Unshackling The Economy: Reforms initiated by Dr. Manmohan Singh

New Delhi: The architect of India’s economic liberalization and the trailblazer of country’s new economic policy, Dr. Manmohan Singh, breathed his last late on Thursday.

Economists around the world remember him for his brilliance and humility, and predominantly for his role in opening up a state-controlled Indian economy from the brink of macroeconomic crisis to a transformative global economy, when he was appointed Finance Minister in 1991. Singh, who is known for heralding the era of market economy in India, is remembered more for his stint as finance minister from 1991-96 than his stints as the prime minister in the from 2004 to 2014. Former Finance Minister Dr. Singh was the economic engineer for the then Prime Minister PV Narasimha Rao.

Fiscal Discipline:

• The Government set the target of bringing down fiscal deficit to 3-4% in the medium term
• It set the target of bringing the fiscal deficit target of 1992-93 to 5%, down from 6.2% in the previous year
• The target was to be achieved through major cuts in subsidies and non- planned expenditures
• The Government announced major tax reforms to boost its tax revenue

Trade Policy Reforms

• Rupee was devalued 18% to make Indian exports competitive
• Import restrictions for exporters were reduced
• Import of capital goods was allowed without the need of Government permission
• Exports trading houses were allowed to have 51% foreign equity
• The Government rationalised tariff structure and removed of quantitative restrictions on imports

Monetary Policy Reforms

• Tighter measures were planned to reduce non-discretionary imports
• For that cost of import credit was increased
• Tighter monetary and credit policy was envisaged to contain the current account deficit
• New monetary tools like 364-day T-bills, 10 and 15-year securities were introduced for the Government to borrow from the market

Industrial Policy Reforms

• Greater private sector participation was allowed in core and basic industries
• Number of industries reserved for the public sector was reduced to 8 from 17
• Industrial licensing was abolished for all industries except 18 environmentally-risky sectors
• Monopolies and Restrictive Trade Practices (MRTP) Act was amended in 1991 to eliminate need for permission by large companies for capacity expansion
• Small-scale enterprises were allowed to sell 44% equity to large companies

FDI Policy

• The limit for foreign equity holding raised from 40% to 51% in priority sector industries
• Foreign Investment Promotion Board was established in 1991 to streamline the process of approval of FDI

Telecom Policy

• Introduced a unified access licensing regime for telecom services across the country in his tenure as PM between 2004-14

Dr. Singh is indelibly imprinted as a humane economist, whose deeds spoke far more than his words. Singh’s 1991 new economic policies, though hailed as unparalleled economic reforms in the history of India, received criticism that the newfound globalization led to widening inequalities within India. However, his policies focusing on social infrastructure, especially education (especially rights-based education reforms RTE) and health, are praiseworthy in correcting these inequalities.