Positives

• Through reform, India overcame its worst economic crisis in the remarkably short period of two years.
• Thanks to prudent macroeconomic stabilization policies including devaluation of rupee and other structural reforms, the BoP crisis was over by the end of March 1994 and foreign exchange reserves rose to USD 15.7 billion. Inflows of both FDI and FII into India have increased massively.

The strategy of reforms introduced in India in July 1991 presented a mixture of macroeconomic stabilization and structural adjustment. It was guided by short-term and long-term objectives. Stabilization was necessary in the short run to restore balance of payments equilibrium and to control inflation. At the same time changing the structure of institutions themselves through reforms was equally important from long term point of view.

Towards the end of 1980s, India was facing a Balance of Payments (BoP) crisis, due to unsustainable borrowing and high expenditure. The Current Account Deficit (3.5 percent) in 1990-91 massively weakened the ability to finance deficit.

Macroeconomic Indicators and Balance of Payments Situation in 1990-1991:

The trade deficit increased from Rs. 12,400 crore in 1989-90 to Rs. 16,900 crore in 1990-91.

The GDP growth rate improved (from an average of 2.9 percent in 1970s to 5.6 percent in 1980s) during the 1980s. This was primarily due to two reasons:

In 1947, India was a new country racked by pains of the Partition and the dire poverty of her people. Nonetheless, the Indian Constitution bestowed the right to vote to every adult, making her the first democracy to guarantee universal adult franchise at birth. The Constitution protected basic personal freedoms of movement, assembly, conscience and expression. So in terms of political and personal freedoms, India was a constitutional republic or a liberal democracy from her birth.  This was a great achievement.