The fast changing new economic world order owing to the ongoing Covid-19 pandemic and Russia-Ukraine war has left the global populations restless. The rampage unleashed by these twin catastrophes has pushed the global, national and regional economies into jeopardy and has even failed the best brains to offer exact remedial measures to minimise the damage. Actually, the uneven nature of the virus and the eruption of war-induced geopolitical uncertainty have left all clueless about the changing economic landscape. The kind of developments taking place across the globe is unfortunately proving a joy for some and irony for others.
Amid this hazy economic situation engulfing even the developed nations, let’s revisit our country’s economic reforms that were rolled out at a time when India was facing heat of headwinds on economic front in the very beginning of the nineties era.
India entered into the nineties era with uncontrolled economic crisis of eighties – the era which witnessed gradual fall in its economy. The Balance of Payment crisis (BOP), rising fiscal deficit and increasing overvaluation during the decade had led to a chaotic situation. Even as the country was all along struggling to stablise its shaking economy, the invasion of Kuwait by Iraq destabilized the efforts. The oil prices went out of control and became costly. Even foreign remittances from abroad witnessed drastic fall, leaving an adverse impact on the already struggling economy.
Precisely speaking on the political front, all was not also well with the political setup and the country unusually witnessed three prime ministers taking the command of the country in a span of just one and a half years. Notably, V.P. Singh was prime minister of the country for just one year (December 1989 – November 1990). Chandra Shekhar took charge from V.P. Singh, but lasted just for six months (from November 1990 – June 1991). It was P. V. Narasimha Rao who became the third prime minister in just one and a half years’ time. He served the country from June 1991 to May 1996 and it was during his tenure that the country witnessed massive structural economic reforms which changed the economic fortunes of the country. Narasimha Rao, against his reputation of being naïve in economic affairs, ‘surprisingly’ supported the then finance minister, Manmohan Singh, to design and roll out radical economic reforms, which included structural changes and stabilization measures. Precisely, a new Economic Policy, 1991 was framed which tailored Liberalization, Privatization and Globalization (LPG) initiatives. The LPG became a buzz word during that time and here the credit also goes to the International Monetary Fund (IMF) and other international organisations which provided the required financial support on the back of opening of India’s economic borders.
Finally, the then finance minister, Dr. Manmohan Singh, along with Prime minister P.V. Narasimha Rao, unveiled this a game-changing economic policy that ended the protective approach of the country where it had closed the economy to the outside world. It’s worth mentioning that this approach had left the industrial sector of the country incompetent at the global level.
Remarkably, it was on July 24 1991, Manmohan Singh, the then finance minister of India, presented a landmark budget, ushering in a new dawn for the Indian economy.
Here a quote of the Manmohan Singh’s budget speech is worth mentioning: “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” — Budget speech, July 24, 1991. (Source ET)
So, through the means of Liberalization, India opened its economic borders. This encouraged foreign investors to invest in domestic companies. At the end we witnessed a free market system which encouraged the local companies to grow along with their foreign counterparts and resulted in unlocking the country’s economic potential.
Precisely, with the entry of foreign investors and multinational brands in the country, there was free flow of capital in the economy. The foreign investors were able to invest in varied sectors and this resulted in the appreciation of the stock market with a significant presence of foreign players.
The act of Privatization, also known as disinvestment, saw the government transferring the ownership and management control of the public sector companies to private players.
By way of Privatization the government primarily reduced its control over a number of industries by selling off its stake and raised funds to meet other economic objectives which were otherwise unachieved for want of funds. Needless to mention, Privatization helped to create an environment of healthy competition among companies and resulted in their increased efficiency. It also helped the government to get itself relieved from the responsibility and focus on other important areas. There were innumerable companies and industrial units which had turned sick and were a burden on the government exchequer due to lack of government’s attention. But the Privatization initiative revived such sick companies.
Finally, the Globalization of the economy opened the door for the rest of the world to participate in the country’s economy. This is the move which helped India to become an important player in the world economic order.
In other words, Globalization paved the way for the country to pitch its goods and services without border restrictions. Manufacturing and retailing of multinational companies in the country was made possible only through the means of Globalization and at the same time local firms also got the opportunity to cross borders with their products and services. Precisely, the growth of domestic companies at the international level is the outcome of Globalization.
Economic experts have rightly picked ‘outsourcing’ as one of the landmark achievements of Globalization. It not only reduced the cost of labour, but also helped to garner new skill sets in specific areas, such as marketing, legal advice, technical support, IT, etc. Notably, India is today known as a place for hiring cheap but effective workforce and this has attracted internationally operating countries to hire such human resources.
To sum up the situation, we find the Economic Policy of 1991 with a framework of LPG initiatives as the main force in bringing the country to a position of economic power where it stands today. Increasing foreign direct investment and forex reserves; growing of various industrial sectors, especially the IT industrial sector etc. is all outcome of the LPG.
Let’s salute to the great minds of that time in government, especially the man behind the concept of Economic Reforms, 1991, Dr. Manmohan Singh and the then Prime Minister, Narasimha Rao, for blindly supporting the concept of reforms and bringing the country to a position of economic power.
(The views are of the author & not the Institution he works for)
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.