Produced by: BT Desk Designed by: Manoj Kumar
Manmohan Singh and PV Narasimha Rao took charge in 1991 when India was facing its worst economic crisis and was on the brink of a sovereign default
The 1990-91 Gulf War set oil prices on fire. A dip in remittances along with that led to a sharp depletion in India’s forex reserves — at less than $6 billion, just enough to meet two weeks of the country’s imports.
A fiscal deficit of 8 per cent of GDP, a CAD of 2.5 per cent and double-digit inflation made it worse
The duo along with RBI did a two-step devaluation of the rupee, which was first devalued against major currencies by around 9 per cent on 1 July 1991, followed by another devaluation of 11 per cent two days later. This made Indian exports more competitive.
RBI under Rao pledged India’s gold holdings with the Bank of England in four tranches from 4-18 July 1991, raising nearly $400 million. India also took emergency loans from IMF in two tranches of around $2 billion in that year.
The duo brought a new trade policy, linking non-essential imports to exports to discourage such imports.
The game-changing new industrial policy put an end to the licence raj regime.
Presented by Manmohan Singh on 24 July, the Budget opened up mutual funds to the private sector and relaxed rules for investment by non-residents.
The reform push continued after budget, pulling India out of the crisis. The duo came up with a second trade policy to boost exports and a package for developing small firms.