Effects of liberalisation

Story hook

It is the night of 24 July 1991. India has just nine days of foreign exchange reserves left — barely $1.2 billion, enough for two weeks of imports. 47 tonnes of gold have been physically airlifted to the Bank of England + Union Bank of Switzerland as collateral. The IMF has approved a $2.2 billion stand-by arrangement. Prime Minister P.V. Narasimha Rao has held office for one month. His Finance Minister Manmohan Singh is about to rise in the Lok Sabha to deliver a Budget that will redirect Indian economic history.

The Budget speech runs 100 minutes. In it, Singh announces:

• Devaluation of the rupee by ~18% (already done on 1+3 July).
• Industrial De-licensing — except for 18 industries, no licence required.
• MRTP Act dilution — large companies no longer need approval for expansion.
• FDI up to 51% automatic in 35 priority industries.
• Reduction in customs tariffs — peak rate from 300%+ to 150% (to fall further).
• Capital market access for FIIs.
• Disinvestment in public sector enterprises — to begin.

Singh closes with a Victor Hugo quote: "No power on earth can stop an idea whose time has come."

Thirty-three years later, in 2024, the same Manmohan Singh — now a Rajya Sabha MP — surveys what those reforms have produced. GDP: from $270 billion (1991) to $3.9 trillion (2024). Per capita income: $304 to $2,500. Forex reserves: $1.2 billion to $700+ billion. Foreign direct investment: $129 million (FY91) to $70+ billion (FY24). Listed company market capitalisation: $50 billion to $5+ trillion.

But also: Gini coefficient of consumption from ~0.30 to ~0.36 (rural) and ~0.40 (urban). Top 1% of Indians hold 40% of national wealth (vs ~22% in 1980, World Inequality Report 2023). Particulate matter (PM 2.5) in Indian cities 8-10× WHO limits. Groundwater in 30% of districts over-exploited. Manufacturing share of GDP stuck at 17% (the famous "missing middle" of Indian growth).

Was the 1991 reform a success? The answer depends on which decade you compare to which.

Why this matters for UPSC

The 1991 reform + its evolution is the single most-tested GS-III topic — Prelims has asked Singh's 1991 measures (2012, 2017, 2022), MRTP repeal + Competition Act (2018, 2023), LPG framework (2015, 2020, 2024). Mains essays on liberalisation's effects, inequalities, jobless growth, manufacturing slowdown appear in nearly every cycle. Interview boards probe candidates' views on whether reforms went far enough + the next set.