Dr. Manmohan Singh: A Statesman who shaped India’s Economic and Global Trajectory

Dr. Manmohan Singh: A Statesman who shaped India’s Economic and Global Trajectory

Sub: Eco

Sec : External sector

Dr. Manmohan Singh, as Finance Minister from 1991 to 1995, played a pivotal role in transforming India’s economic landscape during a time of severe crisis. The reforms he introduced are often credited with liberalizing the Indian economy and setting the stage for sustained growth.

Here’s a summary of the historic reforms and the circumstances that led to them:

What Led to the Reforms?

• Balance of Payments (BOP) Crisis:
  • By mid-1991, India faced a severe BOP crisis, eroding confidence in its economic management.
  • Foreign exchange reserves plummeted from $3.1 billion in August 1990 to $896 million by January 1991, barely enough to finance a few weeks of imports.
  • The Gulf War caused a spike in oil prices, worsening the situation.
• Gold Reserves Sale:
  • In April 1991, India raised $200 million by selling 20 tonnes of confiscated gold to UBS.
  • In July 1991, 47 tonnes of gold were shipped to the Bank of England to secure $405–$450 million, staving off an immediate default.

Key Reforms Introduced

• Landmark 1991-92 Budget:
  • Dr. Singh unveiled a transformative Budget that laid the groundwork for liberalization.
• Rupee Devaluation:
  • The rupee was devalued in two tranches (9% and 10%) over three days, making exports more competitive and attracting foreign capital.
• New Industrial Policy:
  • Announced on July 24, 1991, alongside the Budget.
  • Dismantled the License Raj, reducing bureaucratic hurdles for industries.
  • Opened up sectors to foreign direct investment (FDI) and reduced areas reserved for public sector dominance.
• Currency Convertibility:
  • Full convertibility of the rupee on the current account was introduced, easing international trade and investment.
• Repeal of the MRTP Act:
  • The Monopolies and Restrictive Trade Practices Act was repealed, removing the need for prior approvals for capacity expansion by companies.
• Banking Reforms:
  • Interest rate-setting by lenders was deregulated.
  • Licenses for private banks were introduced, and public sector banks were listed on stock exchanges.
  • Adoption of capital adequacy norms as recommended by the Narasimham Committee.
• Disinvestment in Public Sector Units (PSUs):
  • Mutual funds and private players were allowed to invest in PSUs, encouraging privatization.
• Market Reforms:
  • The creation of the National Stock Exchange (NSE).
  • Introduction of paperless trading and depositories for better transparency.
• Entry of Foreign Institutional Investors (FIIs):
  • FIIs were allowed to invest in Indian stock markets, attracting global capital.
• Empowering SEBI:
  • The Securities and Exchange Board of India (SEBI) was granted enhanced powers to regulate the capital markets effectively.

Impact

These reforms were instrumental in averting the crisis and transitioning India from a closed, state-controlled economy to a more market-driven one.