Explain the Economic Crisis of 1991

India had a number of rules and laws, whose purpose was to control and regulate the economy

But these ended up hampering the growth and development

Prices of Essential Goods had increased

Foreign Exchange Reserves had declined

India did not have enough reserves to import petrol and other products for even a fortnight (14 days)

Govt was not able to make repayment of borrowings from abroad

What led India to Start Economic Reforms of 1991?

1. Declining Foreign Exchange

India was facing an economic crises

Foreign Exchange Reserves had declined

Govt was not able to make repayment of borrowings from abroad

2. Growing Imports

India's Imports had grown (especially petroleum import)

However, there was no matching rise in exports

India did not have enough reserves to import petrol and other products for even a fortnight (14 days)

3. High Inflation

Govt budget had a fiscal deficit (expenditure was much more than receipts from taxation etc)

This excess expenditure led to high inflation in economy

Price of essential commodities had increased a lot

4. Pressure from World Bank/ IBRD and IMF

India approached World Bank/ International Bank for Reconstruction and Development (IBRD) and IMF for funds to

manage the crises

These agencies agreed to give loan on conditions:

a) India will liberalize and open up the economy

b) Reduce various restrictions

NCERT Questions

Question 1

Why were reforms introduced in India?

MCQ Other Books

Question 1

In the following questions, select the correct answers:

Which of the following reason led to the introduction of New Economic Policy in 1991?

1. Poor performance of Private sector
2. Consistent rise in general price level
3. Foreign exchange crisis
4. All of these

Question 2

After agreeing to the conditions of _____, India announced the New Economic Policy.

1. International Monetary Fund (IMF)
2. International Bank for Reconstruction and Development (IBRD)
3. Reserve Bank of India
4. Both A and B

Question 3

Assertion (A): Foreign exchange crisis was the basis of economic policies of liberalization, privatization and

globalization.

Reason (R): During the fiscal year 1990-91, foreign exchange reserves fell to a lower level of 602,400 crores, which

was just enough for the payments of three weeks imports.

1. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
2. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
3. Assertion (A) is true, but Reason (R) is false.
4. Assertion (A) is false, but Reason (R) is true.