1991 Economic Reforms

• India met with an economic crisis relating to
its external debt.
 Unable to make repayments on its borrowings from abroad.
 Foreign exchange reserves had dropped to
very low levels.
 Further compounded by rising prices of
essential goods.

• Origin of the financial crisis – from the
inefficient management of the Indian economy
in the 1980s.
 Foreign exchange was spent on meeting
consumption needs.
 Minimal effort to reduce such profligate
spending or boosting export.

• India approached the World Bank and the
International Monetary Fund.

• Agreed to the conditionalities of WB and IMF-
announced the New Economic Policy (NEP).
 A wide-ranging economic reforms.
 Initiated a variety of policies based on
liberalisation, privatisation and globalization.

• Post 1991 reforms- India’s export sector has
not changed much.

• Huge foreign exchange reserve- a result of
huge financial inflows, not export surpluses.
• Key elements to improve a country’s export
 publicly provided infrastructure, private R&D
and a facilitating government machinery.

• Mostly available in India’s software services-
exporters, not for exporters of goods.
 India’s trade in services generally has a
surplus; deficit is mostly in trade of tangible

• Need for strong export performance- cannot rely on volatile portfolio capital against balance of payments stress.

• Way forward:

Need serious structural revisions to ensure necessary infrastructure in our country.