A Manmohan-esque Budget for the Trump era

Manmohan Singh presented the Union Budget for 1991-1992 not just amidst an Indian economic crisis but a global one too

Every Union Budget is deemed significant for different reasons and the upcoming one, to be presented on February 1, is no different. It is likely to be momentous for two reasons. First, it is the first Budget after the demise of former Prime Minister Manmohan Singh, who as finance minister ushered in liberalisation. Second, the Budget will have to factor in the economic challenges Donald Trump 2.0 unleashes. Both reasons may look disconnected, but they are interlinked.

Singh presented the Union Budget for 1991-1992 not just amidst an Indian economic crisis but a global one too. The Berlin Wall had collapsed, and the Soviet Union had imploded just before the 1991 financial crisis. The fall of these two major symbols of socialism dented the socialism movement and created a New World Order. The New World Order was based on two plans of more democracy and freer markets.

India was facing an economic crisis even before 1991, and economists were already discussing the economic reforms, but they could not be initiated. The new global reality of early 1990s and the Gulf war gave India that crucial moment to press ahead with economic reforms.

Budget for a new world order

Fast forward 34 years later, Finance Minister Nirmala Sitharaman faces a similar predicament. Trump is rewriting the Old World Order. Trump has promised American voters that he will ‘Make America Great Again’ by erecting walls for trading with US and migrating to US. There is a growing concern that Trump’s economic policies will be copied across the world, thereby undoing the world of free trade and capital that took shape since the 1990s. We are also seeing rise of authoritarian governments across the world. The New World Order of 2025 and beyond is going based on less democracy and less free markets — opposite to the world order written in the 1990s.

The New World Order puts India in a more difficult position compared to where is it now. In the 1990s, both the global economy and the Indian economy were poised towards freeing internal markets and opening the economy to external markets. In 2025, while the global economy is threatening to turn inwards, India would wish its economy remains more open. The 1991 reforms transformed the fortunes of the Indian economy and is still a work in progress.

Given this new global reality and New World Order, what should be the priorities of the Union Budget 2025-2026?

There are also concerns that India’s growth has slowed down, and is expected to grow by 6.4 per cent in 2024-2025. How should the government revive the economy? The answer lies in reflecting on the lessons from the Union Budget of 1991-1992. The 1991 reforms were around three major pillars: Liberalise, Privatise, and Globalise (the LPG reforms). The government needs to revisit these reforms.

Focus on excluded sections

Though India is a huge economy by itself, there are concerns that the global economy will turn inwards. Governments even today continue the reform agenda shaped by the 1991 Budget. One major concern, however, is that the growth due to the 1991 reforms has not been inclusive. The richer states have grown while the poorer ones have lagged. New sectors such as information technology and software have emerged, but industrial and agricultural growth has not picked up. The rich have got richer, while nothing much has changed for the poor. Another concern is that India’s growth has not created enough jobs to tackle growing unemployment. The reform agenda should focus on these excluded sections of the Indian economy.

The liberalisation reforms initiated in the last 35 years also need to be reviewed. For example, the Goods and Services Tax (GST) aimed to create ‘one nation, one tax’ is far from achieving it. Keeping fiscal deficit at 3 per cent of GDP has not been achieved. Just as the 1991 Budget, this Budget could institute committees to review several aspects of the economy and get fresh ideas. 

Privatisation roadmap

The government must provide more clarity on its privatisation plans. The governments have relied more on disinvesting government stakes rather than outright privatisation. Even then there are more instances of governments missing disinvestment targets than achieving them. The government had announced disinvestment in one general insurance company and two public sector banks in the 2021-2022 Budget which is yet to be achieved. India needs a clear privatisation roadmap.

Looking inwards

Globalisation will test global ties in the time to come. That said, India’s trade policies became more protectionist in nature even before the Trump’s ‘second coming’. The government increased the tariffs on goods and chose to stay away from trade agreements. In adverse times, one could look to trade more with neighbours, but India’s ties with its neighbours have increasingly soured. There are also discussions on how the Reserve Bank of India has not allowed the exchange rate to depreciate adequately thereby benefitting exports. 

A worthy tribute

The government needs a Manmohan-esque Budget for the New World Order under Trump. While presenting the Budget of 1991-1992 under then New World Order, Singh started his Budget Speech saying:

“I rise to present the Budget for 1991-92. As I rise, I am overpowered by a strange feeling of loneliness. I miss a handsome, smiling, face listening intently to the Budget Speech. Shri Rajiv Gandhi is no more. But his dream lives on; his dream of ushering India into the twenty-first century; his dream of a strong, united, technologically sophisticated but humane India. I dedicate this budget to his inspiring memory.”

Sitharaman could consider start her speech in a similar manner acknowledging the contributions of Manmohan Singh. It will be a worthy tribute to the man who shaped India’s economic destiny and whose wisdom continues to enlighten us in these troubled times.

(Amol Agrawal is an economist teaching at Ahmedabad University.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.

Union Budget 2025 | Nirmala Sitharaman, who continues to be Finance Minister, will present her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', reports suggest there might be a tax relief for those making up to Rs 15 lakh per year. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.