Economic Reforms of India Since 1991 - A Crital Evaluation
During 1990-91, India had to face various economic problems. The massive deficiency in foreign trade balance
which was expanding further. Since 1987-88 till 1990-91 it was increasing in such a high rate that by the end of 1990-91 the
amount of this deficit balance became 10,644 crores of rupees. At the same time the foreign exchange stock was also
decreasing. In 1990 and 1991 the government of India had to take huge amount of loan from the IMF as compensatory
financial facility. Even by mortgaging 46 tons of gold, it had taken short term foreign loan from the bank of England. At the
same time, India was also facing problems of increasing rate of inflation, which was 12% by 1991. Therefore the
government had to increase in the procurement price of the agricultural product, this has increased the amount of monetised
deficit in budget, increase of imports cost and decrease in the rate of currency exchange. Thus Indian economy was facing
trade deficit as well as fiscal deficit.
To get relief from such economic problem the government of India had only following two ways before it:
(i) To acquire foreign debt and create ideal conditions for increasing the flow of foreign exchange and also to increase the
volume of export.
(ii) The other was to establish and maintain fiscal discipline and to built structural adjustment for the purpose.
Therefore the government of India had to introduce various economic reforms plans, such as:-
Licence rule, except six industries abolished.
Limit for foreign equity increased to 51%.
Import duty on export related capital goods reduced to 15% and for project import 25%.
Corporate tax for domestic companies reduced from 45% to 0% and from 15% to 55% for foreign companies.
Relaxation in foreign exchange regulation act.
Reforms in custom duties.
Basic telecommunication services opened to private sectors.
Abolished minimum lending rate for the amount exceeding Rs 200000.
Allow private investment in private sectors.
Functioning of private banks allowed.
Five year tax holiday to new industrial units set up in backward areas.
Automatic approval for 100% export oriented units and the units in export processing zones.
To decrease the value of money in terms of dollar.
Policy has been made for several industries; the monopoly of public sector came to an end.
Policy of disinvestment has been formulated for disinvestment in public sectors.
Due to such policy of economic reforms there are several positive impacts happened in Indian economy. India has become a
favourable destination of outsourcing for most of the MNC’s because of low wage rate and skilled manpower. During the
reforms period service sector has recorded high growth rate. The shares of service sectors in county’s GDP had increased
very rapidly. Due to economic reforms Indian consumers are benefited most. They now have a large variety of goods and
services sold by MNC’s in India. There has been large inflow of foreign capital in form of foreign direct investment. Foreign
direct investment has been increased from about US$ 100 million in 1990-91 to US$ 323.9 billion in March 2014. Also
increase in the share of private sector. Since 1991, the private sector is playing a dominant role. Due to application of new
economic pole inflation rate in the Indian Economy was controlled and general price level came down.
1. Liberalisation: It means removing unnecessary trade restriction and making the economy more competitive.
2. Globalization: Free interaction between economies of the world in the field of trade, finance, production,
technologies and investment is termed as globalization of the economy.
3. Privatization: It means removing strict control over private sectors and making them free to take necessary
4. Outsourcing: Going out to a source outside the company to buy regular services.
5. Fiscal Reforms: Controlling public expenditures and increasing revenue in order to discipline expenditure.
6. Balance of Trade: The difference in value between a country’s imports export and.
7. Inflation: A general increase in price and fall in purchasing value of money.
8. Disinvestment: It is the action of an organisation or government selling or liquidating an asset or subsidiary.
9. IMF: International Monetary Fund.
10. FERA: Foreign Exchange Regulation Act 1973.
11. FEMA: Foreign Exchange Management Act 1999.
12. PLG: Liberalization, Privatisation, Globalisation.