On July 24, 1991, Manmohan Singh presented his first-ever Budget under the PV Narasimha Rao government.
"Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome." - Manmohan Singh, Budget speech, July 24, 1991.
The Union Budget 2024, the first under the Modi 3.0 government, is all set to be announced on July 23, 2024. And almost invariably, it brings back the memories of the 1991 budget that changed India's economy forever. It was a time when our country was grappling with its worst economic crisis. Thanks to uncontrolled inflation, high fiscal deficit, and mountains of debt among other issues, there was complete chaos all around. And amidst all this, on July 24, 1991, the then Finance Minister Manmohan Singh presented a budget that not only brought economic reforms but also changed the lives of billions.
That budget was an example of Singh's unparalleled vision. As we eagerly await Finance Minister Nirmala Sitharaman to present the forthcoming budget, let's have a throwback to 1991, and understand various aspects of it.
It had actually started about a decade ago, and gradually turned into its most intense form during 1990-91. The government was running on a huge fiscal deficit, leaving India's trade balance in a major deficit. And the fall of the Eastern Bloc decreased the rupee significantly. Also, the 1990-91 Gulf War increased oil prices, leading to a major depletion in India’s forex reserves. The Iraq-Kuwait conflict, on the other hand, contributed significantly to the trade deficit along with other issues.
It's also worth noting that due to frequent changes in the government, there was a lack of planned economic policies at that time. So, by mid-1991, India was on the brink of an economic disaster.
PV Narasimha Rao – The Then Prime Minister of India
However, it all ended with the Union Budget presented by Manmohan Singh. The rest, as they say, is history!
In his budget, Singh announced the end of the license raj - where businesses (small or big) had required multiple licenses to operate. Also, he announced a policy of automatic approval for foreign direct investment up to 51 percent (instead of the earlier cap of 40 percent). Foreign companies were now allowed to invest directly in various sectors of India.
"The time has come to expose Indian industry to competition from abroad in a phased manner. As a first step in this direction, the Government has introduced changes in import-export policy, aimed at a reduction of import licensing, vigorous export promotion, and optimal import compression," said Singh.
Manmohan Singh later served as India’s 13th Prime Minister from 2004 to 2014
Over time, these policies helped different kinds of businesses to thrive with ease.
He also announced a new trade policy that reformed India's economy immensely. The budget reduced import tariffs significantly, making imported products a lot more affordable. It also removed import quotas, allowing traders to import as many products as they wanted. On the other hand, it introduced various incentives to increase exports, subsequently improving the overall business scene.
These increased foreign investments in India, allowed industries to improve their productivity and further diversified the economy.
"It is essential to increase the degree of competition between firms in the domestic market so that there are adequate incentives for raising productivity, improving efficiency, and reducing costs," said Singh.
The Finance Minister, Nirmala Sitharaman, will present the Union Budget 2024 on July 23
While delivering his budget speech, Singh quoted Victor Hugo, saying "No power on earth can stop an idea whose time has come." With time, his policies transformed India from a weak economy to an economic powerhouse. Today, it's widely considered one of the fastest-growing economies in the world.
