Which of the following would best describe Indian economy in 1990-91?
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Answer:
The 1991 Indian economic crisis was an economic crisis in India that resulted from poor economic policies and the resulting trade deficits. India's economic problems started worsening in 1985 as the imports swelled, leaving the country in a twin deficit: the Indian trade balance was in deficit at a time when the government was running on a large fiscal deficit.[1] By the end of 1990, in the run-up to the Gulf War, the dire situation meant that the Indian foreign exchange reserves could have barely financed three weeks' worth of imports. Meanwhile, the government came close to defaulting on its own financial obligations. By July that year, the low reserves had led to a sharp depreciation of the rupee, which in turn exacerbated the twin deficit problem.[2] The Chandrasekhar government could not pass the budget in February 1991[3] after Moody downgraded India's bond ratings. The ratings further deteriorated due to the unsuccessful passage of the fiscal budget. This made it impossible for the country to seek short term loans and exacerbated the existing economic crisis. The World Bank and IMF also stopped their assistance, leaving the government with no option except to mortgage the country's gold to avoid defaulting on payments.[4][5][6]
In an attempt to seek an economic bailout from the IMF, the Indian government airlifted its national gold reserves.[7]
The crisis, in turn, paved the way for the liberalisation of the Indian economy, since one of the conditions stipulated in the World Bank loan (structural reform), required India to open itself up to participation from foreign entities in its industries, including its state owned enterprises.
Explanation:
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