisation to gain pace. By 1992, the employment rate had overturned the negative trajectory and grew by nearly 7 per cent as compared to 1990.

- New Trade Policy: The Indian economy had completely revamped as per the module of capitalism, and therefore, it was imperative to undo all the protectionist measures. Manmohan reworked most of the trade policies pertaining to oil and gas, and doing away with unnecessary controls which were recommended by the global multilateral trade bodies.

Manmohan also succeeded in according statutory powers to the Security and Exchange Board of India (SEBI), thereby institutionalising the functioning of the share market and restricting government's role in securities trade. The measures convinced the International Monetary Fund (IMF) of India's "progressive" decisions -- citing which the IMF sanction an emergency loan of $220 million. Had the loan not been sanctioned, experts recall, the Indian economy would had collapsed due to the massive debt pile-up.

(The above story first appeared on LatestLY on Sep 26, 2019 08:00 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).