ASSESSING THE IMPACT OF MANMOHAN SINGH’S PIVOTAL ‘EPOCHAL’ POLICIES, AS FINANCE MINISTER OF INDIA

DILAN PATEL (FOUNDER & CHIEF EDITOR @ DIL)

“As I rise, I’m overpowered by a strange feeling of loneliness. I miss a handsome smiling face… Shri Rajiv Gandhi is no more. But his dream lives on; his dream of ushering India into the twenty-first century… I dedicate this budget to his inspiring memory.”

~ Manmohan Singh (1991)

HAPPY (BELATED) VAISAKHI!

Saturday 13th April marked a special day for Sikhism; Vaisakhi.

The festival celebrates 1699, and Guru Gobind Singh’s establishment of the Khalsa. Each year, thousands of gurdwaras, guided by the spirit of seva, open their doors to all communities for harmonious commemoration.

In 2023, I visited two gurdwaras in the United Kingdom.

Listening to volunteers share stories of persecuted gurus of the past was an eye-opener, as I circulated the langar to investigate distressing paintings. I also noticed banners, composed in Punjabi, relaying important messages of ‘one love’. Such words were aligned with gurdwara customs.

Praying alongside my ex-partner, despite our different genders, was as liberating as the economic ethos of an iconic Sikh politician. Manmohan Singh. Though he was Prime Minister between 2004 to 2014, this editorial will delve into Singh’s 1991 budget, a revered game-changer. Its economic impacts will be assessed in reference to existing academic literature.

MANMOHAN SINGH: A BRIEF BIOGRAPHY

Born in West Punjab on September 26th 1932, Manmohan Singh earnt a doctorate in Economics from the University of Oxford. In the 1970s, he became an advisor to the Indian government. He also gained key financial knowledge, as governor at the Reserve Bank, between 1982-85.

After serving as the government’s Finance Minister until 1996, Singh ran for Lok Sabha. Despite a defeat in 1999, the Indian National Congress secured victory in May 2004. Congress’s leader declined the post, instead recommending Singh, who made history as the first non-Hindu to occupy office. In 2014, Narendra Modi and the BJP took over.

Back to 1991… ish.

PRE-LIBERALISATION AND INDIA’S 1991 CRISIS

India’s volatile growth rate throughout preceding years became a full-blown crisis in 1991 (Panagariya 2004). P. V. Narasimha Rao, India’s Prime Minister at the time, sought a shrewd Finance Minister to instigate change. Prior reforms had proved inconsequential. Up stepped Singh.

He started the 1991 budget speech by describing India’s dire situation in detail:

Low productivity of investment
Loopholes in the taxation system
Persistent macroeconomic imbalances
A weakened export sector
A balance of payments deficit
Protectionist philosophies
Scarce foreign exchange reserves
A double-digit inflation rate
Unsustainable government expenditure
A growing fiscal deficit
Inefficiencies in the public sector

Singh emphasised India’s balance of payments, a record of all international transactions made by a country’s residents. India’s overreliance on imports, coupled with stringent tariffs, was proving costly. The collapse of the Eastern Bloc, one of India’s main trading partners, threatened import deals. Moreover, India typically purchased oil from Iraq and Kuwait; ongoing conflict between the two nations induced a surge in prices, and thus, imported inflation. The rupee was depreciating in value too.

Rao’s policymakers drafted a New Industrial Policy. It involved rethinking public sector ownership models and modernising technology. Though announced alongside Singh’s budget, the New Industrial Policy was distinctly broader in scope. Singh’s budget responded to immediate issues and crises. The New Industrial Policy, however, was a long-term plan. Both were vital and complemented each other.

SINGH’S 1991 (POLICIES)

The 1991 ‘Epochal’ budget for recovery, was revolutionary, and signalled a bolder attempt at liberalisation compared to prior years. The goal? Updating archaic policies and relaxing trade barriers to make India more market-oriented, globally cooperative, and ultimately, more developed. Though extensive, academics have compartmentalised the budget into five major areas:

Liberalisation
Trade & Investment
Financial Sector Reforms
Fiscal Discipline
Industrial Policy

SINGH’S 1991 (IMPACTS)

Economic Development
Kolte et. al (2019) leveraged data from the Reserve Bank of India, to analyse the repercussions of 1991 reforms, up until 2011. Despite criticisms of policies failing to tackle currency exchange problems, Kolte et. al (2019) reported favourable effects of the budget on the nation’s literacy rate, healthcare, and national income levels. This research signals positive effects of the budget on India’s development.

Gross Domestic Product and FDI
Post-1991, India’s sustainable growth restored faith in various communities, after a period of difficulty. Dattatray & Asawa (2021) outlined LPG (liberalisation, privatisation and globalisation) policy’s acceleration of GDP and FDI determinants. Further, Jamal et. al (2019) created a dummy variable, in a regression equation, to discover significant positive effects of the 1991 reforms on GDP.

Microeconomic Impacts
Robinson (2018) argued that liberalisation caused corporations, such as Birla and Tata, to adopt market-seeking behaviour with alternative managerial strategies. Using findings from Nagaraj (2008), Robinson (2018) posed that strong industrial performance, between 2002–03 and 2006–07, is partly owed to restructuring efforts over an entire decade, all stemming from 1991 policies.

Export-Led Growth and Trade
Mehta (1997) showed that agricultural sectors catalysed India’s export-led growth, due to marked drops in ‘Effective Rate of Protection’ averages. An autoregressive model of quarterly output growth data, developed by Paul & Das (2012), revealed export contributions too. Paul & Das (2012) concluded that export-led growth was a liberalisation phenomenon for India.

Sectoral Impacts
Pandey (2004) observed that India’s manufacturing sector grew in terms of gross value added, especially for consumer goods industries. Padhi & Dey (2019) empirically tested 34 years of data, with descriptive statistics, and a model involving ratio-based variables. Thereafter, Padhi & Dey (2019) detected an acceleration in the rate of tradable agricultural goods produced.

THE ARCHITECT OF A GLOBAL INDIA

The impacts of Singh’s budget are evident and applaudable; higher GDP growth rates, faster FDI inflows, increases in industrial output, improvements in developmental indicators, stronger export strategy, microeconomic upgrades, and more.

I previously listed five areas, though additional variables could be assessed and quantified.

An architect of freedom, Singh’s pragmatic approach created plenty of opportunities for Indians. Debates surrounding the pace and extent of the 1991 reforms do occur. However, Singh demonstrated bravery and stewardship during a period of chaos.

The famous budget will continue to be studied and respected by academics and citizens. Manmohan Singh was, undeniably, at the forefront of rebranding India as a global force.

TRANSLATIONS

Seva (સેવા) — Selfless service
Langar (ਲੰਗਰ) — Community kitchen

REFERENCES

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Balakrishnan, P. (2024). India’s 1991 Crisis and the RBI Governor’s Role. The Hindu, 1 January. Available at: https://www.thehindu.com/business/Economy/indias-1991-crisis-and-the-rbi-governors-role/article67695203.ece

Britannica (2024). Manmohan Singh. Encyclopedia Britannica, 8 April. Available at: https://www.britannica.com/biography/Manmohan-Singh

Cerra, V. and Saxena, S. (2002). What Caused the 1991 Currency Crisis in India?. IMF Staff Papers, Volume 49, Number 3. Available at: https://www.elibrary.imf.org/view/journals/001/001-overview.xml

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FPJ Web Desk (2019). Everything About Manmohan Singh’s Epochal Budget That Marked the Beginning of Economic Liberalisation. The Free Press Journal, 2 July. Available at: https://www.freepressjournal.in/webspecial/everything-about-manmohan-singhs-epochal-budget-that-marked-the-beginning-of-economic-liberalisation

Jamal, A., Khan, W. H. and Qadri, B. (2018). Impact of Economic Reforms, FDI and Imports on GDP: Trends and Regression Analysis. Central University of Kashmir, Asian Review of Social Sciences, Volume 7, Number 3, pp. 20–25. Available at: https://www.researchgate.net/publication/328554498_Impact_of_Economic_Reforms_FDI_and_Imports_on_GDP_Trends_and_Regression_Analysis

Kolte, A., Siggia, D., Veer, N. B. and Daryani, A. (2019). Critical Exploration of Indian Economic Reforms of 1991: A Lesson for Developing Economies. International Journal of Engineering and Advanced Technology, Volume 8 Issue 5S3. Available at: https://www.ijeat.org/wp-content/uploads/papers/v8i5S3/E10730785S319.pdf

Mohan, R. (2018). India Transformed : Twenty-Five Years of Economic Reforms. Brookings Institution Press. Available at: https://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=1905066

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Padhi, S. K., and Dey, M. (2019). Impact of Trade Liberalisation on Agricultural Products in India: A Comparative Analysis of Pre and Post Reform. Fakir Mohan University. Available at: http://journal.iujharkhand.edu.in/Nov2017/Impact-of-Trade-Liberalisation-on-Agricultural.pdf

Pandey, M. (2004). Impact of Trade Liberalisation in Manufacturing Industry in India in the 1980s and 1990s. Indian Council for Research on International Economic Relations, Working Paper Number 140. Available at: https://www.econstor.eu/bitstream/10419/176162/1/icrier-wp-140.pdf

Robinson, A. E. (2018). 1991 Economic Liberalisation Reforms in India : A Micro-Level Analysis. University of Oxford. Available at: https://www.southasia.ox.ac.uk/sites/default/files/southasia/documents/media/robinson_a_dissertation.pdf

Sinha, Y. (2016). 1991: The Untold Story. The Hindu, 29 July. Available at: https://www.thehindu.com/opinion/op-ed/1991-the-untold-story/article14513325.ece

The Economic Times (2022). On This Day in 1991: A Landmark Budget That Changed India’s Fortunes. The Economic Times, 24 July. Available at: https://economictimes.indiatimes.com/news/economy/policy/on-this-day-in-1991-a-landmark-budget-that-changed-indias-fortunes/articleshow/93090439.cms

Verma, A. N. (1991). Statement on Industrial Policy. New Delhi: Government of India. Available at: https://the1991project.com/statement-on-industrial-policy

SINGH’S BUDGET OF 1991 AND INDIA’S LIBERALISATION