Budget 1991 Rewind: How Manmohan Singh Revived The Indian Economy

Dr. Manmohan Singh is widely regarded as the architect of India’s economic reforms. A key figure in India’s economic transformation, Singh presided over a period of record growth from 2004 to 2010 and played a pivotal role in steering India through the global recession. However, it was his 1991 budget that truly marked a turning point for India’s economy.

By the late 1980s, India’s economy was heading into a crisis, with fiscal deficits soaring, inflation on a high, and an acute balance of payments problem.

In 1991, foreign exchange reserves had dwindled to the point where India could only afford a few weeks worth of imports. This was compounded by the weakening of the Soviet Union, which had been a source of cheap oil, raw materials, and a market for Indian products.

From 1989 to 1990, political instability and external shocks, like the Gulf crisis, eroded international confidence in India's economy. This resulted in a sharp decline in capital inflows and escalating debt.

Despite borrowing heavily from the International Monetary Fund, India’s foreign exchange reserves continued to plummet, and by 1991, the country was on the brink of an economic collapse.

At this critical moment, Singh, who was Finance Minister under Prime Minister PV Narasimha Rao at the time, introduced a landmark budget that would reshape India’s economic future.

Singh’s reforms marked a shift away from the protectionist policies that had defined India’s economic strategy since independence. Key reforms included reducing import tariffs, devaluing the rupee to boost exports, and opening up sectors like telecommunications, banking, and aviation to private and foreign investment.

Singh dismantled the License Raj, a labyrinth of regulations that had hindered entrepreneurship and economic growth. In his 1991 budget speech, he emphasised the need for a more market-driven economy, declaring that "over-centralisation and excessive bureaucratisation" had been counterproductive and that India needed to "expand the scope and area for the operation of market forces".

He introduced several key proposals, including allowing direct foreign investment in high-priority industries and raising foreign equity limits to 51%. He also recommended the creation of a special board to facilitate negotiations with international firms and encourage foreign investment.

Additionally, Singh proposed offering up to 20% government equity in public sector undertakings to promote public participation and accountability.

These reforms not only stabilised India’s economy but also set the stage for rapid growth. India’s GDP growth accelerated and foreign investments surged. The 1991 reforms are widely credited with transforming India from a largely closed, protectionist economy into one of the world’s fastest-growing markets.

Manmohan Singh's 1991 budget was a turning point, one that propelled India into the global economic mainstream and marked the beginning of a new era of prosperity.

On Dec. 26, 2024, Singh passed away in Delhi due to age-related complications.