Union Finance Minister in the Narasimha Rao government Dr. Manmohan Singh presented his first Budget on July 24, 1991.
Budget 1991 together with the Industrial Policy of 1991 allowed private sector investment in almost all industrial sectors. The Reserve Bank of India stipulated a floor rate of interest and freed commercial banks to charge interest rates above the floor level based on their perceptions of risk.
The Government extend a similar freedom to term-lending financial institutions. Exchange control regulations were considerably liberalised with repeal of Foreign Exchange Regulation Act.
The licence Raj was abolished which facilitated private sector (including foreign investment) across industrial sectors and provided greater access to foreign technology
As a result, foreign exchange reserves increased from $1.2 biIlion in 1991 to $313 billion as on June 6, 2014.
Another part of liberalisation was steps towards rationalisation in the duty structures. The Peak Customs duty rates were slashed from 220 per cent to 30 per cent. Over a period of time, the rates have been further rationalised.
It opened up the economy and Indians were exposed to foreign goods. To curb subsidies expenditure, for certain fertilisers prices were hiked by 40 per cent overnight. Subsidised prices of PDS sugar and LPG cylinders were raised.
The interim budget presented to Parliament in March 1991 estimated the fiscal deficit at Rs. 38,475 crores. But since this estimate was based on assumptions about certain decisions that were not implemented.
The regular budget was postponed and by the time Dr. Singh presented it, four months of the year had already elapsed without any efforts at fiscal correction. The fiscal deficit during the year threatened to reach a level of more than Rs. 52000 crore
“There is no time to lose. Neither the Government nor the economy can live beyond its means year after year. The room for manoeuvre, to live on borrowed money or time, does not exist any more…. We need to expand the scope and the area for the operation of market forces. A reformed price system can be a superior instrument of resource allocation than quantitative controls. But markets can only serve those who are part of the market system. A vast number of people in our country live on the edges of a subsistence economy. We need credible programmes of direct government intervention focussing on the needs of these people. The control of land and water degradation, which threatens the livelihood of millions of poor people in this country, will also require effective Government leadership and action,” said Dr. Singh