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The day of 24 July 1991 proved to be a turning point in Indian economic history. On this day, the then Finance Minister Dr. Manmohan Singh presented a full-fledged budget which not only led India’s economy towards recovery but also gave a new identity to the country. In this article we will discuss in detail the Budget of 1991, its background, and its far-reaching implications.
Rajiv Gandhi’s assassination and formation of a new government
In 1991, the country was going through a period of political instability. The assassination of former Prime Minister Rajiv Gandhi during the Lok Sabha elections made the situation more serious. Congress won the largest number of seats in the elections, and formed a minority government under the leadership of Narasimha Rao. Dr. Manmohan Singh became the Finance Minister of this government, who presented the full budget for 1991-92.
economic situation before the budget
India was in serious economic crisis before the presentation of the budget.
- Foreign exchange crisis: The country had only enough foreign exchange reserves left for a few weeks of imports.
- Growth Rate: The growth rate of the Indian economy was very slow.
- Borrowings and Deficits: There was huge debt on the government treasury and the current account deficit was increasing rapidly.
- Critical warning: The situation in the country could have been like that of Sri Lanka, where money was not available even for the import of essential commodities.
Manmohan Singh’s historic reforms
Dr. Manmohan Singh took many revolutionary steps in the budget which are still a topic of discussion even today.
1. End of permit raj
The country’s economy was in the grip of the permit raj for years. Manmohan Singh made legal and policy changes to end this system.
- Expansion of Private Sector: Many industries were opened to private companies.
- Youth employment: This created opportunities for the youth beyond the limitations of government jobs.
2. Promotion of foreign investment
Policies were made to bring foreign investment into the country.
- Foreign companies were encouraged to invest in India.
- Foreign direct investment (FDI) was allowed in many restricted sectors.
3. Reforming the tax system
Dr. Singh made changes to make the tax structure simple and effective.
- Cut corporate taxes.
- Increased tax collection by improving direct and indirect taxes.
- Improved the tax-GDP ratio.
improvement in foreign exchange reserves
The biggest benefit of Dr. Manmohan Singh’s policies was in the country’s foreign exchange reserves.
- rapid rise: Foreign exchange reserves doubled within a year.
- Long term effect: By 2001–02, foreign exchange reserves increased sixfold ($54 billion).
This reform brought India out of the financial crisis and provided economic stability.
Avoidance of crisis like Sri Lanka
In 1991, India’s situation was moving towards an economic crisis like Sri Lanka. If steps were not taken at the right time, India might have been unable to raise funds even for imports. Dr. Singh’s economic policies averted this crisis.
Strong foundation for economic development
Dr. Manmohan Singh, as Finance Minister for 5 years, took such steps, which even today remain the backbone of the Indian economy.
1. Infrastructure development
The increase in government income made it possible to invest in infrastructure.
- New expressways and highways were built.
- Rail and other transport services were modernized.
2. Economic liberalization
Dr. Singh started economic liberalization.
- Privatization was promoted.
- Government control was limited.
Current impact of 1991 budget
Today India is the fifth largest economy in the world.
- Faster Economic Growth: The reforms of 1991 established India as a rapidly developing country.
- Infrastructure expansion: Even today, governments are investing heavily in strengthening the infrastructure.
- Job Opportunities: New employment opportunities were created in the private sector.