On July 24, 1991, exactly a month after he had taken charge of the Finance Ministry, Dr Manmohan Singh presented a revolutionary Budget.
He spoke of the economic crisis facing the country and the sacrifices needed to overcome the problems. However, he did not stop at short-term crisis management.
He went ahead with long-term reforms, which proved to be critical in driving productivity and growth during the next two decades.
Earlier that day, the Statement on Industrial Policy had been issued, consigning the licence-permit raj to history. The speed with which such a wide host of initiatives was announced is a contrast to today's relatively slow-moving and more consultative process.
SOCIAL RESPONSIBILITY
The 1991 Budget speech was also prescient of many of the issues we are facing today. The Budget speech suggested that while the creation of wealth must be encouraged, those who create and own wealth “have to hold it as a trust and use it in the interest of society”.
It elaborated on how to reform the planning process to bring in more elements of market-based pricing system for better resource allocation. It also recognised that given the need to eradicate poverty, hunger and disease, huge investments were needed to be directed to certain sectors, which may not be achieved by just the market economy.
We continue to grapple with these issues even in the current scenario.
To say that industry was taken aback by the speed of the reforms is to put it mildly. Indian industry was thrown open to competition from abroad after many decades of protection, and had to fight for survival.
Besides, the plethora of restrictions on investments, import of raw material and essential inputs and funds made them focus on getting the approvals rather than operating efficiency. Indian companies were perceived to have become inefficient, with less productivity.
In the decade that followed, custom duties on industrial products were brought down significantly to further remove any protection. Although the industry was initially apprehensive of how it would cope, it emerged stronger and more competitive.
Today, questions are being raised on how the industry has benefited from reforms and if the industry has done enough to give back to society.
The Confederation of Indian Industry (CII) played a key role in supporting the reforms and improving competitiveness. In subsequent years, the reform process also introduced much greater competition across sectors by dismantling public sector monopolies and allowing private sector players into many sectors. Here again, the private sector has participated enthusiastically and emerged as strong players.
So when questions are raised about the industry's contribution to society, it must be remembered that companies had to fight for survival in the post-reform scenario. It is only now that the industry has gained in confidence and is in a position to give back.
Companies are increasingly focusing on corporate social responsibility, with many of them producing externally audited annual reports that provide updates on ecological and social performance, in addition to their financial performance. The realisation is now taking place that prosperity of the people is good for businesses. The industry is therefore as keen as the government to see a more inclusive growth model emerging in the coming years.
ECONOMIC REFORMS
The other question being asked is if the people, in general, have gained from economic reforms.
While there has been considerable debate on this and I don't want to dwell on this too elaborately, I would like to point out that per capita income has increased steadily during the last 20 years.
Expectations have run ahead so fast that some segments of the population are bound to feel left out from the general progress. The fact that people are saving a much higher proportion of their income itself indicates that in general, people are more secure.
Of course, much remains to be done to raise people's standards of living. In particular, the economic reforms have been unable to usher in significant change in the agricultural sector, where many restrictions still remain.
Productivity remains low, market linkages haven't been created, rural infrastructure is deficient and availability of finance is limited. Since a large part of the population is dependent on agriculture for their livelihood, it is no wonder that the benefits of economic reform haven't yet touched their lives.
Reforms also need to be supported by improvements in the delivery of government services in areas such as health and education, without which the expected improvements won't take place. Industry is today deeply aware of the shortcomings in the employability of the labour force.
For the benefits of reform to spread wider, it is necessary to create a qualified, healthy and skilled workforce. The private sector is willing to work in partnership with the government in these areas and innovative schemes should be taken up, wherein the private sector can play a more active part.
(The author is Director-General, CII.)