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Union Road Transport and Highway Minister Nitin Gadkari on Tuesday said that the economic reforms started by Manmohan Singh as the Finance Minister in 1991 gave a new direction to India as it ushered in a liberal economy.
Lauding the economic reforms initiated by Manmohan Singh, he said that the country is indebted to the former Prime Minister for these.
Gadkari said that India needs a liberal economic policy with the intention to provide its benefits to poor people, adding a liberal economic policy is for farmers and poor people, he added.
In his address at TIOL Awards 2022 event, organised by portal ‘TaxIndiaOnline’, he recalled that he could raise money to build roads in Maharashtra when he was a state minister in the mid-1990s due to economic reforms initiated by the former Prime Minister.
On how India’s economic growth can further accelerate, the Minister said that India will need more Capex investment. He said that the NHAI is also raising money from the common man for the construction of highways.
He also talked about construction of 26 green expressways in the Country and the Ministry is not facing a shortage of money for this.
What was India’s 1991 economic crisis all about, and how did India survive?
With India’s foreign exchange reserves at $1.2 billion in January 1991 and depleted by half by June, barely enough to last for roughly 3 weeks of essential imports, India was only weeks away from defaulting on its external balance of payment obligations.
Government of India’s immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India’s gold reserves as collateral security. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.
The van transporting the gold to the airport broke down en route due to tyre burst and panic followed. The airlift was done with secrecy as it was done in the midst of the 1991 Indian General elections. National sentiments were outraged and there was public outcry when it was learned that the government had pledged the country’s entire gold reserves against the loan.
A chartered plane ferried the precious cargo to London between 21 May and 31 May 1991, jolting the country out of an economic slumber. The Chandra Shekhar government had collapsed a few months after having authorized the airlift. The move helped tide over the balance of payment crisis and kick-started P.V. Narasimha Rao’s economic reform process.
P.V. Narasimha Rao took over as Prime Minister in June, and appointed Manmohan Singh as Finance Minister. The Narasimha Rao government ushered in several reforms that are collectively termed as liberalisation in the Indian media.
The reforms formally began on 1 July 1991 when RBI devalued Indian Rupee by 9% and by a further 11% on 3 July. It was done in two doses to test the reaction of the market first by making a smaller depreciation of 9%. There was significant opposition to such reforms, suggesting they were an “interference with India’s autonomy”.
Then Prime Minister Rao’s speech a week after he took office highlighted the necessity for reforms, as New York Times reported, “Mr. Rao, who was sworn in as Prime Minister last week, has already sent a signal to the nation—as well as the I.M.F.—that India faced no “soft options” and must open the door to foreign investment, reduce red tape that often cripples initiative, and streamline industrial policy. Mr. Rao made his comments in a speech to the nation Saturday night.”
The foreign reserves started picking up with the onset of the liberalisation policies and reached an all-time high US $530.268 billion as on 13 November 2020.
The program of economic policy reform which was put in place in 1990 has yielded results, dramatically improving the quality of life in India. Trade liberalisation in India has also corresponded with a dramatic rise in inequality and associated social issues.
The Indian GDP rose from $266 billion in 1991 (inflation adjusted) to $3 trillion in 2019 (1100% increase) while its purchasing power parity rose from $1 trillion in 1991 to $12 trillion in 2019 (1100% increase).