Question

Read the following text carefully and answer the given questions on the basis of the same and common understanding. 

The stabilisation and structural adjustment measures, initiated under the 1991 “Economic Reforms” mark a watershed moment in India's economic policies. For almost three decades since independence, India’s development strategy and economic policies were guided by the objectives of accelerating the growth of output and employment with social justice and equity. Ever since the 1970s, it was realised that many of the regulations on economic activities have outlived their usefulness and were in fact hampering economic growth and development. In response to this, the government initiated some milder liberalisation reforms for almost a decade since the early 1980s. However, the Indian economy soon had to face the Gulf crisis and consequently: The uncertainties about the oil prices; The external payment problems; The serious inflationary pressures; The scarcities of essential commodities; The deterioration of fiscal discipline, etc. These led to the Indian economy on the verge of Economic crisis. In response to this emerging crisis, the Government initiated a set of stabilisation and. structural reforms like: Reduction in fiscal deficit; Containment of growth in money supply; An exchange rate adjustment system. etc.  The key objective of stabilisation policy was to bring the growth of aggregate demand in line with long term growth path of the economy. In conjunction, the structural adjustment measures like; industrial delicensing liberalisation of policy regime governing international trade deregulation of financial sector Were taken to improve the supply side of the economy. This shifted the long-term growth path of the economy itself completely. (Adapted and modified)

1. Discuss any two reason behind the introduction of Economic Reforms in 1991.
2. “In response to the emerging crisis in 1991, the Government initiated a set of stabilisation and structural reforms”.
   Briefly discuss any three of such measures.

Answer 1

1. Reasons behind Introduction of Economic Reforms in 1991:
   1. Serious BOP position: Due to the low quality and high pricing of domestically manufactured items, India's imports surged significantly but exports did not expand as planned. It resulted in a BOP deficit.

   2. Huge debt burden: There was significant government spending in comparison to domestic revenue. It resulted in an increase in borrowing from the rest of the world. It increased the burden of loan principle and interest. Furthermore, PSUs were unable to generate revenue for the government.

      As a result, India was forced to approach the IMF and World Bank for a loan contingent on economic changes (liberalisation, privatisation, and globalisation) in the country.

2. Stabilisation and Structural Reforms in 1991:
   1. Liberalisation: It refers to the freedom of the manufacturing sector from physical government regulations. Except for a few businesses, industrial licensing was discontinued. The government was hired. Tax and foreign exchange reforms were implemented.
   2. Privatisation: It is the process of involving the private sector in the ownership or management of public sector enterprises. Disinvestment was a significant step in this direction. PSUs with high performance have been designated as Navratnas. It increased competition and efficiency.
   3. Globalisation: It refers to a country's economic integration with the rest of the world. The equity ceiling for foreign investment has been raised. Import quantitative restrictions have been lifted. It resulted in an increase in foreign exchange reserves and increased competition in the international market.