It was June 1991. Manmohan Singh had just returned to Delhi, after attending a conference in the Netherlands, and had gone to bed. Late that night, Singh’s son-in-law, Vijay Tankha, took a phone call. The voice on the other end was that of PC Alexander, a confidante of PV Narasimha Rao. Alexander urged Vijay to wake up his father-in-law.
Singh and Alexander met a few hours later, and the official told Singh about Rao’s plan to appoint him FM. Singh, then UGC chairman, and who had never been in politics, didn’t take Alexander seriously.
But Rao was serious. On June 21, Singh was in his UGC office. He was told to go home, get dressed and attend the swearing-in function. “Everybody was surprised to see me as a member of the new team lined up to take the oath of office. My portfolio was allotted later, but I was told straight away by Narasimha Rao ji that I was going to be finance minister,” Singh is quoted as saying in ‘Strictly Personal, Manmohan & Gursharan’, a book by his daughter Daman Singh.
That appointment changed the course of India’s economy. From an insular, control-heavy, low-growth economy it became what’s today the world’s fastest growing major economy.
Along with Rao, Singh was the architect of 1991 reforms, weathering attacks from inside and outside Congress. The economy was in tatters, forex reserves had dropped to Rs 2,500 crore, barely sufficient to cover 2 weeks of imports, global banks were refusing to offer loans, forex outflows were large, inflation was soaring.
Singh helped India say goodbye to Licence Raj
But Singh knew the problems beforehand, and also the solutions, which he outlined in his budget speech a month later. The ball was set rolling within days of moving into North Block. He worked closely with then RBI deputy governor C Rangarajan to devalue the rupee and removed export controls in partnership with P Chidambaram, then the commerce minister.
July 24, the day Singh presented his first budget, saw the Indian economy saying good riddance to the licence-permit raj. Hours before the budget, the Rao govt tabled the new industrial policy in Parliament, working on a paper that Singh remembered having seen during his brief stint as economic adviser to Chandra Sekhar, who led a fragile coalition in 1990-91.
Based on the document prepared by economic adviser Rakesh Mohan, industrial delicensing was undertaken in all but 18 sectors, and foreign direct investment was allowed in 34 industries. Besides, public sector monopoly in several sectors came to an end and disinvestment of govt shareholding in state-run companies was permitted.
His budget freed up fund-raising by Indian companies by setting up Sebi and also announced a new committee under RBI governor M Narasimhan to work out the new architecture for the financial sector, which was implemented by the Rao govt and its successors. The budget focused on fiscal consolidation, by cutting down on wasteful spending.
Singh had also drawn attention to the precarious price situation in his 1991 budget speech.”The price situation, which is of immediate concern to the vast mass of our people, poses a serious problem as inflation has reached a double digit level. During the fiscal year ending 31st March 1991 the wholesale price index registered an increase of 12.1%, while the consumer price index registered an increase of 13.6%. The major worrisome feature of the inflation in 1990-91 was that it was concentrated in essential commodities,” Singh had said.
Those reforms had put the economy back on track and triggered optimism globally. The “Bombay Club”, a group of corporate chiefs who wanted protection from foreign competition, was not happy. But they got it wrong.