It was a make-or-break budget for India. In 1991, the country's finances were in disarray, confidence was shaken, and foreign exchange reserves fell so sharply that they could barely cover a few weeks of imports.
At this critical juncture, Dr Manmohan Singh, then Finance Minister in the P V Narasimha Rao government, orchestrated a change, steering an economy on the brink of collapse to a new beginning.
The 1991 Budget By Manmohan Singh
The Union Budget of 1991 laid out reforms centred on liberalisation, privatisation and deregulation, aimed at dismantling the licence-permit raj. The Budget opened the economy to foreign investment of up to 51 per cent, eased rules for foreign technology, cut import tariffs, devalued the rupee and began privatising state-owned enterprises, setting India on a new growth path.
Presenting the Budget on July 24, 1991, Manmohan Singh warned Parliament that India had barely 15 days of foreign exchange reserves. “The current level of foreign exchange reserves, in the range of Rs 2500 crore, would suffice to finance imports for a mere fortnight,” he said.
“There was no time to lose,” Singh said. “Neither the government nor the economy can live beyond its means year after year.” Ending the licence raj, he said, was essential to boost competition, productivity and efficiency.
How Manmohan Singh Defended The 1991 Budget
If presenting the Budget was historic, defending it proved to be a trial by fire.
Manmohan Singh had to ensure acceptance of reforms that were as politically sensitive as they were economically necessary. He faced sceptical journalists, hostile party colleagues, and widespread unease within the Congress ranks.
Congress leader Jairam Ramesh, an aide to Rao during his initial months in office, documents this turbulent period in his book To the Brink and Back: India's 1991 Story. According to the book, Singh described his proposals as “a budget with a human face” and painstakingly defended measures to increase fertiliser, petrol, and LPG prices.
Singh even made an unscheduled appearance at a press conference on July 25, 1991, a day after the Budget presentation, “to ensure that the message of his budget did not get distorted by less-than-enthusiastic officials,” Ramesh wrote.
Prime Minister Rao convened a meeting of the Congress Parliamentary Party (CPP) on August 1, 1991, allowing MPs to “vent their spleen freely”.
“The prime minister stayed away and allowed Manmohan Singh to face the flak on his own,” Ramesh wrote, adding that two more meetings followed on August 2 and 3, this time with Rao present throughout. Even then, “in the CPP meetings, the finance minister cut a lonely figure, and the prime minister did nothing to alleviate his distress”.
Only two MPs, Mani Shankar Aiyar and Nathuram Mirdha, backed Singh's Budget wholeheartedly. Aiyar argued that the reforms were in line with Rajiv Gandhi's beliefs on what was needed to stave off the financial crisis.
Under mounting pressure, Singh agreed to lower the proposed 40 per cent increase in fertiliser prices to 30 per cent, while leaving the hikes in LPG and petrol prices untouched.
