Architect of modern India

Context: Former Prime Minister Manmohan Singh died at the age of 92 on 26th
December 2024 at AIIMS Delhi. To honour him, the central government has
declared 7 days of national mourning. He was born on September 26, 1932,
Punjab, undivided India. A man of profound integrity and an unassuming
demeanour, Dr Singh served as India’s 14th Prime Minister from 2004 to 2014.
However, his influence extended well before his tenure in the highest office. In
one of the most significant decisions of the 20^th century, he
championed the liberalisation of India’s economy, dismantling the Nehruvian
economic model that had, until then, placed restrictive barriers to growth.

Key points

·       Liberalization: New Trade
Policy - A new trade policy was introduced to boost exports by simplifying
the licensing process and linking non-essential imports to exports.

Tradeable Exim
scrips - Export subsidies were removed, and tradeable exim scrips were introduced
for exporters based on the value of their exports.

Trade Monopoly - The provisions
of the Monopolies and Restrictive Trade Practices Act were relaxed to
facilitate business restructuring and mergers.

·       Privatization: FDI -
Automatic approval for Foreign Direct Investment (FDI) up to 51% was
introduced, compared to the previous cap of 40%.

Public sector
monopoly - Public sector monopoly was restricted to sectors critical for national
security.

·       Globalization: Open Economy
- The focus was on integrating India’s economy with the global market and
encouraging international trade and investment.

Rupee
Devaluation - Massive devaluation of the rupee and new trade policies made Indian
exports more competitive globally.

Reduce Tariff
Barriers - Trade liberalisation through reduced import tariffs and dismantling
non-tariff barriers.

·       Effect
of Reforms on the Indian Economy: Growth Rate of National
Income - The national income growth rate increased from 5% in 1990-91 to
about 9.3% in 2007-08 and 8.2% in 2023-24.

Composition of
National Income - In 1990-91, the manufacturing sector contributed
26% of GDP, which grew to 30% of Gross Value Added (GVA) by FY 2024. The
service sector’s contribution increased from 44% in 1991-92 to over 50% by FY
2024.

Savings and
Investments - The rate of investment, measured as gross domestic capital formation,
increased from 26% in 1990-91 to 31% in 2015-16 and 30.2% in FY 2023.

Foreign Trade - The export
sector became a significant contributor to national income and a major earner
of foreign exchange.

Foreign Exchange
Reserves - The balance of payments improved significantly, leading to a rapid
increase in foreign exchange reserves from $1.1 billion in June 1991 to an
all-time high of $681.69 billion in August 2024.

Foreign Direct
Investment (FDI) - India allowed 100% FDI in most sectors except for a
few such as lottery, chit funds, and atomic energy. FDI inflow rose from $1.3
billion in 1990-91 to $70.97 billion in FY 2022-23.