Manmohan Singh: The man who trashed Nehruvian policy and changed India forever

Manmohan Singh today turned 85 . The world judges him for his two consecutive terms as the Prime Minister of India and the ruling BJP thanks him for giving the election-winning slogan, "Achchhe Din Aayenge" (Good Days Shall Come) for 2014 elections.

But, 13 years before Manmohan Singh became Prime Minister of the country, he had changed India forever with an emphatic declaration in Parliament that "no power on earth can stop an idea whose time has come" quoting Victor Hugo, the great French literary genius of the 19th century.

On July 24, 1991, Manmohan Singh - having full support of the often-ignored visionary PM PV Narsimha Rao - not only presented the Budget that changed India but with one big jolt, also broke the Nehruvian inertia of socialist economy. However, it is also true that the previous Chandrashekhar government of about 40 days and its Finance Minister Yashwant Sinha (who later formed the core of the BJP leadership) had laid its launching pad.

PRE-MANMOHAN POLICY

Prior to the 1991 reforms, the economic policy of India was shaped by, barring a couple of experiments, the colonial experience of capitalism and defined at best by Fabian socialism. The economy was modelled after the ideas of former Prime Minister Jawaharlal Nehru, who saw all kinds of evil in private capital and solutions in Soviet-type planning.

The key features of the Nehruvian policy, which continued until the 1991 reforms wiped it away, were state protectionism, import substitution, industrialisation under state monitoring, state's dominance in the job market, micro-level enterprise management by government, burgeoning public sector, all kinds of business regulation, centralised planning and license regime for almost everything.

This economic policy prevented private entrepreneurship and bred absence of innovation and experiments. Trade unionism, instead of labour legislation, dominated in whatever private entrepreneurship flourished in the country.

The problem of Nehruvian policy was identified by, first, his daughter and former PM Indira Gandhi and then also by his grandson Rajiv Gandhi. Indira Gandhi tried to bring in reforms as early as 1967 by removing some protectionist measures, but the opposition was so strong that she returned to Nehruvian policy with more vigour and stricter protectionist regulations.

Rajiv Gandhi tried his hands at shaking off the Nehruvian yoke in 1987. But, soon, Bofors squeezed all his zeal and energy. The Chandrashekhar government, supported and pulled down by Rajiv Gandhi's Congress, took some steps towards course correction. One of the highly criticised decisions was to mortgage gold. But, when Manmohan Singh did them, his move was well received.

They all realised that Jawaharlal Nehru's policies had outlived their utility for India. Those policies had received success in limited measures under the rather authoritarian regimes. Nehru was a towering personality himself and took all the onus for policy making at the central level while states were made to believe that they were bound to depend on the Centre for almost everything.

INDIA ON REFORMS EVE

The result of decades of Nehruvian socialist economic policy was that the Indian economy had a debt of over 88 per cent of the GDP in 1991. The external debt was pegged at 23 per cent while the internal public debt amounted to 55 per cent of the GDP.

License raj and red tape ensured that running a legal business in India was nothing but nagging pain. The economic progress was laughed at with ridiculing phrases like "Hindu growth rate". The largest states were clubbed as "BIMARU". The employment rate had turned negative.

The fiscal deficit was at eight per cent of GDP, wholesale price inflation was over 13 per cent, retail inflation was at 17 per cent while foreign exchange reserves were left to buy only two weeks of the needful.

This was the time when PV Narshimha Rao government was sworn in on June 21 in 1991 - a month after Rajiv Gandhi had been assassinated - and Manmohan Singh announced the new "idea" of liberalisation to replace the Nehruvian idea of governance.

HOW MANMOHAN CHANGED INDIA

On July 24, Manmohan Singh presented the historic budget, shifting India's economy from protectionism and socialism to liberalisation. He ended the licensee raj opening all sectors, except five concerning nation's security including nuclear technology and telecommunication.

In two steps over three days, the rupee, which enjoyed an artificial superiority against major currencies, Manmohan Singh devalued rupee first by nine per cent and subsequently by 11 per cent. This single stroke gave trade a major boost opening scores of employment avenues.

On his insistence, the RBI agreed to mortgage India's gold holdings with the Bank of England. A similar act by Yashwant Sinha under the Chandrashekhar government was much criticised. But now, it gave the Centre necessary financial assistance saving the government from bankruptcy. Emergency loan was taken from the International Monetary Fund (IMF) helping India prevent debt default.

Manmohan Singh threw away the redundant economic philosophy of socialist capitalism encouraging entrepreneurship. He welcomed foreign investment for direct funding of industrialisation in India. Markets were thrown open for foreign investors and multi-national companies prompting the then Opposition party, the BJP, to lead nationwide protests against pro-market policies. The opponents drew parallels with the oncoming of the East India Company in the 17th century.

Trade policy was reworked and export subsidies abolished. The Securities and Exchange Board of India (SEBI) was empowered and made the sole regulator of the Indian market. Major tax concessions were announced for the services sector. Software companies were given special concessions which made rapid progress, establishing India as a world leader in a very short span of time.

While private capital became the new love of the government, Manmohan Singh increased corporate tax from 40 per cent to 45 per cent, ensuring that their growth also benefitted the government to carry out socialist political responsibility.

By the time coalition politics became the feature of Indian politics in the mid 90s, Manmohan Singh had changed India's future forever.

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