Throwback to Budget 1991: Welcome, foreign investments

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When finance minister Manmohan Singh rose to present the Budget on July 24, 1991 in the P V Narasimha Rao government, the mood was sombre. The debate around opening up the country to foreign investors was met with mixed reactions.

“After four decades of planning for industrialisation, we have now reached a stage of development where we should welcome, rather than fear, foreign investment,” announced finance minister Singh.

This was followed by decisions taken on the export-import policy including foreign equity upto 51 percent would be allowed for trading companies primarily engaged in export activities. Also, he said that prompt approval will be given for direct foreign investment in specified high priority industries, with limit for foreign equity at 51 percent.

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In addition, a special board was also to be constituted to negotiate with a number of large international firms and approve direct foreign investment in selected areas.

Export subsidies have been abolished with effect from July 3, 1991. This led to adjustments in the exchange rate and the expansion of the Replenishment Licensing System which were implemented at the beginning of July.

Owing to the exchange rate adjustments in of July 1991, there was an increase in the rupee value of the import bill for crude oil and petroleum products. This was followed by announcements around raising the prices of petroleum products for domestic consumers.

The ‘aam aadmi’ also had to bear the additional cost in the form of rise in price of motor spirit, domestic LPG and aviation turbine fuel for domestic use by 20 percent. The prices of other petroleum products, excluding diesel and kerosene for non-industrial use were raised by 10 percent.

A significant budget in terms of sweeping changes in the way business was done in the country and short-term pinch to customers was the essence of the 1991 Budget, which paved the way for privatisation and liberalisation of the economy.

As Singh rightly mentioned in his Budget speech, it was a time when neither the government nor the economy could afford to live beyond its means year after year. Despite stiff resistance, the government and Singh took a brave step to go ahead with the reforms; the benefits of which are still being reaped by the Indian economy.moneycontrol