Question

What was the need for economic reforms in India?

Pls answer this question as fast as possible.

Answer 1

Answer:

Explanation:

Economic Reforms refer to the fundamental changes that were launched in 1991 with the plan of liberalising the economy and to quicken its rate of economic growth. The Narasimha Rao Government, in 1991, started the economic reforms in order to rebuild internal and external faith in the Indian economy.

Answer 2

Answer:

Need for Economic Reforms:

The economic reforms introduced by the Government of India in 1991 brought in a number of neo-liberal policies aimed at rapid economic growth. The reforms were targeted at various sectors such as the industrial sector, trade, public sector, financial sector, etc.

Explanation:

Adverse Balance of Payments:

India faced a severe economic crisis during the end of 1980s. India was unable to meet its international debt obligations and was pushed to a situation of near bankruptcy. The foreign exchange reserves were insufficient to pay the import bills. The Balance of Payments deficit could not be financed beyond a certain point.

Some of the factors responsible for the crisis were:

(i) Rising level of expenditure over revenue;

(ii) Heavy government borrowing;

(iii) Inefficient utilisation of resources;

Rise in Fiscal Deficit:

Amidst the political instability and balance of payment crisis, there was a rising fiscal deficit. This was mainly due to the increase in the non- developmental expenditure of the government. The government had to borrow huge sum of money to finance the deficit and to meet the interest obligations on these debts.

The government was in a debt trap. Thus, there was a need to bring in reforms in order to reduce the non-developmental expenditure and to bring about a fiscal discipline.

Inflation:

Due to continuous borrowing by the government in order to meet its mounting expenditure, there was a rapid increase in the money supply. The government resorted to deficit financing wherein the RBI financed the borrowings by the Government of India by printing currency notes. This leads to a rise in the money supply. When money supply increased, the demand for goods and services also rose, thereby increasing their prices and causing an inflationary situation.

 Poor Performance of the Industrial Sector:

Before the introduction of economic reforms, the industrial sector suffered due to bureaucratic controls. The industries had to obtain several licenses and permissions for any undertaking activity such as setting up a new firm, starting a new product line, expansion of existing business, foreign investments and so on. Many public sector enterprises were incurring huge losses due to poor productivity.

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