India was reaching the limits of an economic collapse by 1991 due to depleted foreign exchange reserves and because the Soviet Union had fallen to its knees, on which this country had always leaned for cheaper oil and other raw materials. It was in such a predicament that Finance Minister Manmohan Singh proved instrumental in taking the nation out of this financial disaster by presenting the Union Budget for 1991-92.
Under the prime ministership of PV Narasimha Rao, Singh initiated fundamental economic reforms. The reforms sought to alleviate the grave financial problems that the country faced and modernize its economy. Singh stated in his budget speech that “macroeconomic stabilisation and fiscal adjustment alone cannot suffice. They must be supported by essential reforms in economic policy and economic management,” which would bring efficiency, eliminate waste, and increase the global competitiveness of the nation.
Singh further identified major objectives of the reforms: improving industrial efficiency, inviting foreign investment and technology, liberalizing India’s financial sector, and enhancing the performance of the public sector. It would make India a credible participant in the fast-changing world economy.
But there was no smooth sailing. Implementing these far-reaching reforms faced opposition, especially within the party he belonged to. At the CPP meeting, Singh was met with stern criticism. Mani Shankar Aiyar and Nathuram Mirdha were the only two Congress MPs who spoke out for the budget. Congress leader Jairam Ramesh said that Singh would not back down on his budget and even described it as a “budget with a human face” and explained to the house the need to raise fertilizer, petrol, and LPG prices.
Ramesh recalled in his book, ‘To the Brink and Back: India’s 1991 Story’, how Singh was left to face the anger of his colleagues alone. Prime Minister Rao, who felt the growing tensions, allowed party members to vent their frustrations but distanced himself from the process, leaving Singh to manage the fallout. Ramesh described the situation as one where Singh “cut a lonely figure” in the CPP meetings, with Rao refraining from offering any direct support.
Under the pressure, Singh remained adamant on the budget. He finally agreed to reduce the fertilizer price hike from 40% to 30%, but kept the hikes on LPG and petrol prices intact. On August 6, 1991, Singh presented a statement in the Lok Sabha that reflected the concerns discussed in the CPP meetings.This statement acknowledged the pressure from the party while keeping intact the core objectives of the reform process, which included the decontrol of fertilizer prices except for urea and planned increase in the price of urea.
The result was this compromise between the government and the party. The end result of Ramesh, however, would say, “a textbook example of how the government and the party can collaborate to create a win-win situation for both.” It laid a foundation for reforms done by Singh, which gave way for India’s transformation towards a developed economic system from financial collapse.
