It was June 1991. Manmohan Singh had just returned to Delhi after attending a conference in the Netherlands and had gone to bed. Late at night, Singh’s son-in-law Vijay Tankha took a call. The voice on the other end was that of PC Alexander, a confidant 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 as FM. Singh, then UGC chairman and never in politics, did not take Alexander seriously.
But Rao was serious. On June 21, Singh was at his UGC office. He was told to go home, get dressed and attend the swearing-in ceremony. “Everyone was surprised to see me as a member of the new team lining up to take the oath of office. My portfolio was allotted later but Narasimha Rao ji immediately informed me that I would be made finance minister,” Singh said is quoted in “Strictly Personal, Manmohan & Gursharan”, a book by his daughter Daman Singh.
This appointment changed the course of the Indian economy. From an isolated, control-heavy, low-growth economy, it became the fastest-growing major economy in the world today.
Along with Rao, Singh was the architect of the 1991 reforms and weathered attacks within and outside the Congress. The economy was in shambles, foreign exchange reserves had fallen to Rs 2,500 crore, barely enough to cover two weeks of imports, global banks refused to offer credit, foreign exchange outflows were large, inflation was rising rapidly.
Singh helped India bid farewell License Raj
But Singh knew the problems in advance and also the solutions, which he outlined in his budget speech a month later. The ball got rolling a few days after moving into the North Block. He worked closely with the then RBI deputy governor C. Rangarajan to devalue the rupee and eliminated export controls in collaboration with P. Chidambaram, the then commerce minister.
On July 24, the day Singh presented his first budget, the Indian economy said goodbye to the Raj. Hours before passing the budget, the Rao government tabled the new industrial policy in Parliament, working on a paper that Singh had 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 advisor Rakesh Mohan, industrial de-licensing has been undertaken in all but 18 sectors foreign direct investment was allowed in 34 industries. In addition, the public sector monopoly in several sectors ended and disinvestment of state holdings in state-owned enterprises was permitted.
His Budget enabled fundraising by Indian companies through the creation of Sebi and also announced a new committee under RBI Governor M. Narasimhan to chalk out the new financial sector architecture implemented by the Rao government and its successors. The focus of the budget was on fiscal consolidation by reducing 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 majority of our people, is posing a serious problem as inflation has reached double-digit levels. During the Budget.” In the year to March 31, 1991, the wholesale price index recorded an increase of 12.1%, while the consumer price index recorded an increase of 13.6%. The biggest worrying feature of inflation “In 1990-91, the focus was on essential goods,” Singh had said.
These reforms had brought the economy back on track and sparked optimism around the world. The “Bombay Club”, a group of corporate bosses who wanted to protect themselves from foreign competition, was not satisfied with this. But they got it wrong.