Sample Material of Our IAS Mains GS Online Coaching Programme
Subject: General Studies (Paper 3 - Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management)
Topic: Effect of Liberalization on The Economy
EFFECT OF LIBERALIZATION ON THE ECONOMY
INDIAN INDUSTRY AND INFRASTRUCTURE
NEW INDUSTRIAL POLICY, 1991
India was faced with a severe balance of payment crisis in June 1991. Basically, in 1990 and 1991, there were several inter-connected events which were growing unfavorable for the Indian economy.
(i) Due to the Gulf War (1990-91), the higher oil prices were
fastly depleting India’s foreign reserves.
(ii) Sharp decline in the private remittances from the overseas Indian workers
in the wake of the Gulf War, specially from the Gulf region,
(iii) Inflation peaking at nearly 17 per cent.-
(iv) The gross fiscal deficit of the central government reaching 8.4 per cent of
the GDP.
(v) By the month of June 1991, India’s foreign exchange had declined to just two
weeks of import coverage.
India’s near miss with a serious balance of payments crisis was the proximate cause that started India’s market liberal isation measures in 1991 followed by a gradualist approach". As the reforms were induced by the crisis of the BoP, the initial phase focused on macroeconomic stabilization while the reforms of industrial policy, trade and exchange rate policies, foreign investment policy, financial and tax reforms as well as public sector reforms did also follow soon. The financial support India received from the IMF to fight out the BoP crisis of 1990-91 were having a tag of conditions to be fulfilled by India. These IMF conditionalities required the Indi an economy to go fo r a structural re-adjustment. As the nature and scope of economy were molded by the various industrial policies India did follow till date, any desired change in the economic structure had to be induced with the help of another industrial policy. The new industrial policy, announced by the Government on July 23, 1991 had initiated a bigger process of economic reforms in the country, seriously motivated towards the structural readjustment naturally obliged to ‘fulfill ’ IMF conditionalities'. The major highlights of the policy are as follows:
