Dr Manmohan Singh on future of Indian economy - 1991-2021 and onwards

July 2021 marked thirty years of the mega-reforms era unleashed by Prime Minister PV Narasimha Rao's goverment in 1991.

 Dr Manmohan Singh on future of Indian economy - 1991-2021 and onwards

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• The story: India embarked on a very audacious economic reforms agenda since 1991. Over the last three decades, nearly all governments followed this path to try and push the nation towards a USD 3 trillion economy. India did become one of the largest economies in the process. Dr Manmohan Singh was the finance minister in that period, and his views on Indian economy were widely published in July 2021, the 30th anniversary of reforms.
• The future: He said that there were many challenges that were met in 1991, and gradually resolved. Today, India was in an even more daunting situation than during the 1991 economic crisis and the nation would need to recalibrate its priorities to ensure a dignified life for all Indians. This clearly was Dr Singh's indication towards unequal growth.

1. He indicated he was deeply saddened at the devastation caused by the COVID-19 pandemic, the loss of millions of fellow Indians and livelihoods.
2. Recalling that as finance minister in 1991, he ended his budget speech by quoting Victor Hugo, ‘No power on Earth can stop an idea whose time has come’, and said, “Thirty years later, as a nation, we must remember Robert Frost’s poem — ‘But I have promises to keep, And miles to go before I sleep’.”

• Thirty years ago: 30 years ago in 1991, the Congress party had ushered in significant reforms of India’s economy and paved a new path for the nation’s economic policy. Nearly 300 million fellow Indians were lifted out of poverty in this period and hundreds of millions of new jobs have been provided for the youth. The reforms process unleashed the spirit of free enterprise which has helped produce world-class companies and help India emerge as a global power in many sectors.
• A trigger: The economic liberalisation process in 1991 was triggered by an economic crisis that confronted our nation then, but it was not limited to crisis management. The edifice of India’s economic reforms was built on the desire to prosper, the belief in our capabilities and the confidence to relinquish control of the economy by the government.
• Social sectors: He said that the social sectors of health and education have lagged behind and not kept pace with our economic progress. Too many lives and livelihoods have been lost that should not have been. Millions of children are not only out of school but also not getting their nutrition.
• Key reforms undertaken since 1991: At least 10 major reforms happened -

1. New Industrial Policy - Government abolished industrial licensing and opened up multiple sectors for competition. The MRTP Act 1969 too was abolished.
2. FDI and Trade Policy - A flexible exchange rate regime was brought in, and in parallel, import licensing was abolished for capital goods. Then, India joined the multilateral trade body WTO on 01.01.1995, and agreed to the TRIPS regime too. Current account convertiblity introduced in 1994. Various quantitative restrictions removed in 2001.
3. Institutional framework - Many new institutions set up, like the SEBI, IRDAI, PFRDA, GST Council and once again, a new DFI (in 2021).
4. Interest rates - Banks were given freedom to set their savings interest rates, and slowly the entire system focused on how to lend more.
5. Government borrowing - Domestic bond markets were created, and CCI set up (Clearing Corporation of India).
6. Social sector initiatives - The National Food Security Act (NFSA) came in 2013, ensuring subsidised foodgrain to a vast majority, via the Targeted PDS. The MGNREGS work on demand programme was started.
7. IBC - To ensure quick resolution of insolvency and bankruptcy cases, the IBC code was created (2016).
8. Monetary Policy Committee framework - The MPC framework was created and RBI started taregting CPI-inflation as a policy tool.

• Summary: India has had a good run of three decades since 1991. But the grave social inequalities that have been created in this process need urgent remedial action, else all gains will accrue just to a minority at the top. The journey is not easy, but it must begin now.

 

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