Dear Reader,
India’s capital markets eclipsed China to top the fundraising rankings in Asia and became second in the world -- only behind the US -- where firms raised money through initial public offerings towards a bumper listing in the stock market. It has one of the highest foreign exchange reserves stockpiles in the world and briefly tipped Hong Kong in becoming the fourth largest market after market capitalization surged to $5.2 trillion in June this year.
Seems like a fitting end to 2024. But the year, as it ends, is also having a sombre moment as a towering policymaker without whose initiatives the above milestones wouldn’t have been reached is no more. Dr Manmohan Singh was the soft-spoken finance minister who teamed up with the then Prime Minister PV Narasimha Rao, to usher in sweeping reforms that would open the Indian economy and markets to the world.
If Rao was known as the father of reforms, Singh was the architect who rolled up his sleeves and designed and implemented them. He initiated a raft of big policies and several small steps that influenced the Indian economy and its financial sector in the three decades that followed the 1991 big bang reforms.
While Singh’s legacy includes abolishing the License Raj and breaking down government monopolies in various sectors and giving private sector a free hand in profitable growth, his real work has been towards lifting many above the poverty line. Singh was the force behind the private sector’s phenomenal growth. As finance minister, he slashed corporate tax rate by a steep 10 percentage points to 46 percent. He also pruned import duties, changed taxes on exports to boost them in phases, with a series of indirect tax reforms. India Inc owes its fattened profit margins to him.
He was also instrumental in several banking and insurance sector reforms by allowing private sector establishments and foreign capital into them. Present day India’s banking system that boasts of a variety of shades of ownership and some of the most valuable banks in the world is because of Singh’s initial measures as finance minister.
As PM between 2004-14, Singh advanced what he started as finance minister. The National Stock Exchange (NSE) was set up under Singh’s leadership, and the stock market’s progress is now a history revered by all. Singh’s term as PM did have its not-so-kosher moments. The securities scam of the early 1990s was an event that dented his reputation. He was also unable to fight the accusations of widespread corruption in the coalition UPA government during his second stint as PM.
When Manmohan Singh took over as finance minister of a country that had a balance of payments crisis and had to ship gold to prove its creditworthiness, his mandate was to fix all the holes. But he went on to stitch a whole new tapestry for the Indian economy through ground-breaking decisions that changed “reform” to a revered buzzword from an anathema.
As we enter a new year with our outlooks and expectations for it, India’s gross domestic product (GDP) is facing a cyclical downturn, its equity market is facing yet another episode of foreign capital outflows, and its currency is at an all-time low. But the confidence among investors that global headwinds and challenges can be met has never been stronger. Instead of having to ship gold, the RBI has an unprecedented stockpile of forex reserves and has engineered a path of stability for the rupee as our column here suggests. Our Chart of the Day highlights how the forex policy is seamlessly linked to liquidity management. Ananya Roy’s column here lists the challenges for the market from global events and how the domestic fundamentals can give some hope amid a cyclical slowdown.
Not only does the investor class owe its wealth creation to Singh’s big measures, villages with low income and poverty are also big beneficiaries of his initiatives.
The landmark Mahatma Gandhi National Employment Guarantee Act (MGNREGA) under which rural workers were guaranteed a minimum amount of labour and opportunity to earn incomes was Singh’s initiative as Prime Minister during his 2004-14 tenure. MGNREGA is used as a key yardstick to measure rural prosperity or distress even today and the Centre will set aside funds for the scheme in the Union Budget as it does every year. Singh should be credited for facilitating the blueprint for targeted subsidisation through technology behind the digital unique identification of every Indian—Aadhaar. Much of the milestones reached under direct benefit transfers and financial inclusion by banks today can all be traced back to the first steps taken during Singh’s leadership.
India may be going through a tough time as part of economic cycle and global events, but the former prime minister has ensured that the country has the right shield and tools to safeguard herself. For that and many more, history is definitely kinder to him.
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Aparna Iyer
Moneycontrol Pro
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