Manmohan Singh’s enduring legacy in Indian economy

Former Prime Minister Manmohan Singh, who is considered the pioneer of economic reforms in the country, passed away on Thursday night. He was ill for a long time. Singh, first as a finance minister and then as a prime minister, is known as the pioneer of economic liberalisation in India. So much so that when it comes to the economy, it is natural to mention Singh.

People may have critical opinions about his two tenures as the prime minister of India, but no one can deny the fact that his contribution in saving and growing the Indian economy is important. Singh, who made his mark as an economist, policy maker, and politician, is known for changing the face of the Indian economy. The Gulf War of 1990 had caused a threefold increase in oil prices. Due to Iraq’s attack on Kuwait, India had to bring back thousands of its workers to India. The result was that the foreign currency sent by them had completely stopped. On top of that, the political instability in India and the public outrage that emerged against the Mandal Commission’s recommendations were weakening the economy. To bring the country out of this difficult situation, PV Narasimha Rao, the then prime minister, had chosen Manmohan Singh as the finance minister.

Singh had served as Economic Adviser in the Ministry of Foreign Trade and as Chief Economic Adviser and then Secretary at the Ministry of Finance. He served as Director of the Reserve Bank of India from 1976 to 1980 and then as Governor from 1982 to 1985. He has also been Deputy Chairman of the Planning Commission and Chairman of the University Grants Commission. He served as the 14th Prime Minister of India under the Congress-led United Progressive Alliance (UPA). He held the prime minister’s post for two consecutive terms, from 2004 to 2009 and from 2009 to 2014. He was India’s finance minister 13 years before becoming prime minister, but Manmohan Singh was much more than the qualifications given in his CV.

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Singh’s greatest contribution to the country is the economic reforms he ushered in as finance minister. India’s international trade balance was in a dismal deficit in 1991. India was short of both money and time. It had foreign exchange reserves of less than $6 billion—enough to meet only two weeks of the country’s imports. There was government control over foreign capital investment. There was a complex licensing system for imports. Wars with China and Pakistan, scams in the stock market, government control of manufacturing, etc. were holding back the economy. The country was on the verge of economic collapse, and to save it, he decided to devalue the rupee twice in July 1991, first by about 9 per cent, then by 11 per cent.

With the devaluation of the rupee, our exports became cheaper, a necessary correction to our worsening trade imbalance. As an emergency measure to deal with our current account deficit, the Reserve Bank of India pledged its gold holdings with the Bank of England to raise about $400 million to reduce the current account deficit.

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After this, Singh initiated a series of reforms in the Indian economy that he called “reforms with a human face”. The introduction of Industrial Policy, 1991 was the prelude to the abolition of the license Raj. To overcome this crisis, Manmohan Singh opened the Indian market to foreign companies in this budget. This step brought the first success to the government in a few months, when in December 1991, the Government of India succeeded in getting the gold mortgaged abroad released and handed over to the RBI. This flow of foreign capital began to change the country; people had more money, and lifestyles changed.

Big brands of the world knocked on the doors of India. While presenting the budget on July 24, 1991, Singh had said, ‘There is no opportunity to waste time. Neither the government nor the economy can spend more than its capacity year after year. There is no scope now for working on borrowed money or on time. We need to expand the scope and area for the operation of market forces.’

Jobs and industry grew. This new system of globalisation is a system of ‘survival of the fittest’. When the country’s fiscal deficit was around 8.5 per cent of the GDP, Singh brought it down to 5.9 per cent within just one year. Globalisation in the country was started by Singh in 1991. He not only opened India to the world market but also simplified the rules of export and import. Singh made major changes in three categories—liberalisation, globalisation, and privatisation—under which changes like foreign trade liberalisation, financial liberalisation, tax reform, and foreign investment were made.

In simple words, the decision on how much of a commodity would be produced and how much it would cost was left to the market and not the government. These reforms put India on the path of rapid economic development and made the country an attractive destination for international investors.

The period from 2004 to 2014, when he was the prime minister, was the 10 golden years of the Indian economy. India’s GDP grew at an average rate of 8.1 per cent during this remarkable decade. Real GDP growth reached a record high of 10.08 per cent in 2006-07. In 2007, India achieved its highest GDP growth rate of 9 per cent and emerged as the second fastest-growing major economy in the world.

The largest social welfare program during his tenure was the Mahatma Gandhi National Rural Employment Guarantee Act, widely recognised as the world’s largest job guarantee scheme. Its main purpose is to be involved in infrastructure construction works (like road construction, water conservation, tree plantation, etc).

His major achievement was the signing of the Indo-US civil nuclear energy agreement, a decision that nearly brought down the government after the left parties withdrew their support over the issue.

The Singh government passed an act in 2005 to give citizens the right to seek information from public authorities. It was named the Right to Information Act (RTI). This brought transparency to the work of the people in the government and also ensured accountability. Let us tell you that the Right to Information Act empowers Indian democracy, improves the way the government works, and gives citizens the right to seek information from their government.

In 2005, Singh’s government introduced VAT tax, which replaced the complex sales tax. The Right to Information Act 2005, the National Rural Health Mission (NRHM) 2005, the Unique Identification Authority of India (UIDAI/Aadhaar) 2009, the Right of Children to Free and Compulsory Education Act, 2009 (RTE), and the Rajiv Awas Yojana (RAY) to provide housing to the poor and homeless in cities in 2011, the National Food Security Act, 2013, etc, are his major initiatives that transformed the country. Mobile and internet connectivity reached the remotest areas of the country, ushering in the digital revolution.

Singh’s economic liberalisation policy helped millions of Indians to overcome poverty. He gave a new lease of life to the ailing economy. Manmohan Singh carried out large-scale economic reforms in the Indian economy, and no one can deny that he has made a significant contribution in overhauling the Indian economy.

The author is a professor at Atal School of Management, JNU. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.