India’s first Sikh Prime Minister and the architect of the Indian economy Dr Manmohan Singh passed away on Thursday at age 92. A statement from the All India Institute of Medical Sciences (AIIMS) hospital said that Singh died due to an “age-related medical condition”. The soft-spoken former prime minister was born in undivided Punjab and was touted as the man who saved the Indian economy.
When India was on the verge of bankruptcy, Singh, who was then the Finance Minister, introduced policy changes that changed the country’s economic trajectory. As India now stands tall as the fifth-largest economy in the world, Singh’s revolutionary policies acted as a foundation for its growth.
In an impassioned speech, while presenting the Budget of 1991, Singh quoted Victor Hugo 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”.
Here’s a look at how Singh saved the Indian economy from collapsing.
Singh was sworn in as the Finance Minister in former Prime Minister PV Narasimha Rao’s cabinet in June 1991. During this time, the Indian economy was operating in accordance with the Nehruvian-socialist agenda. However, the economy was struggling with external debt pegged at 23 per cent of the Gross Domestic Product and Internal public debt amounting to 55 per cent of the GDP.
Not only this, the Indian employment rates went down to a negative and the fiscal deficit stood at eight per cent of the GDP. The effects of the poor state of the economy were felt everywhere with inflation rising by a good 13 per cent and retail inflation going even higher up the bend by a whopping 17 per cent.
The most concerning aspect of it all was the fact that India’s Foreign Exchange Reserves stood as low as Rs 2500 crores, which was 75 per cent lower than what it was in 1990. Overall, the Indian economy was facing a major crisis and the leaders were in desperate need to bring out new reforms.
When Singh took the helm, he was facing the major task of changing the face of the struggling Indian economy. Many believe that he was the best person for the job. Singh had a strong background in Business, Economics and Globalisation, having obtained a degree in economics from Oxford University.
He worked in the United Nations for three consecutive years and had another stint as an advisor in the Ministry of Foreign Trade. The former premier also held the post of the Governor of the Reserve Bank of India from 1982-1985. He served as Chief Economic Advisor (1972-1976) and Planning Commission Head (1985-1987). Hence it was safe to say that Singh knew the ins and outs of the Indian economy more than anyone who was in charge at that time.
Singh was tasked to present the first budget of the Rao government, in less than a month after he took charge of the finance ministry. After evaluating the situation at hand Singh realised that the Indian economy needed a shift towards economic liberalisation and a strategic end to the ‘license raj’. Here are 6 ways Singh changed the trajectory of the Indian economy:
1. Devaluation Programme
Singh started his endeavour with a two-step devaluation programme with the RBI devaluing the Indian currency against major currencies by nine per cent initially and then brought down to eleven per cent two days later. This gave the Indian economy a much-needed boost to trade and deal with the International markets.
2. Welcoming Foreign Investments
Singh brought India out of the Nehurivan socialist ideology and opened doors to welcome foreign investment into the Indian Capital. With the introduction of “Liberalisation, Privatisation and Globalisation (LPG)”, Singh’s policies gave a boost to industrialisation in the country. With these reforms, the Indian entrepreneurs were given direct access to the required capital, technology and target markets around the world.
3. Mortaging India’s gold holdings
The next thing the former prime minister did was to convince the RBI board to mortgage India’s gold holdings with the Bank of England in four tranches. This way, India managed to get the necessary financial assistance it needed to sail. Singh got the idea from the State Bank of India which sold 20 tonnes of gold to the Union Bank of Switzerland, for which they had received about $200 million.
4. Restructuring India’s trade policy
Singh had to restructure the Indian trade policy since it was on the verge of being banned from essential imports such as oil and gas. Under the LPG, Singh’s reforms called for doing away with unnecessary controls, streamlining the licensing process and linking non-essential imports to exports to discourage such imports. Singh took the hard decision to abolish the popular ’export subsidies’ along with the further expansion of the “License Raj” opening the country’s economy to a great extent.
5. Taking help from the IMF
Given the crisis at hand, Singh called for economic relief from the International Monetary Fund (IMF). He applied for an emergency loan of $220 million, which was later seen as the main tool which prevented India from recording a debt default. While India had to follow some of the conditions presented by the international financial body, Singh’s reforms acted as a cushion between India’s socialist background and the IMF’s capitalist and liberalising approach.
6. Market Regulators
Singh also called for the transfer of full statutory powers to the Securities and Exchange Board of India (SEBI) to enable it to regulate the workings of the Stock Exchanges in the country. Hence, SEBI soon became India’s sole market regulator. Singh went on to propose a tax concession under section 80HHC of the Income Tax Act to export of software. As a result of this concession, the Indian Software companies became more cost-effective.
While Singh has garnered several criticisms from his opposition, over the years, one thing that cannot be denied is the fact that he managed to save the Indian economy from shamble in 1991.
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