Manmohan Singh….

“After four decades of planning for industrialisation, we have now reached a stage of development where we should welcome, rather than fear, foreign investment. Our entrepreneurs are second to none. Our industry has come of age. Direct foreign investment would provide access to capital, technology and markets. It would expose our industrial sector to competition from abroad in a phased manner,” Manmohan Singh said.

The Indian economy was on the brink when Manmohan Singh presented the 1991 budget. The USSR was on the verge of collapse, which complicated the situation as it disrupted the oil and commodity market. The USSR was a cheap oil and commodity source for India, allowing India to trade without having huge dollar reserves. Manmohan Singh presented the much-needed reform during the 1991 budget.

To accommodate the reform, India took a loan of USD 250mn from the International Bank for Reconstruction and Development (IBRD) to be paid over 20 years and an International Development Association (IDA) credit of Special Drawing Rights (SDR) USD 183.8mn (equivalent to USD 250mn) with a 35-year maturity. India had to pledge 20 tonnes of gold to the Union Bank of Switzerland and 47 tonnes to the Bank of England and the Bank of Japan.

Summary Stats
🚫 Fiscal deficit more than 8%
🚫 FX reserve close to USD 600mn, barely enough to support 3 weeks of essential imports!
🚫 GDP growth 1.1%
🚫 USD/INR ~23
🚫 Bank Rate – 12%

Reforms
➡️ Changed the import-export policy why limiting the licensing.
➡️ Increase foreign equity limit to 51%, especially in capital goods used for exports. The FX earned from exports will be more after accounting for the FX remittances in dividends.
➡️ Suggested disinvestment in certain noncritical public sector undertakings.
➡️ Sick public sector companies should be transferred to BIFR.
➡️ Old SLR – 38.5% & CRR – 15%, New SLR – 25% & CRR – 10%.