Economic Reforms 1991
Economy Advanced · 1991 के आर्थिक सुधार
📋Quick Overview
In 1991, India faced a severe Balance of Payments crisis — foreign exchange reserves fell to just 2 weeks of import cover and India had to pledge gold to foreign banks. PM Narasimha Rao and FM Dr. Manmohan Singh launched landmark LPG reforms (Liberalisation, Privatisation, Globalisation) that transformed India from a closed, licence-raj economy to a market-oriented one. These reforms are considered the watershed moment in India's economic history.
1991 Crisis: India pledged 67 tonnes of gold to Bank of England and Bank of Japan for emergency loans. Forex reserves had fallen to $1.2 billion = only 2 weeks import cover. This crisis forced India to approach IMF and World Bank for structural adjustment loans.
📖Causes of 1991 Crisis
- •Gulf War (1990-91): Oil price spike → India's import bill surged; remittances from Gulf fell as NRIs returned
- •Trade deficit: India had large, persistent current account deficit — imports far exceeded exports
- •Fiscal deficit: Excessive government spending; FRBM Act didn't exist; fiscal profligacy in 1980s
- •Political instability: V.P. Singh, Chandra Shekhar governments fell → confidence crisis → NRI withdrawals
- •Licence Raj: Stifled private investment; capacity not used efficiently; Inspector Raj; no FDI
📖LPG Reforms — Three Pillars
| Reform | Key Measures |
|---|---|
| Liberalisation | Industrial licensing abolished (except 5 industries); MRTP Act weakened; FDI opened; de-licensing of industry; Companies Act simplified |
| Privatisation | Disinvestment of PSUs; BIFR for sick units; reduction in public sector reservation; strategic sales of PSUs began |
| Globalisation | Rupee convertibility on current account (1994); import duties reduced from 300%+ to 15-20%; WTO membership (1995); FII/FDI opened |
- •Narasimham Committee I (1991): Banking sector reform — prudential norms, NPA recognition, capital adequacy, branch licensing liberalisation
- •Narasimham Committee II (1998): Further banking reforms — mergers of PSBs, reduction of SLR/CRR, NPA recovery mechanisms
📝Key Architects of 1991 Reforms
| Person | Role | Contribution |
|---|---|---|
| P.V. Narasimha Rao | Prime Minister (1991-96) | Political will; enabled reforms without large parliamentary majority; handled political opposition |
| Dr. Manmohan Singh | Finance Minister (1991-96) | Designed and implemented LPG reforms; later PM (2004-14) |
| Montek Singh Ahluwalia | Finance Secretary | Implementation of reforms; later Deputy Chairman Planning Commission |