How 24 July 1991 Changed India | Senior Journalist On Corruption, GST, Demonetisation, Rajiv Gandhi

How the 1991 crisis got India to rethink its economic approach.

In 1991, India faced a crisis that nearly brought its economy to its knees.

The government was spending much more than it earned, with 39% of its income going to pay interest on loans.

It was so bad that foreign exchange reserves had just $1.1 billion, barely enough to cover three weeks of imports.

So, how did India end up in this situation? What really went wrong?

After independence in 1947, India chose a path of economic self-reliance with govt-controlled industries, restricted imports, and limited foreign investment.

While this protected local businesses, it also slowed growth and stifled innovation. By the 1980s, the need for change was evident.

By 1990, the country’s external debt had jumped to over $83.4billion. Most of this debt had high interest rates, making it hard to pay back.

Things got even worse when The Gulf War started when Iraq invaded Kuwait, causing global oil prices to spike— India’s oil import costs shot up, putting more pressure on its limited reserves.

India’s reserves started shrinking fast, and soon there wasn’t enough to pay for imports like oil.

By early 1991, India’s reserves were nearly gone.

The government took a desperate step—it sent 67,000Kg of gold abroad to secure a loan from the IMF.

This was a last-ditch effort to avoid default, but it only bought a little time.

But soon, the govt collapsed again, leading to a new election.

In June 1991, P.V. Narasimha Rao became Prime Minister, and he chose Manmohan Singh as his Finance Minister— and things changed. Mr Singh devalued the Indian rupee by about 19% in 1991, which helped make Indian exports cheaper and more competitive globally.

Rao and Singh quickly implemented reforms: they removed restrictive licensing, welcomed foreign investment, and eased machinery imports.

The 1991 crisis forced India to rethink its economic approach—it highlighted the risks of heavy borrowing and too much government control. But it also showed that when things get tough, bold decisions can turn a bad situation into an opportunity.

In this episode of the NEON Show, Rajrishi Singhal, a senior journalist, banker, shares his deep insights into India's economic reforms and financial sector. Singhal discusses the challenges of corruption, the impact of sudden policy changes like demonetization and GST implementation, and the complexities of foreign investment in India. Singhal offers a nuanced perspective on why India's economic progress hasn't met expectations, touching on issues from private sector investment to the success of reforms during coalition governments. This conversation provides valuable context for understanding India's current economic landscape and the potential paths forward for policy-making and economic growth.

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Timestamps
0:00 - Trailer
01:28 - Introduction to the podcast and guest, Rajrishi Singhal.
02:51 - Corruption in India and its impact on the economy.
06:58 - How demonetization was not to take out corruption.
08:34 - Rajiv Gandhi was the original ‘Accidental Prime Minister’.
13:57 - What pushed us into the 1991 crisis.
16:13 - Raids on Reliance Industries.
20:25 - How India almost went bankrupt.
23:13 - Complexities of India’s banking system.
20:43 - What are regional rural banks (RRBs).
26:54 - Corruption's impact on investments.
30:09 - Why doesn't India have more new banks?
33:28 - Why private sector investments in India have been limited.
35:53 - Success of reforms during coalition governments.
41:54 - Foreign investors' concerns about sudden policy changes in India.
42:54 - Impact of demonetization on the Indian economy.
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Hi, I am your host Siddhartha! I have been an entrepreneur from 2012-2017 building two products AddoDoc and Babygogo. After selling my company to SHEROES, I and my partner Nansi decided to start up again. But we felt unequipped in our skillset in 2018 to build a large company. We had known 0-1 journeys from our startups but lacked the experience of building 1-10 journeys.

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