Four charts explain how the 1991 Budget by Manmohan Singh transformed Indian economy

The 1991 Budget by Manmohan Singh delivered a growth boost

Former prime minister Manmohan Singh, who breathed his last on December 26, would not only be known for his stint as the fourth longest-serving prime minister (2004-14) but also for his five-year stint as the finance minister during the minority government headed by prime minister PV Narasimha Rao. The liberalisation reforms undertaken by Singh in the 1991-92 budget paved the way for higher growth, stable reserves and more efficient government revenues. Moneycontrol looks at how 1991-92 was a watershed year for the Indian economy in four charts, which pushed growth higher, delivered stable forex reserves, and increased the direct tax to GDP ratio.

Growth got a leg up

One of the characteristics of the decades leading up to 1991 was the economy's slow per capita income growth. Battered by partition, three wars and global shocks, India’s per capita income in constant terms grew 2.4 percent in the ten years leading up to 1960 and 1.5 percent and 0.2 percent in the following two decades. While the 1980s provided some fillip to per capita income growth, with per capita incomes rising at a compounded annual growth rate of 3.2 percent, the 1991 Budget paved the way for 4.1 percent growth in the decade and a 5.2 percent increase in per capita incomes per annum between 2001-02 and 2011-12. India’s growth hasn’t dipped below 4 percent since.

More money came in

The opening up of the economy through liberalisation measures also allowed more foreign direct investment to flow into the country.

Forex reserves received a boost

The reforms also witnessed a jump for India’s forex reserves, which nearly doubled in 1991-92 and rose six times in a decade to $54 billion in 2001-02 compared with $9.2 billion in 1991-92.

Tax-to-GDP ratio increased

In his five years in office, Singh also reduced corporate tax and rationalised other direct and indirect taxes, increasing tax collections. Corporate tax was reduced to 46 percent from over 50 percent earlier. Further reforms carried out by P Chidambaram, Jaswant Singh, and Yashwant Sinha as finance ministers, simplifying the tax regime and reducing the burden of tax, helped improve the tax-to-GDP ratio, which had stagnated leading up to 1991-92.