These were the days of big crisis. Rupee devaluation and the subsequent transport of Gold to the Bank of England for cashing nearly 47 tonnes of Gold for $400 million were two big factors that showed how weak the economy was. The foreign exchange reserves were a measly $900 million, considered by many as inadequate to run the government.
Yashwant Sinha who had presented the interim budget in February 1991, a few months ago had said that the exchange reserves were Rs 3142 crores, "insufficient to finance imports for a month."
After winning the mandate, PV Narasimha Rao's government gets thrown to the grind of setting a budget.
And in comes Dr Manmohan Singh as India’s Finance minister.
Stints at the International Monetary Fund, the planning commission, and with the Reserve Bank as its governor, narrate tales of his economic wisdom and policy-making insight. Could the economist change India’s fortunes? Did he have a magic wand that could cure the country of its ills? Could a long-term vision be framed for a country that was eerily close to the Greece of 2015?
The Indian economy like a mouse pinned to a corner was threatened by years of haphazard borrowing and policies that seemed to offer no results on ground. But within days of joining as the Finance Minister, the magic wand seemed to be working.
The apt summary of what Dr Manmohan Singh and Prime Minister PV Narasimha Rao together achieved from the 1991 set of reforms is summarized by a guest-story written by Minister of Parliament Jairam Ramesh for The Hindu. He refers to Dr Singh as the hedgehog who knew only one big thing- economic reforms and Rao as the crafty cunning fox who knew many things.
Dr Singh's speech is important not only from a policy perspective but offers tremendous insights into the making of a budget. Obviously India's Accidental Prime Minister happened to prepare seven budget speeches prior to the assignment of 1991. And that may have offered him additional experience required in making the budget speech of 1991. He did not manage to fail the expectations, although a few within the Congress and outside of it disapproved of his train of thoughts.
To begin with, Dr Singh's budget speech was marked in memory of the late Rajiv Gandhi. He said, "As I rise, I am overpowered by a strange feeling of loneliness. I miss a handsome, smiling, face listening intently to the Budget Speech. Shri Rajiv Gandhi is no more. But his dream lives on; his dream of ushering India into the twenty-first century; his dream of a strong, united, technologically sophisticated but humane India. I dedicate this budget to his inspiring memory."
Dr Singh’s budget speech of 1991 showed a budgetary deficit of Rs 7719 crores, yet remained liberalized by foreign investments.
Welcoming the liberalization, Dr Singh said, “After four decades of planning for industrialisation, we have now reached a stage of development where we should welcome, rather than fear, foreign investment. Our entrepreneurs are second to none. Our industry has come of age. Direct foreign investment would provide access to capital, technology and markets. It would expose our industrial sector to competition from abroad in a phased manner. Cost, efficiency, and quality would begin to receive the attention they deserve. We have, therefore, decided to liberalise the policy regime for direct foreign investment in the following manner. First, direct foreign investment in specified high priority industries, with a raised limit for foreign equity at 51 per cent, would be given prompt approval, if equity inflows are sufficient to finance the import of capital goods at the stage of investment and if dividends are balanced by export earnings over a period of time. Second, foreign equity upto 51 per cent would be allowed for trading companies primarily engaged in export activities. Third, a special board would be constituted to negotiate with a number of large international firms and approve direct foreign investment in selected areas; this would be a special regime to attract substantial investment that would provide access to high technology and to world markets.”
The budget had a number of key take-aways. For instance, it offered more power to the Securities and Exchange Board of India for administering the relevant provisions of Securities contracts and Companies Act. There was also the aspect of supporting mutual funds via allowing private sector and joint sector. Relaxations were also proposed to invite Non-resident Indians to invest in Indian instruments such as real estate and infrastructure. The budget proposed removal of procedural difficulties.
Besides opening the economy, the budget speech of 1991 also reveals the funny side of Dr Singh. During the speech he proposed an exemption on excise duty for kitchen items such as Tiffin box. And, he quipped how his wife would be happy. He remarked, "Ever since my appointment as Finance Minister, I have had to spend long hours in office. This has quite naturally made my wife very unhappy. The House will agree that it is not good for the health of our economy if the Finance Minister of the country has strained relations with his own finance minister at home. I propose that the total exemption from payment of excise duty currently available to utensils made of aluminium, copper and stainless steel be extended to certain other household items particularly tiffin boxes."
The Accidental Prime Minister also quipped how he was a harassed Finance minister. He said, "Few would disagree that I am one of the most harassed Finance Ministers in recent times. To perform the onerous task before me, I need support from the Press. As a gesture of goodwill, I propose to exempt standard newsprint from import duty which is, at present, Rs. 450 per metric ton. I have already proposed to bring down the rates of import duty on certain specified machinery and equipment required by the printing and newspaper industry to the levels that were obtaining before 15th December 1990. The monetary limit of duty free import of photographic goods by accredited cameramen of the Press is being raised from the present level of Rs. 30,000 to Rs. 60,000. These proposals involve a revenue loss of over Rs. 9 crores in a full year."
The one phrase that has stuck to the 1991 budget is the Victor Hugo quote. Dr Singh said, "Sir, I do not minimise the difficulties that lie ahead on the long and arduous journey on which we have embarked. But as Victor Hugo once said, 'no power on earth can stop an idea whose time has come.' I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.
The highly logical Prime Minister also revealed his sentiments during the budget announcement.
“I was born in a poor family in a chronically drought prone village which is now part of Pakistan. University scholarships and grants made it possible for me to go to college in India as well as in England. This country has honoured me by appointing me to some of the most important public offices of our sovereign Republic.”
“This is a debt which I can never be able to fully repay. The best I can do is to pledge myself to serve our country with utmost sincerity and dedication. This I promise to the House. A Finance Minister has to be hard headed. This I shall endeavour to be.”
“I shall be firm when it comes to defending the interests of this nation. But I promise that in dealing with the people of India I shall be soft hearted. I shall not in any way renege on our nation’s firm and irrevocable commitment to the pursuit of equity and social justice. I shall never forget that ultimately all economic processes are meant to serve the interests of our people. It is only through a commitment to social justice and the pursuit of excellence that we can mobilise the collective will of our people for development, to give it a high moral purpose and to keep alive the spirit of national solidarity. The massive social and economic reforms needed to remove the scourge of poverty, ignorance and disease can succeed only if backed by a spirit of high idealism, self sacrifice and dedication.”