Singh’s big-bang reforms were, partly at least, a response to a balance-of-payments crisis leaving the country with foreign exchange reserves to fund barely four months of imports in March 1991.
Dec 28, 2024 07:05 IST First published on: Dec 28, 2024 at 07:05 IST
Manmohan Singh’s reform legacy, mainly as Finance Minister in the Narasimha Rao-led government, was about liberalisation and globalisation. These entailed de-licencing and opening up of most sectors to private players, dismantling price, exchange rate and import controls, and removing barriers to foreign investment (direct as well as portfolio), technology collaborations or raising monies from both domestic and international capital markets. It was about “letting the private sector in”. The rupee’s two-step devaluation, the unveiling of a New Industrial Policy and the 1991-92 Union Budget were nothing short of an economic revolution that upended the old dirigiste regime. From policies framed around central planning, import substitution industrialisation, protectionism and public sector monopolies, the Singh-Rao duo spoke a new language that “welcomed” foreign investors and trusted Indian entrepreneurs as being “second to none”.
What subsequent governments — including the one Singh himself headed from 2004-05 to 2013-14 — missed, however, were the second set of reforms. These involved privatisation and rationalising government spending. In other words, “getting the government out” of business. The fact that only a dozen or so state-owned companies have been privatised — Air India, Maruti Udyog, Bharat Aluminium and Hindustan Zinc — is proof of the limited progress in this direction. Even more glaring is the spiralling government expenditure on subsidies and transfer schemes with short-term welfare gains at most. The effects of underpricing of urea, electricity and irrigation water, manifested in worsening soil nutrient imbalance, declining crop yield response and depleting aquifers, are well-documented. Government subsidy on fertiliser and even free food is not without opportunity cost — the taxpayer money can be used to build schools and hospitals delivering more durable welfare gains.
Singh’s big-bang reforms were, partly at least, a response to a balance-of-payments crisis leaving the country with foreign exchange reserves to fund barely four months of imports in March 1991. There has never been a crisis like that since to force any government to undertake the unfinished reforms 2.0. But reforms are also about conviction and seizing the opportunity. The Narendra Modi government has laid the groundwork — from identification of beneficiaries to Aadhaar-seeding of their bank accounts — for replacing all market-distorting subsidies with direct cash transfers. The upcoming budget is an opportune time to relaunch reforms.
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