New Delhi: In 1991, Manmohan Singh, the then Finance Minister of India, presented a budget to India’s parliament that would change his country and the world. It was an unlikely triumph wrested from a moment of national humiliation. Thanks to political turmoil, high oil prices and fiscal profligacy, India was left with barely enough foreign exchange to last a fortnight. Like an indigent household pawning the family jewels, its central bank was forced to airlift 47 tonnes of gold to the Bank of England as collateral for a loan, while it waited for more help from the IMF.
In that fraught summer, Mr Singh devalued the rupee, abolished most of the quotas and licences that dictated who could produce what, and opened some industries to foreign capital. His reforms ripped pages out of the Red Book of regulations with which customs inspectors tormented Indian businessmen. He commended his budget proposals to parliament by paraphrasing Victor Hugo: “No power on Earth can stop an idea whose time has come.”
That idea, Mr Singh suggested, was India’s emergence as a “major economic power in the world”. The years since have amply vindicated his confidence. India’s economy has almost quadrupled in size, growing by about 7% a year on average over the past two decades and by over 9% from 2005 to 2007. Given India’s sheer scale, its economic rise is bigger than any that came before, bar China’s, and far bigger than anything that will come after. And its demography, unlike China’s (see leader), will underpin future growth.
Some economists argue that the role of Mr Singh’s reforms has been overstated, pointing out that India grew almost as fast in the decade before the crisis as it did for ten years after it. Earlier, smaller, changes did create some passing momentum; but Mr Singh’s liberalisation was of more lasting significance. July 1991 therefore deserves its spot in the annals of economic history alongside December 1978, when China’s Communist Party approved the opening up of its economy, or even May 1846, when Britain voted to repeal the Corn Laws
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