Why were reforms introduced in India?
Economic reforms were introduced in the year 1991 in India to combat the economic crisis. The Economic Crisis of 1991 was a culminated outcome of the policy failure in the preceding years. It was in that year the Indian government was experiencing huge fiscal deficits, large balance of payment deficits, high inflation level and an acute fall in the foreign exchange reserves. Moreover, the gulf crisis of 1990-91 led to an acute rise in the prices of fuel which further pushed up the inflation level. Because of the combined effect of all these factors, economic reforms became inevitable and were the only way to move Indian economy out of this crisis.
The following are the factors that necessitated the need for the economic reforms.
1. Huge Fiscal Deficit: Throughout the 1980s, the fiscal deficit was getting worse due to huge non-development expenditures. As a result,gross fiscal deficit rose from 5.7% of GDP to 6.6% of GDP during 1980-81 to 1990-91. Subsequently, a major portion of this deficit was financed by borrowings (both from external and domestic sources). The increased borrowings resulted in increased public debt and mounting interest payment obligations. The domestic borrowings by government increased from 35% to 49.8% of GDP during 1980-81 to 1990-91. Moreover, the interest payments obligations accounted for 39.1% of total fiscal deficit. Consequently, India lost its financial worthiness in the international market and fell in a debt trap. Thus, economic reforms were needed urgently.
2. Weak BOP Situation: BOP represents the excess of total amount of exports over total amount of imports. Due to lack of competitiveness of Indian products, India was not able to earn enough foreign exchange through exports to finance our imports. The current account deficit rose from 1.35% to 3.69% of GDP during 1980-81 to 1990-91. In order to finance this huge current account deficit, Indian government borrowed a huge amount from the international market. Consequently, the external debt increased from 12% to 23% of GDP during the same period. On the other hand, Indian exports were not potent enough to earn sufficient foreign exchange to repay these external debt obligations. This BOP crisis compelled the need for the economic reforms.
3. High level of Inflation: The high fiscal deficits forced the central government to monetise the fiscal deficits by borrowings from RBI. RBI printed new money that pushed up the inflation level, thereby, making the domestic goods more expensive. The rate of inflation rose from 6.7% p.a. to 10.3% p.a. during the 1980s to 1990-91. In order to lower the inflation rate, the government in 1991 had to opt for economic reforms.
4. Sick PSUs: Public Sector Undertakings were assigned the prime role of industrialisation and removal of inequality of income and poverty. But the subsequent years witnessed the failure of PSUs to perform these roles efficiently and effectively. Instead of being a revenue generator for the central government, these became liability. The sick PSUs added an extra financial burden on the government's budget. Thus, because of all the above reasons existing concomitantly, the economic reforms became inevitable.
How is RBI controlling the commercial banks?
Distinguish between the following
(i) Strategic and Minority sale
(ii) Bilateral and Multi-lateral trade
(iii) Tariff and Non-tariff barriers.
Agriculture sector appears to be adversely affected by the reform process. Why?
Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why?
Do you think outsourcing is good for India? Why are developed countries opposing it?
Why did RBI have to change its role from controller to facilitator of financial sector in India?
Do you think the navaratna policy of the government helps in improving the performance of public sector undertakings in India? How?
What do you understand by devaluation of rupee?
Why are tariffs imposed?
Why has the industrial sector performed poorly in the reform period?
What was the focus of the economic policies pursued by the colonial government in India? What were the impacts of these policies?
What are the two major sources of human capital in a country?
What do you mean by rural development? Bring out the key issues in rural development.
Define a plan?
Who is a worker?
Explain the term ‘infrastructure’.
What is meant by environment?
Why are regional and economic groupings formed?
Why calorie-based norm is not adequate to identify the poor?
Name some notable economists who estimated India’s per capita income during the colonial period?
What is meant by environment?
Give a quantitative appraisal of India’s demographic profile during the colonial period.
Who is a worker?
Why calorie-based norm is not adequate to identify the poor?
What do you understand by the drain of Indian wealth during the colonial period?
What was the focus of the economic policies pursued by the colonial government in India? What were the impacts of these policies?
Define a plan?
What are the main problems of human capital formation in India?
Highlight any two serious adverse environmental consequences of development in India. India’s environmental problems pose a dichotomy — they are poverty induced and, at the same time, due to affluence in living standards — is this true?
Explain the term ‘infrastructure’.