It was my second year at an Indian Technological University in Surathkal, Karnataka. I distinctly remember India’s economic challenges as a country and a society. Raj, a close friend from Punjab, frequently shared the severe hardships his family endured. His parents were farmers, and the term ‘rich farmers’ was virtually non-existent in India. Concurrently, the country was grappling with an unprecedented food inflation rate of 60-70% over several months, profoundly impacting millions, including his family. Theoretically, higher food prices should have increased farmers’ income, but in reality, it had the opposite effect.

The soaring food prices throughout the country were particularly striking. The students felt that way as well. A plate of bread bhurji—a dish made with bread, eggs, and select vegetables—that we used to enjoy at the small cadjan stands near the college gate for INR 5 suddenly escalated to INR 12. Similarly, a glass of sugar cane juice increased from INR 4 to INR 10. The once-respectable INR 5 note began to feel almost worthless in the face of such rapid inflation. Charles Dickens would have probably described it as the worst of the times.

The situation was so severe that my friend Raj contemplated abandoning his engineering degree to support his struggling family. He experienced frequent bouts of depression and was deeply concerned about his academic performance. Ultimately, he failed his semester examinations and had to forgo advancing with his batch. I remember accompanying him to the railway station; if I remember correctly, he never returned to college.

Such were the happenings of 1991. India stood on the precipice of economic disaster. The country’s foreign exchange reserves were dwindling, inflation was soaring, and the balance of payments crisis loomed large. It was a time of profound uncertainty and fear, with the nation’s economic future hanging by a thread.

Into this chaos stepped Dr Manmohan Singh, soon to be fondly called MMS by the press, a quiet, unassuming economist with a vision for radical change. Ironically, he was from the same state as my less fortunate friend. A soft-spoken – Oxford and Cambridge educated Sardar, or a Sikh, representing a minority in India. As the newly appointed Finance Minister under Prime Minister P.V. Narasimha Rao, MMS faced an insurmountable challenge. The situation was dire, with foreign exchange reserves barely enough to cover two weeks of imports. The global community was sceptical, and financial aid seemed like a distant dream. Yet, MMS remained undeterred. On July 24, 1991, he delivered a budget speech that would go down in history as a turning point for India’s economy.

In his hour-and-a-half-long speech, MMS proposed bold measures to liberalize the Indian economy. He proposed dismantling the highly regulated regime, reducing government control over the economy, and opening India to foreign investment. His proposals also included devaluing the rupee, reducing import restrictions, and encouraging privatization. The reforms were not just about numbers but a philosophical shift towards a more open and market-driven economy.

“MMS’s vision was met with resistance from within his party and from prominent industrialists who feared the impact of liberalization. Yet, he stood firm, defending his budget as a budget with a human face”

His perseverance and unwavering commitment to reform laid the foundation for India’s economic resurgence, transforming the nation into a global economic powerhouse. (For detailed measures taken during the 5 years, please see the side box)

To fathom the true impact of this decision, we have to turn the clock back a few decades to the dark years. After independence in 1947, India adopted a mixed economy model influenced by Soviet-style central planning. Its first Prime Minister, Jawaharlal Nehru’s economic policies were characterized by central planning, protectionism, and state control. While these policies were initially designed to promote self-reliance and equitable growth, they often had unintended consequences that stifled innovation, discouraged competition, and slowed economic progress. The per capita GDP of the world’s largest democracy has increased only from $83 to $318 for 45 years from 1947 to 1992. Even with its political issues, neighbouring Sri Lanka was doing far better. Even Pakistan was initially way ahead of India.

The Indian government also emphasized import substitution, aiming to reduce dependence on foreign goods by developing domestic industries. Beginning in 1951, this approach was institutionalized through five-year plans that allocated significant resources to heavy industries, public-sector enterprises, and large infrastructure projects. The Industrial Policy Resolution 1956 granted the state a commanding role in key sectors like steel, energy, and transportation, sidelining private enterprise.

Central planning was not inherently flawed; the challenges arose from the other associated components. India’s economic framework became notorious for its “License Raj,” a system of complex regulations and permits governing nearly every aspect of business operation. Entrepreneurs needed government approval for production, expansion, and even pricing. This created a highly bureaucratic and corruption-prone environment. Small-scale industries were protected through reservations, which limited their growth potential and competitiveness, while large-scale enterprises struggled under excessive regulation.

India adopted stringent protectionist measures to shield domestic industries, including high import tariffs, import quotas, and restrictive foreign exchange policies. These measures isolated India’s economy from global markets, leading to inefficiencies and a lack of technological innovation. The private sector was discouraged from competing internationally, and consumers were left with limited choices and substandard products.

One of the worst affected areas was agriculture. Although India invested in agriculture through initiatives like the Green Revolution in the 1960s, earlier policies, such as land redistribution and price controls, were poorly implemented and often counterproductive. By the mid-1960s, India faced severe food shortages, necessitating large-scale imports and dependence on foreign aid. This highlighted the inadequacy of the government’s agricultural strategy.

The cumulative effect of these policies was sluggish economic growth, often referred to as the “Hindu rate of growth,” averaging around 3.5% per year between 1950 and 1980. Population growth of about 2% annually further eroded the modest economic gains, leaving per capita income growth dismal. Despite substantial investments, the public sector became synonymous with inefficiency and financial losses. Meanwhile, private sector potential remained unrealized due to stifling controls.

By the late 1980s, India’s economy was teetering under the weight of fiscal deficits, unsustainable external debt, and an overburdened public sector. The Gulf War in 1990 exacerbated the crisis by triggering a balance of payments problem. The country’s foreign exchange reserves dwindled to precarious levels, forcing India to mortgage gold to stay afloat. This economic debacle laid bare the failures of decades of inward-looking policies and set the stage for the transformative liberalization reforms of 1991.

Over the past three decades that followed economic liberalization, India has transitioned from a slow-growing, highly regulated economy to one of the fastest-growing major economies in the world. Key reforms, including deregulation, privatization, and opening markets to foreign investments, unleashed entrepreneurial energy and integrated India into the global economy. This transformation is reflected in GDP growth rates, which accelerated to an average of 6-8% in the post-reform period.

India’s economic policies post-liberalization have also propelled it to become the fifth-largest economy in the world in nominal GDP terms and the third-largest by purchasing power parity (PPP). The ranks will further change by 2030, the year  India has set ambitious goals to become the world’s third-largest economy by 2030 with a  $30 trillion economy. By 2047, India aims to become a developed nation with a per-capita income of $18,000-20,000, strong public finances, and a robust financial sector. The country has already emerged as a global hub for Information Technology, with companies like Infosys, TCS, and Wipro leading the way. India’s services sector, contributing over 50% of the GDP, has been a cornerstone of this growth, particularly in IT-enabled services, financial services, and telecommunications.

Then, there is infrastructure development. Initiatives like the Golden Quadrilateral highway network, the development of ports and airports, and investments in urban infrastructure have transformed the country’s connectivity and logistics capabilities. The “Make in India” programme, launched in 2014, aimed to boost manufacturing, and while challenges remain, sectors like automobiles, pharmaceuticals, and electronics have seen substantial growth.

Economic reforms also paved the way for financial sector inclusion. The Goods and Services Tax (GST) introduction in 2017 unified the country’s indirect tax structure, simplifying business processes. Simultaneously, the rise of digital technologies has revolutionized financial services, with India becoming a global leader in digital payments. Programmes like Jan Dhan Yojana have extended banking services to millions, while UPI (Unified Payments Interface) has set benchmarks for real-time payment systems globally.

“These transformations have profoundly impacted India’s social and human development. Poverty rates have fallen significantly, with millions lifted out of extreme poverty since the 1990s”

Literacy rates, life expectancy, and access to healthcare have also improved. Ambitious programmes such as Skill India, Digital India, and Start-Up India aim to empower the youth and create new opportunities for employment and innovation.

Finally, India’s integration into global trade has been another notable achievement. The country’s exports have diversified from traditional goods like textiles to high-value products and services such as software and engineering. Additionally, India has emerged as a significant player in global diplomacy, leveraging its economic success to strengthen ties with major powers and play an active role in multilateral organizations like the WTO and G20.

Much later, as the Prime Minister of India, MMS also played a pivotal role in forming BRICS, a group of emerging economies comprising Brazil, Russia, India, China, and South Africa. His vision was to create a platform for these nations to collaborate on economic, political, and social issues, thereby enhancing their influence on the global stage. His efforts were instrumental in fostering cooperation among these countries, particularly in trade, investment, and sustainable development. Under his leadership, India hosted the BRICS Summit in New Delhi in 2012, laying the groundwork for deeper intra-BRICS cooperation and establishing various initiatives to promote inclusive growth and development. His commitment to multilateralism and global governance reforms has left a lasting legacy on the BRICS partnership.

So when we look back, it was not just a former Prime Minister that India lost. Dr Manmohan Singh was arguably the most visionary leader South Asia ever produced. His legacy offers invaluable lessons for future leaders navigating complex and uncertain times. His quiet revolution demonstrated the power of pragmatic vision, decisive leadership, and the courage to challenge entrenched systems in the face of adversity. As the world becomes increasingly interconnected and volatile, the importance of fostering resilience, embracing reform, and prioritizing long-term national interest over short-term political gains cannot be overstated.

“The journey of MMS underscores the critical role of evidence-based policymaking and the necessity of placing trust in capable technocrats to guide nations through pivotal moments”

For future generations, his story is a reminder that transformational leadership often requires humility, collaboration, and a steadfast commitment to change that benefits all. 

Timeline of India’s Economic Reforms under MMS (1991-1996)

1991

• June: India faces severe balance of payments crisis; Foreign exchange reserves fall to $1.2 billion, adequate for only two weeks of imports; India pledges 67 tons of gold to Bank of England and Switzerland for $605 million.
• July: Dr Manmohan Singh presents his landmark budget; INR devalued by 21% against major currencies, New Industrial Policy announced, ending License Raj, Abolition of industrial licensing for most sectors except 18 strategic industries.
• August-September: Foreign investment allowed up to 51% in 35 priority sectors; Abolition of government control over capital issues.
• October-December: SEBI (Securities and Exchange Board of India) given statutory powers; Reduction in import duties from peak rate of 300% to 150%; Introduction of partial convertibility of rupee in trade transactions.

1992

• January-March: National Stock Exchange (NSE) established; Foreign Institutional Investors (FIIs) allowed to invest in Indian capital markets; Import-Export Policy liberalized for 3 years.
• April-June: Banking sector reforms initiated; Guidelines for private sector banks introduced.
• July-December: INR made partially convertible on current account (Liberalized Exchange Rate Management System); Gold imports liberalized; Disinvestment of public sector undertakings begins.

1993

• January-June: Rupee made fully convertible on trade account; National Stock Exchange begins operations; Banking Regulation Act amended to allow private banks.
• July-December: Foreign investment in mining allowed; Guidelines for Euro-issues introduced; Sick Industrial Companies Act modified.

1994

• January-June: India signs Uruguay Round Agreement; Telecommunications sector opened for private investment; Reserve Bank autonomy strengthened.
• July-December: Insurance sector reforms initiated; Industrial entrepreneurs memorandum introduced; SEBI gave additional powers for capital market regulation.

1995

• January-June: India joins WTO as a founding member; the mutual funds industry opened to the private sector; Foreign investment limits in various sectors increased.
• July-December: Modified Value Added Tax (MODVAT) scheme expanded; Capital account convertibility roadmap initiated; Industrial licensing further liberalized.

1996

• January-March: Peak customs duty reduced to 50%; Foreign direct investment rules further simplified; Infrastructure sectors opened for private participation.

 

Major Outcomes by 1996

• Foreign exchange reserves increased to $17 billion
• GDP growth rate averaged 5.5%
• Industrial growth averaged 8.5%
• Inflation brought down from 17% to 5%
• Foreign investment increased from $132 million to $5.3 billion