On 2 July 1991, a minority government led by Prime Minister P.V. Narasimha Rao, assisted by Finance Minister Manmohan Singh, who had just made his ministerial debut and was yet to become a member of Parliament, took one of the boldest steps any government could take. Just ten days had passed by after the Rao government had been sworn in, but its finance minister in consultation with the RBI allowed the Indian rupee— long considered a symbol of India’s economic pride—to depreciate by 9.5 per cent. That took the value of the Indian rupee per dollar down from Rs 21 to Rs 23 in one stroke.
A series of bold measures followed in 1991 to bail the Indian economy out of its worst balance-of-payments crisis and introduce reforms in industrial, trade and fiscal policies. The Rise of Goliath by A.K. Bhattacharya explores how these new policies unleashed in a short span of about two months had a long-lasting positive impact on India’s politics and economic management:
The asset limit for companies governed by the MRTP Act was scrapped in one stroke. This meant virtually unlimited freedom for Indian industries to grow without worrying about breaching the ceiling on their assets, initially set at Rs 20 crore in 1969. It had been relaxed twice in the past—to Rs 50 crore in 1980 and to Rs 100 crore in 1985, but now it was scrapped.
Giving a big boost to the private sector’s freedom to operate in new areas, Singh allowed private enterprises to enter as many as ten new areas, which till then were reserved exclusively for the public sector.
Automatic approval for foreign equity participation up to 51 per cent in thirty-four selected industries was permitted and companies entering into foreign technology agreements were freed from the requirement of obtaining the government’s permission.
Singh also scrapped the clause that allowed conversion of loans into equity for new projects.
Singh also allowed the process of state-owned enterprises to shed their stake in the market with the twin intention of raising revenues for the government through the sale of stakes in the PSUs and consequently subjecting these enterprises to greater market discipline.
The Rise of Goliath by A.K. Bhattacharya provides a fresh perspective on many more such disruptive events that shaped India.
