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economy | IST

Montek Singh Ahluwalia on how 1991 reforms were announced

30 years ago on July 24 1991, Dr Manmohan Singh presented his historic budget when India made a definite break with the past. That budget was part of a bunch of decisions that ushered a policy regime opposite to what we followed till 1990. One man who participated in each of these decisions was Montek Singh Ahluwalia. He began questioning the closed economy in the eighties when he was in the PMO, then in 1991 as commerce secretary initiated the opening of the economy and as economic affairs secretary and finance secretary presided over the creation of a debt market and some capital account liberalisation.

30 years ago on July 24 1991, Dr Manmohan Singh presented his historic budget when India made a definite break with the past.
That budget was part of a bunch of decisions that ushered a policy regime opposite to what we followed till 1990. We freed the dollar-rupee exchange, slash import tariffs ending a closed economy; delicenced most sectors; forced the government to borrow from the market instead of RBI monetising deficit and finally freed the capital account too.
One man who participated in each of these decisions was Montek Singh Ahluwalia. He began questioning the closed economy in the eighties when he was in the PMO, then in 1991 as commerce secretary initiated the opening of the economy and as economic affairs secretary and finance secretary presided over the creation of a debt market and some capital account liberalisation.
He was also at the centre of policy making from 2004 to 2014 as Department Chairman of Planning Commission.
Ahluwalia was not at all just a bureaucrat. He was an economist and an Academic and also at India’s intersection with the world having worked at World Bank and so from the start he could stand outside the system and analyse it critically.
Talking about reforms and budget Ahluwalia said, “The reforms were actually done before the budget in 1991. The finance minister took the two-step devaluation on the first and third of July, the major trade policy change that we were working on got announced towards the end of the third of July because we wanted it to coincide with the announcement of the withdrawal of cash compensate we support and the industrial policy also was laid on the table of the house a few hours before the budget.”
“What made the budget I think very historic was that it was pulling together of all these things and explaining the rationale of change in direction. The budget was a great educational attempt to explain to people the interrelationship between why an industrial change was needed, why tariff policy was needed, why the exchange rate needed to be changed and these things typically had not ever being out together in quite the same way.”
On give and take in the budget, he said, “All politics involves an element of giving and take. In the 1991 reforms, I remember that Dr Manmohan Singh announced an increase in the fertiliser subsidy by 40 percent. there was a huge outcry so they lowered the increased to 30 percent. Later on, he told me that this was always the intention. So, the idea of taking a step with the notion that you are going to concede something that is certainly a good thing.”
On comparing reforms with other countries he said, “There is no question, China’s reforms were much bolder, much deeper, much more decisive and had a terrific impact on the Chinese economy. I don’t think we had anything like that. I personally don’t think that our politics would have allowed that to happen.”
For the full interview, watch the accompanying video...