Write the reason why new economic policies introduced in 1991 by finance minister
Answers
To prevent a major economic crisis LPG strategy (Liberalisation privatisation and globalisation )was introduced by finance minister Dr Manmohan Singh under Narsimha Rao Govt ended up the license-permit-raj and opened the hitherto areas reserved for the public to private sector
Answer:
India in 1991 was in a severe economical crisis. To understand the reason and need for Economic policy , let me picturise the scenario what India was facing at that time.
1980 - 1991
India’s economy during mid- 1980’s already showed a sign of warning of future crisis by having a trade imbalance and started to run with the trade deficit. That is the imports of country started to increase with the exports started to slump. During the time India didn’t allow any of foreign direct investments into the country so the flow of foreign currency into the country were almost null. The only way of getting the flow of currency into the nation was by its exports. And bad news was Indian goods were started to loose competition in a foreign market because of its low quality when compared to western goods which are industrialized goods. This continued for a couple years while the trade deficit swelled to large margin. Saying this, India could have taken a step at this time to make some reform to the economy and boost it. But anyhow that didn’t happen.
So trade deficit increased hugely by late 1980’s. But this was not the only problem for India to tackle, there was a Gulf-war that took place at this time which also affected India to a large extent than anything else. The crude oil and other Petroleum products became costly during the Gulf-war and the import of those products were even burden for the country and this made Trade deficit to reach at its record high . So India was left with no money, that it could barely finance for one week using its forex reserves. India then tried to increase its funds by increasing the repo rate, this also costed India to get into condition of Inflation making commodities costlier for people to buy. Inflation went up to a record high of 13.9%.
India ran into a state of economic crisis. with no money India was almost bankrupt. This was India at its most vulnerable state with Import bill swelled, credit dried up, export slumped and what not not , investor took money out India was barely existing with its empty pockets.
It was this time the newly elected Prime Minister P.V. Narasimha Rao took a bold step and bought huge money for credit from I.M.F by pledging in 200metric tons of Gold. They were carried in three helicopter to I.M.F, US. This freed India for little while. But this was not a permanent solution for the problem.This only gave India to run state for a little while. Prime Minister going one step ahead of his previous move announced the liberalization of the India economy and allowed Foreign Direct Investment ( FDI ) and other major economic reforms for the country with his Finance Minister Dr. Manmohan Singh. This shaped a way for a modern Indian Economy.
So at last India also used the so called “ Brahmastra ” to reconstruct th economy i.e Devaluing its currency. India devalued its currency in 1991. It was second time India devalued its currency, first was at 1966 . This was an attempt to reduce the imports by making them costlier in domestic market. There by reducing the trade imbalance.
Finally India’s economy started to take off. By the courageous efforts of then PM P.V.Narasimaha Rao and finance minister Manmohan Singh India just absconded from worse situation. All thanks to these great people. Its they who built the foundation for today’s Indian economy. And Finally India bought back all its 200metric tons of gold back to India by paying three times the amount in 2009.