When Economics Met Leadership: India’s Liberalisation Under Dr. Manmohan Singh

Leadership at the Edge of Collapse

In 1991, India confronted one of the gravest economic crises in its post-independence history. Foreign exchange reserves had fallen to critically low levels, inflation was rising, and the country faced the real prospect of sovereign default. More than an economic emergency, the moment posed a profound question of leadership and governance: could a democratic state implement painful but necessary reforms without eroding political legitimacy?

The Crisis of 1991-Economic Triggers

Balance of Payments Crisis:

Foreign exchange reserves fell to less than USD 1 billion

High Fiscal Deficit: Exceeded 8% of GDP

External Shocks:

Gulf War oil price spike and decline in remittances

Rising Debt:

Growing dependence on external borrowing

Political Context

India experienced political instability between 1989 and 1991. When P.V. Narasimha Rao assumed office as Prime Minister in June 1991, the situation demanded immediate and decisive action.

India was compelled to pledge gold reserves abroad to secure emergency funding — a moment that symbolised the gravity of the crisis.

The Emergence of a Technocrat in Power

Dr. Manmohan Singh was appointed Finance Minister in 1991. His background included:

• Academic training at Oxford and Cambridge

• Former Governor of the Reserve Bank of India

• Chief Economic Adviser and Deputy Chairman of the Planning Commission

Singh believed the crisis was not merely cyclical but structural, requiring deep and irreversible reform.

In his 1991 Budget speech, he framed reform as historical inevitability:

“No power on earth can stop an idea whose time has come.”

At the centre of this turning point stood Dr. Manmohan Singh,

a technocrat with deep economic expertise but limited political capital. 

His success lay not in charisma or coercion, but in aligning economic ideas, institutional reform, and political stewardship through what came to be known as the LPG model—Liberalisation, Privatisation, and Globalisation.

Background: India’s Pre-1991 Economic Model

From Independence until the late 1980s, India followed a state-led, inward-looking economic model, characterised by:

Central planning via Five-Year Plans

Extensive industrial licensing (Licence Raj)

Dominance of Public Sector Undertakings (PSUs)

High import tariffs and quantitative restrictions

Limited foreign investment

While this model helped establish basic industries and ensured self-reliance, it also led to:

Low productivity and inefficiency

Weak export competitiveness

Chronic fiscal deficits

Slow growth averaging around 3–3.5% annually

By the late 1980s, these structural weaknesses had become increasingly unsustainable.

Technocratic Leadership, Political Sponsorship, and the LPG Framework

A key question in governance studies is whether technocratic leadership can succeed without political sponsorship. India’s experience suggests it cannot. 

While Dr. Singh designed the reform framework, it was Prime Minister P.V. Narasimha Rao’s political backing that allowed the LPG model to be implemented.

The LPG framework was not introduced as a single shock, but as a sequenced leadership strategy:

Reform Strategy: The LPG Framework

1. Liberalisation

Abolition of industrial licensing for most sectors,Removal of controls on capacity expansion,Simplification of regulatory approvals

Impact: Unleashed private entrepreneurship and reduced bureaucratic bottlenecks.

2. Privatisation

Reduced rent-seeking opportunities and political patronage by reducing government monopoly in non-strategic sectors

Initiation of PSU disinvestment

Greater reliance on market efficiency,

Impact: Improved efficiency and signalled a shift away from state dominance.

3. Globalisation

Sharp reduction in import tariffs

Opening of sectors to Foreign Direct Investment (FDI)

Integration into global trade systems

Impact: India transitioned from a closed economy to a globally connected one.

Globalisation imposed external discipline through global markets and competition.

Rao absorbed political risk and managed resistance, while Singh ensured economic coherence. 

This division of roles highlights that policy frameworks succeed when expertise and authority work in tandem.

Crisis-Driven Reform and Democratic Ethics

Was it ethically justified to introduce LPG reforms during a crisis in a democracy? India’s answer was conditional yes.

The crisis created urgency, but reforms were implemented within constitutional and parliamentary norms. 

Budgetary approval, legislative debate, and institutional consultation were maintained. Liberalisation and privatisation were phased, not imposed overnight; globalisation was selective, not indiscriminate.

Ethical legitimacy stemmed from intent and restraint. 

The LPG model was not used to centralise power, but to decentralise economic decision-making. By reducing state control rather than expanding it, the reforms aligned economic efficiency with democratic accountability.

Institutional Governance and the Design of LPG Reforms

One of the most under-appreciated aspects of the LPG reforms is how they strengthened institutional governance.

Institutions such as the Reserve Bank of India and SEBI gained autonomy, shifting governance from personalities to processes. This institutionalisation was critical in legitimising reforms that were otherwise socially and politically costly.

The LPG model thus functioned not merely as an economic framework, but as a governance reform agenda.

Leadership During Crisis: Implementing LPG Without Social Rupture

The success of LPG reforms also depended on how they were led.

Leadership communication was honest but non-alarmist. Decisions were swift but consultative. Risks were managed through incremental liberalisation, gradual privatisation, and calibrated global integration.

This approach avoided social rupture while ensuring irreversibility. 

The lesson is clear: strong governance is quiet, predictable, and institution-driven, not theatrical.

LPG Model in a Changing Political Environment

Would the LPG-style leadership succeed today? 

The political context has evolved media intensity, polarisation, and identity politics have increased. However, the underlying principle remains relevant: complex economies require expert-led frameworks.

What may differ is the need for greater transparency, public engagement, and social cushioning alongside liberalisation. 

The LPG model today would need to be more inclusive, but its core logic is efficiency through openness and competition remains intact.

Balancing Elected Authority and Expert Power in LPG Reforms

The LPG reforms illustrate a functional balance between elected authority and expert power.

Elected leaders retained final decision-making authority, ensuring democratic legitimacy. 

Experts shaped policy content, ensuring technical soundness. Neither dominated; both depended on institutions.

Leadership Dynamics

Role of Prime Minister P.V. Narasimha Rao

Provided political cover despite a minority government

Managed internal party resistance

Shielded technocratic decision-making from populist backlash

Role of Dr. Manmohan Singh

  Anchored reforms in economic logic rather than ideology

Communicated urgency without alarmism

Advanced incremental but irreversible change

This balance prevented technocratic overreach while insulating policy from populist reversal. It remains a critical governance lesson for reforming democracies.

Outcomes and Long-Term Impact of the LPG Model

In the short term, LPG reforms stabilised India’s economy, restored foreign exchange reserves, and revived growth. 

In the long term, they transformed India’s economic structure expanding services, attracting investment, and integrating India into global value chains.

Yet limitations persisted: uneven social outcomes, delayed labour and agricultural reforms, and implementation challenges at the state level. 

These underscore that LPG was a foundation, not a final destination.

Leadership and Governance Lessons from the LPG Experience

1. Policy frameworks need political sponsorship to succeed.

2. Crisis enables reform, but legitimacy comes from democratic process.

3. LPG succeeded because it reduced discretion and strengthened institutions.

4. Expertise and democracy can reinforce each other.

5. Reform sustainability depends on balance, not dominance.

India’s 1991 liberalisation was not merely an economic shift but it was a leadership and governance transformation.

Through the LPG model,

Dr. Manmohan Singh demonstrated how quiet competence, institutional respect, and political alignment can reshape a nation’s destiny.

When economics met leadership, India did more than survive a crisis it redefined its future.

Conclusion:

Governance works best when it is quiet, rule-bound, and institution-led rather than loud, performative, or overly focused on dashboards and optics.

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