nd str and n rastr t re 9.9
external events (the Gulf war, 1990–91) vitiated (ii) Sharp decline in the private remittances
the situation, too. Finally, by the end of 1980s from the overseas Indian workers in the
India was in the grip of a severe balance of payment wake of the Gulf War24, specially from
crisis with higher rate of inflation (over 13 per the Gulf region.
cent) and higher fiscal deficit (over 8 per cent).22 (iii) Inflation peaking at nearly 17 per cent.25
The deep crisis put the economy in a financial (iv) The gross fiscal deficit of the Central
crunch, which made India opt for a new way of Government reaching 8.4 per cent of the
economic management in the coming times. GDP.26
(v) By the month of June 1991, India’s
new IndustrIal PolIcy, 1991 foreign exchange had declined to just two
It were the industrial policies of past which had weeks of import coverage.27
shaped the nature and structure of the Indian India’s near miss with a serious balance of
economy. The need of the hour was to change payments crisis was the proximate cause that
the nature and structure of the economy by early started India’s market liberalisation measures in
1990s. The Government of India decided to 1991 followed by a gradualist approach.28 As the
change the very nature of the industrial policy reforms were induced by the crisis of the BoP,
which will automatically lead to change in the the initial phase focussed on macroeconomic
stabilisation while the reforms of industrial
nature and scope of the economy. And here came
policy, trade and exchange rate policies, foreign
the New Industrial Policy of 1991.
investment policy, financial and tax reforms as
With this policy the government kickstarted well as public sector reforms did also follow soon.
the very process of reform in the economy, that
The financial support India recieved from the
is why the policy is taken more as a process than a
IMF to fight out the BoP crisis of 1990–91 were
having a tag of conditions to be fulfilled by India.
Background: India was faced with severe balance These IMF conditionalities required the Indian
of payment crisis by June 1991. Basically, in early economy to go for a structural re-adjustment.
1990s, there were inter-connected set of events, As the nature and scope of the economy were
which were growing unfavourable for the Indian moulded by the various industrial policies India
economy: did follow till date, any desired change in the
(i) Due to the Gulf War (1990–91), the 24. Jeffrey D. Sachs, Ashutosh Varsheny and Nirupam
higher oil prices were fastly23 depleting Bajpai, India in the Era of Economic Reform ew
India’s foreign reserves. elhi xford niversity ress, , p. .
25. Department of Economic Affairs, ‘Economic Reforms:
22. Vijay Joshi and I.M.D. Little, India’s Economic Two Years After and the Task Ahead’, Discussion
Reforms, 1991–2001, xford Clarendon ress, , aper ew elhi overnment of ndia, , p. .
p. 17. 26. Ibid.
23. inistry of inance, conomic Survey 27. Bimal Jalan, India’s Economic Crisis: The Way Ahead,
ew elhi overnment of ndia, inistry ew elhi xford niversity ress, , pp. .
of inance, conomic Survey ew elhi 28. Sach, Varseny and Bajpai, India in the Era of
overnment of ndia, . Economic Reforms, p. 2.