Question

The following questions are for Visually Impaired Candidates only in lieu of Q. No. 24 : In which year did India embark on reforms for economic growth ?

Hint:

India initiated its landmark economic reforms (LPG policy) in 1991 under Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh to resolve a critical balance of payments crisis.

Answer 1

Concept: Economic reforms refer to the systemic structural adjustments and policy overhauls undertaken by a nation's government to shift from a heavily regulated, state-controlled economy toward a market-driven, globally integrated economy. In India, this strategic transformation is broadly known as the LPG Model (Liberalisation, Privatisation, and Globalisation).

Step 1: Historical background of the 1991 Economic Crisis.
By the end of the 1980s and early 1991, India faced an unprecedented fiscal and balance of payments (BoP) crisis. The nation's foreign exchange reserves had depleted drastically to a level barely sufficient to cover two weeks of essential imports. The immediate catalyst was aggravated by high international crude oil prices triggered by the Gulf War (1990–91), double-digit inflation, heavy domestic political instability, and massive public debt accumulated due to inefficient state-run enterprises and bureaucratic restrictions (often referred to as the "Licence Raj").

Step 2: Initiation of the reforms in 1991.
To overcome this financial emergency, the Indian government, under the leadership of Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh, approached international financial institutions—specifically the International Monetary Fund (IMF) and the World Bank—for emergency bailouts. In response to conditionalities attached to these loans, India officially launched its New Economic Policy (NEP) in July 1991 .

Step 3: Core pillars of the 1991 reforms.
The 1991 economic reform package replaced state planning control with three fundamental economic principles:
• Liberalisation: Elimination of industrial licensing requirements for most sectors, deregulating domestic industry, and loosening financial market controls.
• Privatisation: Disinvestment of government shares in inefficient Public Sector Undertakings (PSUs) to encourage private enterprise and competition.
• Globalisation: Reduction of import tariffs, opening up the Indian economy to foreign direct investment (FDI), and integrating India with the global trade network.