The 1991 Crisis and Reforms
NCERT Class 11 • Indian Economic Development • Chapter "Liberalisation Privatisation and Globalisation"
The 1991 Crisis and Reforms
By 1991 India faced a severe balance of payments crisis. Foreign exchange reserves had fallen to a level that could cover only a few weeks of imports, the fiscal deficit was high, inflation was rising, and the government had to seek assistance, which came with conditions for structural reform.
Why the Crisis Happened
- Government expenditure had risen much faster than revenue, so borrowing and interest payment kept growing.
- Public enterprises were not generating the surplus that had been expected of them.
- Imports grew faster than exports, so the current account deficit widened.
- The Gulf crisis raised oil prices and reduced remittances from Indian workers abroad.
- Foreign exchange reserves fell so low that India could not finance essential imports.
- The country borrowed from international institutions and agreed to a reform programme.
- The rupee was devalued to make exports cheaper and imports costlier.
- The crisis made clear that the old inward looking model could not be continued unchanged.
Liberalisation, Privatisation and Globalisation
- Liberalisation meant removing the licence requirement for most industries, freeing prices, easing import restrictions and opening the financial sector.
- Only a small list of industries remained under licensing, mostly for security, health or environmental reasons.
- Privatisation meant reducing the role of the public sector by selling part or whole of government holding, which is called disinvestment.
- Some loss making units were closed or restructured, and public enterprises were given more autonomy.
- Globalisation meant integrating the Indian economy with the world economy through trade, capital and technology flows.
- Tariffs were cut, foreign investment was permitted in more sectors, and the rupee was made convertible on the current account.
- Outsourcing grew as Indian firms began providing services to companies located abroad.
- Financial sector reform allowed private banks and opened the capital market to foreign portfolio investment.
| Reform | Main Content |
|---|---|
| Liberalisation | End of licensing, freer prices and imports |
| Privatisation | Disinvestment and autonomy for public enterprise |
| Globalisation | Lower tariffs, foreign investment, integration |
Disinvestment — the sale of part or whole of the government's equity holding in a public sector enterprise.
Hindi me samjhein
उदारीकरण ने लाइसेंस हटाए, निजीकरण ने सार्वजनिक क्षेत्र की भूमिका घटाई, और वैश्वीकरण ने भारतीय अर्थव्यवस्था को विश्व अर्थव्यवस्था से जोड़ा। तीनों साथ चले।
Exam me kaise aata hai
- The 1991 crisis was a crisis of — balance of payments
- Selling government holding in a public enterprise is — disinvestment
- Removing licensing for most industries is part of — liberalisation
- Integrating with the world economy is called — globalisation
UPSC/State PSC ke liye
- The crisis was a stock problem of reserves created by a flow problem of persistent deficits, which is why reform had to address both trade and fiscal sides.
- Current account convertibility allows free exchange for trade, while capital account convertibility, which is different, was opened only gradually.
Yahan confuse hote hain
✗ The 1991 crisis was caused only by the Gulf war | The Gulf crisis was a trigger; deficits and debt were the deeper causes | ✓
✗ Liberalisation ended all licensing | A small list of industries remained under licensing | ✓
✗ Privatisation and disinvestment are unrelated | Disinvestment is the main instrument of privatisation | ✓
Ek nazar me
- 1991 brought a balance of payments crisis with reserves nearly exhausted.
- Causes: rising deficits, weak exports, oil price rise and lower remittances.
- Liberalisation removed licensing and freed prices and imports.
- Privatisation used disinvestment; globalisation cut tariffs and opened investment.