In 1991, India’s Prime Minister at the time, P.V. Narasimha Rao, chose Singh to be his Finance Minister. At this time, India’s fiscal deficit was close to 8.5 per cent of the gross domestic product, the balance of payments deficit was huge and the current account deficit was close to 3.5 percent of India’s GDP.India’s foreign reserves barely amounted to USD$1 billion, enough to pay for a few weeks of imports, in comparison to USD$283 billion today
India was facing an economic crisis. Singh, who had thus far been one of the most influential architects of India’s socialist economy, slowly opened the Indian economy to foreign investment and business competition
Manmohan Singh’s budget overhauled the import-export policy, slashed import licensing and went for vigorous export promotion and optimal import compression to expose Indian industry to competition from abroad. Began rationalisation of duty structures by pruning the peak customs duty from 220 per cent to 150 per cent.
Singh introduced service tax in the 1994 Budget to tap into the fastest growing sector of the economy then. Service tax today fetches Rs 58,000 crore against Rs 400 crore in 1994.