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money & economicsanalysisWikipedia1991 · India
India's 1991 reforms followed a currency crisis that left only about three weeks of imports in reserve
India's 1991 economic reforms opened the economy after a balance-of-payments crisis. Foreign exchange reserves had fallen to about three weeks of imports, after a decade of large budget deficits and rising foreign debt. The Gulf War raised oil prices and cut the remittances sent home by Indian workers in the Gulf, and trade with the Soviet Union collapsed. The reforms cut tariffs, dismantled most industrial licensing, let the rupee's exchange rate be set by the market, opened many sectors to foreign investment and freed interest rates. Growth has been faster since then and poverty has fallen sharply, though economists still debate how much of that is due to the reforms.
A country that cannot pay for its imports runs out of foreign currency and must borrow. Lenders such as the IMF attach conditions, and the reforms reduced the state's control over trade, prices and investment so that private firms and foreign capital could drive growth.
These reforms are the turning point that separated the modern Indian economy from its earlier state-led model, and they shaped the growth of its service sector, markets and big companies. Critics point to rising inequality and weak job creation in formal employment, while supporters argue that land and labour markets were left largely unreformed.
In his budget speech of July 1991, Manmohan Singh declared that India was now wide awake and that the whole world should hear it loud and clear.
Adapted from Wikipedia, the free encyclopedia · CC BY-SA 4.0
