Former Indian Prime Minister Manmohan Singh passed away on Thursday at the age of 92. He was admitted to AIIMS hospital in Delhi after his health took a turn for the worse. Singh had been dealing with health issues for a long time before his passing. This article highlights his remarkable journey and his significant contributions to India’s economic reforms.
India gained independence in 1947, but for years, advocates of a free economy were largely ignored. However, there were some supporters advocating for the free economy at that time as well. In 1954, an economist from Bombay, A.D. Shroff founded a forum called “Free Enterprises”. This organization’s views on economic development were in direct contrast to those of India’s Planning Commission at the time. Moreover, this organization was in favor of free enterprises, and criticized the “discriminatory” policy of the central government towards entrepreneurs.
Other than Shroff, journalist Philip Spratt, also supported free enterprises, by writing articles in its favor. During Nehru’s era, India made significant progress in education, science, and healthcare. Meanwhile, the 1966 devaluation of the rupee hinted at the government easing business regulations and licensing processes. However, in 1969, the Congress split, and Indira Gandhi’s government shifted towards leftist policies, nationalizing key industries and tightening control over the economy. Later, in the late 1970s, the Janata government took a drastic step by expelling major foreign companies like IBM and Coca-Cola from India.
An Economic Crisis
In the 1980s, the Indian government slightly eased its stance against a free economy. However, it wasn’t until a severe economic crisis hit the country that the government was forced to make significant progress in that direction. Likewise, in 1991, India faced a severe foreign debt crisis, with a total debt of over $70 billion, of which nearly 30% was owed to private lenders.
India’s foreign exchange reserves were down to a point where the country only had the funds to cover imports for only two weeks. However, amidst the economic crisis, a new story was unfolding in New Delhi. The Congress Parliamentary Party unanimously chose PV Narasimha Rao as their Prime Minister after a meeting in the Central Hall. Furthermore, June 20, 1991, was an important day in India’s history. After staking his claim to form the government, Prime Minister-designate Rao took a bold step by accepting a contentious loan from the International Monetary Fund (IMF). This decision marked the beginning of India’s economic liberalization.
This historic event took place very dramatically. After the President invited Rao to form the government, Congress leaders and potential ministers began to gather at Rao’s residence on Teen Murti Lane. However, before meeting with them, Rao paid a visit to 10 Janpath to meet Sonia Gandhi. On his way back, Rao got a message from Cabinet Secretary Naresh Chandra, requesting an urgent meeting. This wasn’t just a routine meeting, the Finance Secretary and other top officials attended, carrying files that contained critical information.
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Before Dr. Manmohan Singh Stepped In: Crucial 90 Minutes
The Finance Secretary’s 90-minute presentation was a turning point. It laid the groundwork for India’s shift towards economic liberalization in 1991. Rao was told about the severe foreign exchange crisis, which forced the Finance Ministry to mortgage 47 tonnes of gold stored in the State Bank of India’s vaults. Furthermore, rating agencies had downgraded India to ‘dangerous’ levels. External debt had risen to about 22% of GDP and internal public debt to 56% of GDP.
Government officials told Rao that they had begun initial discussions with the IMF in Washington for an additional loan of $2.3 billion. However, the IMF had set certain conditions, both written and unwritten, that India would need to agree to in order to get the loan. The Cabinet Secretary informed Rao that it was the time for the political leadership to decide on the next steps regarding the talks. Rao sought few clarifications, and then instructed to carry the talks forward. Rao also had a separate meeting with Naresh Chandra for 10 minutes.
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Manmohan Singh Steps In
Rao returned to his Teen Murti Lane residence. He met with senior leaders, including Arjun Singh, Pranab Mukherjee, and ML Fotedar. At this time, no one knew about the IMF loan. While political discussions were underway, PC Alexander, a close aide of Rao, asked IG Patel to take on the role of finance minister. However, Patel, who was in poor health, declined the offer.
Alexander then reached out to Dr. Manmohan Singh, but Dr. Singh didn’t take the offer seriously. It wasn’t until Rao personally requested him that Dr. Singh agreed to take on the role of finance minister.
Manmohan Singh: The Man Behind Economic Reforms
Rao gave Manmohan Singh the freedom to make decisions. After Manmohan Singh took the oath as the Finance Minister at Ashoka Hall, he handed Rao a handwritten note. Dr. Singh suggested avoiding taking up the reform matters in Cabinet meetings, where aides would surely block it. The handwritten note outlined the steps to fulfill the IMF’s requirements. As part of this plan, the Indian government announced 20% devaluation of the rupee in 2 tranches in 3 days till July 2.
The next day, Commerce Minister P Chidambaram unveiled a new trade policy, marking a significant shift. The policy eliminated quotas, removed export limits, and invited foreign companies to invest in India. In addition to trade policy changes, the government also freed up the domestic market, largely ended the unnecessary licenses and quotas, and discouraged the domination of the public sector. Overall, the economic reforms aimed to reduce the gigantic role of the government in the economy.
Many sectors which were previously completely controlled by the government were opened up for private investment. Moreover, this included a whole series of trade liberalization measures as per the instructions of the IMF. On July 4, 1991, IMF head Michel Camdessus said he was pleased with India’s progress in meeting the conditions for the loan.
Furthermore, Dr. Singh increased petrol, diesel, and LPG prices, and added new taxes worth over Rs 2,600 crore in his first Budget speech. He also introduced a scheme to encourage people to declare their black money.
Outcomes Of Economic Liberalization
India’s economy opened up to business-friendly policies in the 1980s and market-oriented reforms in the 1990s. The reforms got proven in the country’s GDP growth rate, which increased from 3.5% (1972-1982) to 5.2% (1982-1992) and further to 6.0% (1992-2002).
The services sector saw the most impressive growth, increasing by 8.1% throughout the 1990s. The software industry was a major driver of this growth, with revenues surging from $197 million in 1990 to $8 billion by 2000. In some years, the software sector grew by an astonishing 50% or more. The Indian software industry grew drastically, especially in foreign markets. In 1990, software exports were only $100 million, but by the year 2000, they reached an astonishing $6.3 billion.
By 2000, India had 3,40,000 software professionals, with 50,000 new engineering graduates joining the field every year. Bangalore, known as the “Silicon Valley of India”, became the main hub for this industry. At its peak, Bangalore had more engineers than Silicon Valley itself.
Other than the software industry, sectors like healthcare, telecommunications, insurance, and aviation have also made great progress since India’s economic reforms. The call center industry also saw incredible growth, expanding at a rate of 71% per year at one point in the 2000s.
The budget presented by Dr. Singh during India’s economic crisis is famously known as the “Epochal Budget”. Notably, the word “Epochal” means highly significant or important. “No power on earth can stop an idea whose time has come,” Dr. Singh quoted Victor Hugo in his iconic budget speech.
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Economic Reforms By Manmohan Singh: Not The Bed Of Roses
Many politicians opposed these changes, and even some leaders within the Congress party were unhappy with them. Additionally, Rangarajan Kumaramangalam and Harish Rawat warned that the Congress party would lose the upcoming elections due to these reforms. BJP leader Murli Manohar Joshi, along with some influential groups, believed that the conditions set by the IMF threatened India’s autonomy.
On June 26, Prime Minister Rao personally informed key opposition leaders – VP Singh, LK Advani, Harkishan Singh Surjeet, and Chandrashekhar, about India’s decision to accept the IMF’s conditions. The very next day, Rao and the Finance Minister explained to these leaders why taking loans from the IMF was necessary for India’s economic well-being. However, opposition leaders, including Advani, George Fernandes, Madhu Dandavate, and Yashwant Sinha, disagreed with the IMF conditions, particularly the reduction of subsidies.
David Lloyd George (Britain’s Prime Minister during World War I) said, “Don’t be afraid to take a big step if one is indicated. You can’t cross a chasm in two small jumps.” Dr. Singh truly embodied this spirit. Let’s end this article with Dr. Singh’s quote from his last press conference as the Prime Minister, “I honestly believe history will be kinder to me than the contemporary media or for that matter, the Opposition parties in Parliament.”
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