July 24, 1991

Economic liberalisation in India

India tables its New Industrial Policy and Manmohan Singh presents the reform budget

The document that dismantled much of the Licence Raj was tabled quietly in Parliament several hours before Manmohan Singh rose to deliver the budget everyone remembers.

Two documents, one afternoon

On 24 July 1991 the Government of India tabled a Statement on Industrial Policy in both houses of Parliament. It was a Ministry of Industry document. Later the same day, Finance Minister Manmohan Singh presented the 1991–92 budget.

The listing credits Singh with announcing the industrial policy. He did not. Prime Minister P. V. Narasimha Rao held additional charge of the Industry portfolio, and the statement came from his ministry.

Singh's budget speech referred to industrial-policy changes that “we have announced” and placed them inside a wider package of fiscal, trade, exchange-rate, investment and financial reforms.

Licences became the exception, not the rule

The statement abolished industrial licensing for all projects except a specified list covering strategic, hazardous, environmental, social and luxury-consumption concerns. Eighteen industries stayed under compulsory licensing in the original annex, and small-scale-sector reservations remained.

It authorized automatic approval of foreign direct investment up to 51% equity in designated high-priority industries, and allowed majority foreign equity up to the same level in export-oriented trading companies.

It also ended pre-entry scrutiny of investment decisions by large MRTP companies and proposed removing prior central-government approval for expansion, new undertakings, mergers, amalgamations and takeovers.

Opening up with two weeks of imports in the vault

India was in a near-default balance-of-payments crisis. Foreign-currency assets stood at about US$1.1 billion in June 1991, barely two weeks of import cover, while short-term credit and non-resident deposits drained away.

Calling 24 July the beginning of liberalisation is interpretive. Exchange-rate adjustments had already been made on 1 and 3 July, trade-policy changes were underway, and partial industrial deregulation dated back to the 1980s.

The package was decisive all the same: by nightfall, delicensing, foreign-investment and MRTP reform were public government policy, with implementing press notes to follow, including the Industry Ministry's 14 August procedures for foreign investment and technology agreements.

Sources

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What the sources leave uncertain

The date is secure, but the listed attribution is not. Manmohan Singh presented the budget on 24 July; the industrial-policy statement was separately tabled by the government through the Industry Ministry earlier that day.
Calling this the absolute “start” of liberalisation is interpretive. Exchange-rate adjustments had already occurred on 1 and 3 July, trade-policy changes were underway, and partial industrial deregulation dated back to the 1980s. The 24 July package was nevertheless a decisive acceleration.