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Former Prime Minister Dr. Manmohan Singh died on Thursday night at the age of 92. The former PM was ill for a long time. After fainting at home, he was brought to Delhi AIIMS at 8:06 pm, where he breathed his last at 9:51 pm.
Dr. Manmohan Singh may have been the Prime Minister of the country for two consecutive terms (2004-2014), but his tenure as Finance Minister under the PV Narasimha Rao government is remembered more. It was Dr. Manmohan Singh who revived the Indian economy which was going through a deep crisis in 1991.
At that time the country had a socialist economic system and was in deep crisis. Then Manmohan Singh announced the liberalization of the Indian economy and the economic graph of the country changed completely. Even in 2008, when the entire world was engulfed by recession, Manmohan Singh had rescued the country from this crisis.
In this story, the economic reforms of Dr. Manmohan Singh which changed the Indian economy…
In 1991, less than $1 billion of foreign reserves were left.
The 1990s can never be forgotten in the Indian economy. After years of mismanagement, the condition of the economy had become very bad. The government was spending more than its revenue and importing more than it was exporting. The increase in crude oil prices due to the Gulf War of 1990-91 further increased India’s problems. India’s foreign exchange reserves began to decline rapidly as it was suddenly forced to spend a lot on its imports. Even after borrowing from the IMF, by 1991, India had less than $1 billion in foreign reserves, which was enough to meet about three weeks of imports.
Revolutionary changes in the economy through liberalization
Amidst the crisis, Manmohan Singh, who was the Finance Minister in the PV Narasimha Rao government, announced a policy of liberalization. Manmohan Singh presented his first budget on July 24, 1991. The Indian economy underwent a revolutionary change after the adoption of the New Economic Strategy in 1991. Liberalization emerged as a gateway to opportunities for Indians with the opening up of the private sector. Since then, the Indian economy and stock markets have grown manifold. The Indian stock market has crossed 60,000 by about 1400 points. India’s real GDP is 10 times stronger than in 1990. Since then, India has also lifted more than 30 crore people out of poverty.
Major steps were taken to bring the economy back on track when Manmohan Singh was the Finance Minister:
1. Fiscal Correction A large budget deficit had contributed to both double digit inflation and a high current account deficit. Current account deficit means that the value of goods and services imported exceeds the value of goods and services exported. In such a situation, the Rao government abolished export subsidies and also made other cuts. Manmohan Singh increased corporate tax rates by 5 percentage points to 45% in the budget and introduced the concept of tax deduction at source for certain financial transactions like bank deposits. Also increased the prices of LPG cylinders, fertilizers and petrol and removed subsidy on sugar.
2. Trade Policy Reform To make exports competitive, the rupee was devalued by about 20% against major international currencies including the dollar. For the first time on 1 July 1991, devaluation was done by 7%-9% and again by 11% on 3 July. Jairam Ramesh writes in his book To the Brink and Back: India’s 1991 Story, that the then Prime Minister PV Narasimha Rao was opposing devaluation due to political risk. However, the then Finance Minister Manmohan Singh wanted to do two stage devaluation and it was also done. This was beneficial and trade and dealing with the international market got a boost. Apart from this, regulation and licensing control on exports was simplified.
3. Industrial Policy Reform These reforms freed the industry from licensing and inspector raj. Steps were taken to promote investment and make the industry competitive. Industrial licensing was abolished in all except 18 sensitive industries.
4. Public Sector Reforms The public sector was given greater operational freedom to contribute to the economy on a larger scale. The thrust of these reforms was to free the economy from control.
Due to these steps many international companies could come to India
The 1991 reforms liberalized foreign investment and paved the way for private sector banks including IndusInd Bank, Axis Bank, ICICI Bank and HDFC Bank. Due to these reforms many international companies were able to come to India. There was a big change in the consumption pattern of India with the entry of food related companies like McDonald’s and KFC. As the economy flourished, Indians started tasting the global flavor in almost every sector.
Manmohan Singh also recovered from the recession of 2008
After 1991, India once again faced economic recession in 2008. While there were many internal reasons behind the economic recession in 1991, India’s economy went into disarray due to the global recession in 2008. Indian stock markets also collapsed. However, after the steps taken by the Manmohan Singh government, the economy grew at an average rate of 6.7% between 2009 and 2014.
India can become the world’s third largest economy
Over the course of three decades, the reforms undertaken by Manmohan Singh as Finance Minister have proved to be a boon for the country’s economy and have helped boost and establish India as a brand at the global level. The world’s major international financial institutions are today giving positive projections about India’s economic growth rate. India can become the third largest economy in the world in the coming years.
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