The Era of Globalisation begins (1990-2000)

Before the 90s India was probably one of the least preferred economies in the world. But 1991 saw the nation entering into a new phase of economic reforms under the stewardship of the current Prime Minister Manmonhan Singh, then Finance Minister (1991-95). Call it the era of globalization, Indian economy for the first time saw a fundamental shift from its socialist ideologies. There were some signs of macro-economic changes during Rajiv Gandhi's era but our economy was already damaged by then. The oil crisis in the 70s and the Gulf war in the 90s tipped the financial situation into a crisis where the foreign reserves were available only for three weeks. Something drastic had to be done.

Manmohan carves India's economy

This is where the then Finance Minister Manmohan Singh stepped in. In his historic budget speech June 21, 1991, he announced a bold financial move of opening the markets.

"The grave economic crisis now facing our country requires determined action on the part of Government. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome."

Source: Trading Economics

With this war cry, Manmohan did away with the Statement of Industrial Policy ( July 24, 1991), investment licensing and myriad entry restrictions on MRTP firms. He called for the New Industrial Policy. The reforms in the 1990s were more systematic and they gave rise to a decidedly more stable and sustainable growth from 1992.  It also ended public sector monopoly in many sectors and initiated a policy of automatic approval for foreign direct investment up to 51 per cent.

One of the primary culprits that led to the 1990-91 crisis was the mounting fiscal deficit during the preceding years. The fiscal deficit as a percentage of GDP had been over 7.5% during 1984-95 and it touched a high of 8.4% of GDP by 1990-91. This was coupled with current account balance at 3.3% of GDP backed by a 9.9% rate of inflation. This issue was immediately addressed by the new government and the gross fiscal deficit was scaled down to 5.9% in 1991- 92.

The increased international trade, freer economy, technological improvements prompted by tremendous growth in information technology combined to show the positive effects from 1994.  The post reform years showed quick and efficient recovery from the acute macroeconomic crisis of 1991.  The real GDP in 1990s increased at an annual rate of 6% which is even more impressive because the rest of the world was going through a minor recession.

In the area of foreign investment, the government abolished the threshold of 40 per cent on foreign equity investment. Multi-national cola giants like Pepsico and Coca-Cola entered the market and Indians saw the emergence of new brands that they had only heard of or seen in television in the western world.

The other major reform of the 90s was when the government set up a governing body to oversee the securities markets in India. It was formed officially by the Government of India in 1992 with SEBI Act 1992[2] being passed by the Indian Parliament.

The stock markets in India remained stagnant due to the controlled nature of the economy up to the early 1990s when the Indian economy began 'liberalizing'. As the controls began to be dismantled or eased out, the stock markets witnessed a flurry of Initial Public Offers (IPOs). This resulted in many new companies across different industry segments to come up with new products and services.

Dream Budget: 1996

The highlight of the era was in the mid 90s when there was a change of guard and the coalition government came to power. The seeds that were sown by Manmohan Singh started bearing fruit. And to consolidate the great work, in came another exceptional finance minister -- Palaniappan Chidambaram. He presented a dream Budget in March 1997 and became a darling of India Inc after he slashed the maximum rate of income tax to 30 per cent, reduced the corporate tax to 35 per cent and cut the average level of tariffs to just a shade over 25 per cent in his second Budget.  Chidambaram, who was the Finance Minister in 1996, had boldly challenged the notion that to improve the government's fiscal position, it was necessary to make certain sections worse off through taxation. A MBA graduate from Harvard School of Business, he widened the tax base whereby the overall income tax rate had gone up.

Source: Trading Economics

Era of Rollback Sinha

However, when the BJP government came into power in 1999, it was more pro-liberal than its Opposition. BJP's tenure saw two Finance Ministers--Yashwant and Jaswant Sinha. Yashwant Sinha's period saw some bold measures being taken which brought its share of criticism.  None of that withstanding, India was promoted as a software destination. It was in fact during BJP's tenure that India's economy was opened further. Yashwant Sinha is credited with lowering real interest rates, introducing tax deduction for interest on housing loans, making key changes in telecom policy, helping fund the National Highways Authority of India. However under political pressure he was forced to rollback some of his policies like restoration of 20 per cent  rebate on specified savings made by taxpayers earning between Rs 1.5 lakh and Rs 5 lakh a year in the year 2002. In the same year he had to roll back five of his policies that were announced during the course of his tenure as finance minister. With maximum number of rollbacks under his belt he earned the monicker of being a 'Roll back' finance minister.

People Who Shaped The Economy In This Era

Manmohan Singh (1991-1996)
P.Chidambaram (1996-1998)
Yashwant Sinha (1998-2002)

Impact of the reforms:

It is very clear that Manmohan Singh's policies dominated this era. The effect of his moves is being seen today.

• Total foreign investment in India grew from $132 million 1991-1992 to $5.3 billion In 1995-1996
• Disinvestment of Public Sector Units began
• An open economy ensured more FIIs entered the market and the middle-class domestic consumption increased
• Sustained GDP growth of over 6 per cent for the first time since independence.
• The new electronic-tradebased National Stock Exchange was established in 1993 and set high technical and governance standards, which soon had to be emulated by the much older Bombay Stock Exchange
• Opening of the economy ushered in global media moguls like Rupert Murdoch to enter India and India saw the boom of satellite television channels
• The Indian IT sector started gaining importance in the global market and new entrepreneurial ventures like Infosys, HCL Tech saw the light of the day when they became listed companies.

Scams that haunted India:

India's growth during this phase had its own share of problems. The centre that tackled the economic crisis couldn't avert serious frauds and scams that hit the stock markets and the political circles.  It might not have been to the scale of A Raja & Co but it did create ripples.

Harshad Mehta Scam:

Back in 1992 he was the super start of stock markets. He was called "the bull of the markets". However his success story didn't last long. He triggered a rise in the Bombay Stock Exchange in the year 1992 by trading in shares at a premium across many segments. Taking advantage of the loopholes in the banking system, Mehta carefully planned his steps and triggered a securities scam diverting funds worth Rs 4000 crore  from the banks to stockbrokers between April 1991 and May 1992. Mehta has siphoned off huge sums of money from several banks and millions of investors were conned in the process. His scam was exposed, the markets crashed and he was arrested and banned for life from trading in the stock markets. He was later charged with 72 criminal cases. Investors even today haven't been able to overcome the horror of losing over thousands of crores of rupees in the markets.

The Telgi Scam:

He is the face behind one of India's biggest scams. Abdul Karim Telgi had mastered the art of forging stamp papers and selling them to banks and other institutions. In 1994, Abdul Karim Telgi acquired a stamp paper license from the Indian government and began printing fake stamp papers. He bribed officials to enter the government security press in Nashik and bought special machines to print fake stamp papers. Telgi's network spread across 13 states involving 176 offices, 1,000 employees and 123 bank accounts in 18 cities.

The Fodder Scam:

If you haven't heard of Bihar's fodder scam of 1996, you might still be able to recognize it by the name of "Chara Ghotala ," as it is popularly known in the vernacular language. The Fodder Scam involved the alleged embezzlement of about Rs 950 crore from the government treasury of the eastern Indian state of Bihar[3]. The scandal involved fabrication of "vast herds of fictitious livestock" for which fodder, medicine and animal husbandry equipment was supposedly procured.

The Hawala Scandal

The Hawala Scam that was revealed in 1996 alleged a nexus between politicians and hawala brokers. Thus, for the first time in Indian politics, it gave public a feeling of open loot. Most major political players were accused of accepting bribes and making payments to Hizbul Mujahideen militants in Kashmir. Those accused included L. K. Advani, V. C. Shukla, P. Shiv Shankar, Sharad Yadav, Balram Jakhar, and Madan Lal Khurana. Many were acquitted in 1997 and 1998, partly because the court considered the hawala records as 'inadequate' main evidence.

Quotable quotes

Finance Minister Manmohan Singh at the Parliament

During his speech in Parliament while presenting the Budget in 1994-95, he quoted Victor Hugo: "No power on earth can stop an idea whose time has come." The result was that productivity in the Indian industry grew like never before.

Interview with the Finance Minister Manmohan Singh

Chidambaram and his love for Tamil

Chidambaram always quoted Tamil poet Tiruvalluvar before presenting the budget.

The Rebel Sinha

To a debate on the Finance bill in 2000-01 Finance Minister strongly defended himself on being linked with the stock market crash and said, "I am not the Finance Minister for the Bombay Stock Exchange."

With every other budget after the liberalization being termed as the dream budget, Sinha was often seen quoting poetries during his budget speech. In his first budget after BJP government came to power at the centre, Yashwant Sinha, quoted the pre-Independence North Indian rebel poet Ramdhari Singh Dinkar, urging the nation to be a "warrior to create future history, as the stars of the night faded to make way for the whole sky."

Sinha also ended the 53-year tradition of a 5 p.m. budget, a practice the British had started to bridge the time difference with their Parliament.

Despite such large scale scams,  at the dawn of the millemium, India had already emerged as the second fastest growing economy in the world. Given that in 1991, India faced a virtual bankruptcy, the efforts taken by the Finance Ministers to have a sustained growth should be lauded. The youth of today is enjoying the fruits of liberalization, thanks to Manmohan Singh & Co. Thus, growth during the 1990s has been more robust, exhibiting far less volatility and continues till today