ABSTRACT
India entered the 1990s facing severe macroeconomic and balance of payments crises. On the fiscal side, deficits in 1990–91 were running close to 10 percent of GDP. The rate of inflation was more than 10 percent. The current account deficit was about 3.1 percent of GDP, and foreign exchange reserves were dwindling. Output growth came to a halt. As the country battled internal challenges, the international environment was also changing. One of the most significant international developments entailed the abandonment of the ‘central planning’ model in favor of a market-based framework. The Soviet Union itself was both disintegrating and undergoing radical economic reforms. In its search for change and meaningful economic progress, Narasimha Rao’s government had no other alternative but to initiate radical reforms aimed at changing India’s own economic landscape and its relationship to the fast moving outside world. The reforms undertaken covered foreign trade and investment, as well as exchange rate and industrial policies. The objective was to make the transition to a market based economy while integrating India within the global economy. 1
