The Messiah of Indian Economy: Dr. Manmohan Singh (License Raj to Open ended economy the story)

The following had happened.

Morgan Stanley was the largest foreign investment source prior to 1991, as not many players were allowed into Indian markets due to License Raj.

Assuming it brought $100 million to invest in Indian markets in March 1990.

This $100 million was converted to INR and invested in downstream markets. Assuming the then exchange rate was $1=35INR. Hence INR (35*100) million was invested.

Now at the end of the financial year, Collections were made by Morgan Stanley in INR. Assuming it made INR (40*100) million as collections. This seems to be a profit, But Morgan Stanley needed to convert this in dollars for correct estimation.

Assuming the exchange rate in March 1991 to be $1=INR 45.

Therefore collection in dollars = (40*100)/45 million = $ 88 million in March 1991

Hence a loss was made by Morgan Stanley, although the numbers in INR appeared as if it had made a profit.

Consequences: Morgan Stanley decided not to re-invest in the Indian markets and decided to take back whatever dollars it was left with.

This lead to dearth of dollars in the Indian markets in turn leading to increase in demand of dollars.

RBI met the rising demand of dollars by injecting dollars from it’s own treasury and sucking out rupees in turn as per the then exchange rate. The demand of dollars was met, but RBI and Indian treasury was left with very little foreign currency.

A below margin foreign currency is an alarm,as the govt would not have had enough resources to meet the Govt debt (also known as Public or National debt) which is an indirect debt of the tax payers. Higher the debt, higher the taxes the countrymen will have to pay. i.e. The Indian markets were sinking in a financial catastrophe and the Income Tax rates would have risen like hell, making the lives of the common man miserable.
(Further reading: http://en.wikipedia.org/wiki/Government_debt)

It was at this time that Dr.Manmohan Singh joined office as the Finance minister under P.V. Narsimha Rao's govt and played a master stroke. He made a major decision of making Indian markets open to foreign players, So that it becomes easier for foreign players to invest in Indian markets by giving dollars to RBI. 

Hats off to Dr. Manmohan Singh!!. Not many know why he is such a genius. 

It is very tragic indeed why, so many people mock and make fun of such great people. Few would know , that without such a path-breaking and bold decision, the present India, which we are so very boastful of would never have existed. Brands, technology and international exposure wouldn't have been so easily available. It's an irony that the Indian youth is quick to pass their opinions and judgement without even knowing or understanding , the foundations and people behind the success of things which they are so proud of.