Illustration by Bloomberg View
Illustration by Bloomberg View

(Corrects to remove dollar sign in seventh paragraph.)

A rupee in free fall; a terrifyingly wide current-account deficit; a corrupt, stagnant bureaucracy: In 1991, then-Finance Minister Manmohan Singh helped to rescue India’s economy from that near-death experience with a slew of liberalizing reforms, setting the stage for two decades of growth. Today, facing a similar, if less existential, crisis as India’s prime minister, Singh may well be the man standing in the way of a solution.

Singh did not spark the rupee’s current nose dive, which touched a record low for the third day in a row on Tuesday. U.S. Federal Reserve Chairman Ben Bernanke started the slide when he hinted that he might begin tapering the Fed’s quantitative-easing program later this year, driving up yields. International investors naturally began moving funds out of emerging markets, including India, and back to the U.S.

India, however, confronts more than a currency crisis: It’s facing a crisis of credibility. The outflow turned into a flood at the end of last week after the Reserve Bank of India announced what looked to many investors like the first tentative steps toward capital controls. Ministers have spent more time denying that any crisis exists than quelling their fears.

Half-measures meant to stem the rupee’s plunge -- such as a new 36 percent tax on imported flat-panel televisions -- are not the answer. Investors are rendering a broader judgment on South Asia’s would-be superpower. The reform process Singh inaugurated in 1991 has ground to a halt. Hundreds of infrastructure and industrial projects are again tangled in red tape. Indian businessmen -- never mind the foreign multinationals whose dollars are so desperately needed -- have no incentive to invest in new projects. Proposed industrial investments in the first five months of 2013 are off last year’s pace, which itself showed a two-thirds decline from 2011.

There are many reasons for this state of affairs, and as prime minister for the last nine years, Singh must accept his share of the blame. In its second term, his Indian National Congress-led coalition government has focused too much on doling out subsidies rather than tackling still-daunting structural reforms such as modernizing labor and land laws. On Tuesday, as the stock market continued its fall, Parliament debated a bill that would provide hundreds of millions of Indians with subsidized grain, which would add to an already ugly fiscal deficit.

Elections must be held by the end of May 2014, and the jockeying has already begun. The opposition Bharatiya Janata Party can, and no doubt will, stymie any attempts to push through controversial legislation between now and then, and Singh’s own party can’t be counted on to do much more than bribe potential voters with handouts. No one has any incentive to make tough decisions -- and no one outside the capital has any reason to believe those decisions will stand after the elections.

India can ill afford nine more months of this. There are things Singh can do now, administratively, to begin to restore confidence, such as his recent move to clear 1.7 trillion rupees’ worth of projects that had been blocked by bureaucratic inaction. He can also try to use his unique credibility to revive the narrative of reform, to explain to ordinary Indians how somewhat abstract structural measures will benefit them and not just corrupt elites.

Yet it’s hard to see how anything other than early elections will break the gridlock in New Delhi. Investors can’t be certain that any new government will push forward with difficult reforms. They know for sure, however, that the current government cannot.

Singh is a spent force. Few expect the 80-year-old prime minister to retain his office even if the Congress leads the next government. He is by all accounts an honest, humble man. His most honorable decision might be to hasten his own exit.

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