Dr. Manmohan Singh – Architect of India’s economic
reform – HOMEAGE
NEWS: Dr.
Manmohan Singh, former Prime Minister of India and one of the most celebrated
economic reformers, passed away on 26th December at the age of 92.
WHAT’S
IN THE NEWS?
- Widely regarded as the chief
architect of India’s 1991 economic reforms, he was instrumental in
introducing the LPG (Liberalisation, Privatisation, and Globalisation)
policy that transformed India’s economic landscape.
- To honor his legacy, the Union
government declared a seven-day mourning period, canceling all government
programs on Friday.
Key
Takeaways from the Economic Reforms
A.
India’s Economic Crisis in 1991
- In 1991, India faced a severe balance-of-payments
crisis, with foreign exchange reserves sufficient to cover only two weeks
of essential imports.
- The country was on the brink of
economic collapse, compounded by global oil price surges and mounting
external debt.
- As Finance Minister, Dr. Singh
introduced bold economic reforms aimed at liberalizing the economy,
reducing government control, and integrating India with the global market.
B.
Ending the ‘Licence Raj’
- The 1991 Industrial Policy ended
decades of the restrictive ‘license-permit raj’ system.
- It abolished industrial licensing for
most industries, barring a few strategic sectors such as defense and
atomic energy.
- This allowed private enterprises
greater freedom and encouraged foreign investments, deregulating the
industrial sector and promoting competition.
Objectives
and Pillars of the Economic Reforms
A.
Liberalisation
- Key Measures:
- Ended
the excessive regulatory framework, allowing industries to function
without multiple trade licenses.
- Facilitated
the government’s disinvestment in public sector enterprises.
- Amended
the Monopolies and Restrictive Trade Practices (MRTP) Act to enable
businesses to expand, merge, or set up operations without prior
approvals.
- Liberalized
the banking sector, including:
- Reduction of the Statutory
Liquidity Ratio (SLR) from 38.5% to 25% over three years.
- Reduction of the Cash Reserve Ratio
(CRR) from 25% to 10% over four years.
- Relaxation of rules for bank branch
licensing and lending rate determination.
- Impact:
- Strengthened
the financial sector’s ability to support economic expansion.
- Allowed
businesses to grow without bureaucratic constraints, encouraging
entrepreneurship.
B.
Privatisation
- Key Measures:
- Reduced
the number of sectors reserved exclusively for the public sector from 17
to 8.
- Repealed
the MRTP Act, removing the requirement for prior approval for industrial
capacity expansion.
- Promoted
private sector participation in industries previously dominated by public
enterprises.
- Impact:
- Enabled
the entry of private players in key industries, fostering innovation and
competition.
- Created
new opportunities in both the industrial and service sectors, lifting
millions out of poverty.
- Accelerated
economic growth and diversified the industrial base.
C.
Globalisation
- Reduced trade barriers by lowering
import duties and promoting export-oriented growth.
- Allowed automatic approvals for
foreign technology collaborations in high-priority industries.
- Permitted up to 51% foreign equity
in Indian enterprises.
- Removed restrictions on hiring
foreign experts and testing indigenously developed technologies abroad.
- Integrated the Indian economy with
the global market, attracting foreign investments and technology.
- Boosted India’s exports and
strengthened its position in the global supply chain.
Economic
Crisis of 1990: The Context for Reforms
A.
Causes of the Crisis
- A sharp increase in global oil prices
in August 1990 strained India’s economy, leading to a balance-of-payments
crisis.
- Foreign exchange reserves dropped to
$1 billion by mid-1991, sufficient for only two weeks of imports.
- Massive capital outflows and mounting
external debt pushed India to the brink of default.
B.
Key Events Leading to Reforms
- On July 1, 1991, the government
devalued the rupee to make exports competitive and manage liquidity.
- The Reserve Bank of India transferred
46 tonnes of gold to the Bank of England to secure foreign exchange loans.
- The crisis highlighted the need for
structural reforms to stabilize the economy and attract foreign
investments.
C.
Lessons from the Crisis
- The situation underscored the
importance of reducing government intervention and promoting competition.
- It compelled policymakers to adopt a
market-driven approach to enhance efficiency and productivity.
Legacy
and Impact of the 1991 Reforms
A.
Economic Transformation
- Dr. Singh’s reforms marked a shift
from a socialist model to a market-oriented economy.
- India’s GDP growth accelerated,
making the country one of the fastest-growing economies in the world.
- The reforms lifted millions out of
poverty and created a burgeoning middle class.
B.
Key Sectors Benefited
- Industrial growth surged as private
enterprises flourished.
- The service sector, including IT and
telecom, became a major contributor to GDP.
- Foreign investments and
collaborations brought in advanced technologies, boosting innovation.
C.
Long-term Changes
- Liberalisation ended decades of
protectionism, making Indian businesses competitive globally.
- Privatisation reduced the financial
burden on the government while improving efficiency in industries.
- Globalisation integrated India into
the global supply chain, enhancing trade and economic opportunities.
Conclusion
Dr.
Manmohan Singh’s vision and leadership during the 1991 economic crisis laid the
foundation for India’s economic resurgence. His reforms not only addressed the
immediate crisis but also created a framework for sustained growth and
development. As the architect of modern India’s economic policies, his legacy
continues to shape the nation’s journey toward becoming a global economic
powerhouse.
Source: https://indianexpress.com/article/upsc-current-affairs/upsc-essentials/knowledge-nugget-upsc-manmohan-singh-architect-death-lpg-reforms-9747050/