Global Economy Indian Economy
In June 1991, the Indian economy was undergoing a dangerous economic crisis. The fiscal deficit had reached an ominous 8.5% of the GDP; there was a massive crisis in the balance of payments; the current account showed a deficit of nearly 3.5% of the GDP, and India's foreign exchange reserves amounted to a meagre USD$1 billion, just enough to suffice for a few weeks of imports.
That was when Dr. Manmohan Singh joined Mr. Narsimha Rao's cabinet, and revolutionized the fiscal policy of the nation. Starting with dual-stage devaluation of the rupee (on 1st and 3rd July 1991) and removal of export subsidies (cash compensatory support) on 4th July 1991, Singh's Ministry went on to obtain financial assistance from International Monetary Fund (IMF) to over come the imminent severity of the crisis. He abolished the ‘license raj', by launching a banner of economic reforms to narrow the widening income gap among the echelons and the small industrialists and paved a way for India on a course of unhindered prosperity.
Despite India being in a better economic position now, a score years later, the political goodwill has deteriorated tremendously - especially with the anti-corruption campaigns bringing it more disgrace. The current scenario dotted with industrial scams, blurts out the imminent global financial crisis, a despicable balance of payments situation, retardation of investments and industrial growth, loss of investor confidence, decimating social infrastructure and a fight against corruption that seems to have risen like a phoenix, presents a doomsday sort of a situation for the Indian economy. This picture presents the perfect scene for a revision of financial policies.
In such a foreboding situation, it is of utmost importance to get rid of the impeding elements from the ministries and to ensure that a systematic and professional management in government departments.
International trade, especially exports, seek promotional incentives. Planning should be focused towards the removal of quantitative restrictions and lowering of import duties for liberalisation through regional trade negotiation efforts. Innumerous exemptions make the trade tariffs complex to understand, and a rational system should replace the present one.
Addition to Special Economic Zones and Export Oriented Units can be avoided. The existing schemes for Domestic Tariff Area (DTA) Units are unnecessarily numerous and unnecessarily complicated. A cleaner and more systematic system to deliver the perks of the export promotion schemes to the exporters should be in place.
Special Economic Zone: A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside a special economic zone.
See also a presentation on Industrial Policy, 1991 by Dr. Manmohan Singh in 1991.