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 de-licensing 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. Briefly outline any two reasons for the initiation of Economic Reforms in 1991. 
2. Government introduced a set of stablisation and structural reforms to solve the economic crisis. State the key initiatives and objectives of these policies adopted by the Government of India. 

Answer 1

1. Reasons for initiation 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.
2. Key Initiatives of Economic Reforms:
   1. Liberalisation: It refers to the opening of the economic border for MNCs and foreign investment in the country's economic activity with the goal of developing diverse sectors. For example, the licensing system may be abolished.
   2. Privatisation: It is the process of involving the private sector in the ownership or administration of public-sector enterprises (PSUs).
   3. Globalisation: It entails integrating a country's economy with the rest of the world. Take, for example, foreign direct investment.

Objectives of Economic Reforms:

1. To Correct deficit BOP: To improve the deficit BOP situation, India contacted the IMF for a 7 billion dollar loan on the condition that the country implement economic reforms.
2. To Increase foreign investment: Globalization increased the international economy's openness and economic interconnectedness. It contributed to a rise in foreign investment from the rest of the world.
3. To Increase Competition: Privatisation and disinvestment compelled the private sector to play a larger role. It improved the economy's competitiveness.