On July 24, 1991, India’s then Finance Minister Manmohan Singh presented a budget in India’s parliament. It transformed the idea of India throughout the world. India was under licence raj, which did not allow the private companies to have a major role in economic activities. They were restricted under the the Monopolies and Restrictive Trade Practices Act of 1969. After the assassination of Rajiv Gandhi and the subsequent political turmoil, the rise in oil prices and high fiscal rates, India barely had any money left in its exchequer.
Forty-seven tons of gold were airlifted to the Bank of England as collateral for a loan and India also waited for the International Monetary Fund (IMF) for financial help. Dr Manmohan Singh devalued the ₹ and also removed most of the licenses on public goods production. He introduced the ‘New Economic Policy’ in 1991, which was based on the principles of liberalisation, privatisation and globalisation (LPG). Dr Singh in his speech quoted Victor Hugo. “No power on this earth can stop an idea, whose time has come.” Liberalisation of Indian economy took away licence raj, reduced tariffs and interest rates. It ended public monopoly by allowing private players and also brought in FDI in many of the sectors.
After 25 years of liberalisation, India’s economic prospects have improved to a great extent. Annual growth in Gross Domestic Production (GDP) has increased from around 2% to around 7.5% (according to Moody’s Investors Service). Today, many of the businesses prefer India over China, because of various factors including democracy, cheaper labour and demography. Foreign direct investment increased from $237 million in 1990 to $41.5 billion in 2008.
The service sector, which barely had any progress pre-liberalisation has grown drastically over the past two decades. Information technology, communications and civil-aviation also had a very significant growth over the past decade. The telecom revolution can be associated with the legacy of the 1991 economic reforms. The total number of cellphones is more than half the Indian population. In fact, we have more cellphones than toilets in India. Today, we are amongst the fastest growing economies in the world.
Development indicators like poverty and malnutrition have actually drastically fallen to great extent. And the growth rates have improved India’s position in the globe. India is one of the fastest growing economies of the world. However, there is a lot that still needs to be done to reduce income inequality and poverty. There is a need to create more jobs for the young population which is growing. Liberalisation was on of the major steps that had a significant role to play in India’s emergence as a global power.