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Indian Economy in 1990-91

1991 India economic crisis


By 1985, India had started having balance of payments problems. By the end of 1990, it
was in a serious economic crisis. The government was close to default, its central
bank had refused new credit and foreign exchange reserves had been reduced to such
a point that India could barely finance three weeks worth of imports which lead the
Indian government to airlift national gold reserves as a pledge to the International
Monetary Fund (IMF) in exchange for a loan to cover balance of payment debts.
Reasons for economic crisis:
The crisis was caused by currency overvaluation; the current account deficit, and
investor confidence played significant role in the sharp exchange rate depreciation.
The economic crisis was primarily due to the large and growing fiscal imbalances over
the 1980s. During the mid-eighties, India started having balance of payments problems.
Precipitated by the Gulf War, Indias oil import bill swelled, exports slumped, credit dried
up, and investors took their money out. Large fiscal deficits, over time, had a spillover
effect on the trade deficit culminating in an external payments crisis. By the end of 1990,
India was in serious economic trouble.
The gross fiscal deficit of the government (centre and states) rose from 9.0 percent of
GDP in 1980-81 to 10.4 percent in 1985-86 and to 12.7 percent in 1990-91. For the
centre alone, the gross fiscal deficit rose from 6.1 percent of GDP in 1980-81 to 8.3
percent in 1985-86 and to 8.4 percent in 1990-91. Since these deficits had to be met by
borrowings, the internal debt of the government accumulated rapidly, rising from 35
percent of GDP at the end of 1980-81 to 53 percent of GDP at the end of 1990-91. The
foreign exchange reserves had dried up to the point that India could barely finance three
weeks worth of imports.
In mid-1991, India's exchange rate was subjected to a severe adjustment. This event
began with a slide in the value of theIndian rupee leading up to mid-1991. The
authorities at the Reserve Bank of India took partial action, defending the currency by
expending international reserves and slowing the decline in value. However, in mid-
1991, with foreign reserves nearly depleted, the Indian government permitted a sharp
depreciation that took place in two steps within three days (1 July and 3 July 1991)
against major currencies

Recovery
With Indias foreign exchange reserves at $1.2 billion in January 1991 and depleted by
half by June, barely enough to last for roughly 3 weeks of essential imports, India was
only weeks way from defaulting on its external balance of payment obligations.
Government of India's immediate response was to secure an emergency loan of $2.2
billion from the International Monetary Fund by pledging 67 tons of India's gold reserves
as collateral. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of
England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.
[6]

National sentiments were outraged and there was public outcry when it was learned that
the government had pledged the country's entire gold reserves against the
loan. Interestingly, it was later revealed that the van transporting the gold to the airport
broke down on route and panic followed. A chartered plane ferried the precious cargo
to London between 21 May and 31 May 1991, jolting the country out of an economic
slumber. The Chandra Shekhar government had collapsed a few months after having
authorized the airlift. The move helped tide over the balance of payment crisis and kick-
startedP.V.Narasimha Raos economic reform process
P. V. Narasimha Rao took over as Prime Minister in June, and roped in Manmohan
Singh as Finance Minister. TheNarasimha Rao government ushered in several reforms
that are collectively termed as liberalisation in the Indian media. Although, most of these
reforms came because IMF required those reforms as a condition for loaning money to
India in order to overcome the crisis. There was significant opposition to such reforms,
suggesting they are an "interference with India's autonomy". Then Prime Minister Rao's
speech a week after he took office highlighted the necessity for reforms, as New York
Times reported, "Mr. Rao, who was sworn in as Prime Minister last week, has already
sent a signal to the nationas well as the I.M.F.that India faced no "soft options" and
must open the door to foreign investment, reduce red tape that often cripples initiative
and streamline industrial policy. Mr. Rao made his comments in a speech to the nation
Saturday night." The forex reserves started picking up with the onset of the
liberalisation policies and peaked to $314.61 billion at the end of May 2008

Changing structure characteristics of indian economy
On the basis of the observed patterns of growth and structural changes, economic
growth in post Independence India can be divided into the following four phases, each
with its distinguishing characteristic:
Phase 1. Independence to Mid1960s: This period saw a significant acceleration in the
growth rate over the past decades marked by a high growth of industry, and a
significant structural change with a large increase in the share of nonagricultural sector,
especially of the industry in the national output.
Phase 2. Mid1960s to 1980: This period was marked by a slower growth of GDP,
accompanied by a deceleration in the growth of industry, a slower pace of structural
shift from agriculture to nonagriculture and a very small increase in the share of
industry.
Phase 3. 1980 to early 1990s: This period saw a sharp acceleration in growth rate,
mainly contributed by services. Structural changes were also swift, with a large decline
in the share of agriculture, but very little increase in the share of industryservices
picking up the major share of the shift.
Phase 4. Easy 1990s Onwards: Growth continued at similar rate as 1980s, but
declined during 20002004. Structural changes continued at an accelerated pace with
share of agriculture sharply declining and services emerging as the major sector and
with very small increase in the share of industry. Within this phase, period 200510 has
seen a sharp acceleration in growth rate, despite a slowdown in 200809. Share of
agriculture has declined from around 20 to 16 per cent, that of services has increased
from 54 to 59 per cent and that of industry has stagnated.
Apart from the growth in quantitative terms, there have been significant changes in
Indias economic structure since independence.
1. Changing Sectoral Distribution of Domestic Product:
Change in composition of domestic product or change in national income by
industry of origin refers to change in relative significance (share) of different sectors
of the economy. Generally, an economy is divided into three major sectors viz.
primary, secondary and tertiary sectors.
Primary sector includes agricultural and allied activities, secondary sector includes
manufacturing industries and tertiary sector includes services. With the development
process, significance of primary sector declines while that of secondary and tertiary
sectors increases. After independence, Indian economy has also experienced such
changes.
2. Growth of Basic Capital Goods Industries:
When country attained independence, the share of basic and capital goods industries in
the total industrial production was roughly one-fourth.
Under the second plan, a high priority was accorded to capital goods industries, as their
development was considered a pre-requisite to the overall growth of the economy.
Consequently, a large number of basic industries which produce capital equipment and
useful raw materials have been set up making the countrys industrial structure pretty
strong.
3. Expansion in Social Overhead Capital:
Social overhead capital broadly includes transport facilities, irrigation systems, energy
production, educational system and organisation and health facilities. Their
development creates favourable conditions for growth and also for better human living.
The transport system in India has grown both in terms of capacity and modernisation.
The railways route length increased by more than 9 thousand kms and the operation
fleet practically doubled. The Indian road network is now one of the largest in the world
as a result of spectacular development of roads under various plans. India has also seen
growth in Life- lixpectancy and Literacy Rate but education has not expanded at a
desired rate.
4. Progress in the Banking and Financial Sector:
Since independence, significant progressive changes have taken place in the banking
and financial structure of India. The growth of commercial banks and cooperative credit
societies has been really spectacular and as a result of it the importance of indigenous
bankers and money-lenders has declined.
Since nationalisation, these banks have radically changed their credit policy. Now more
funds are made available to priority sectors such as agriculture, small-scale industries,
transportation, etc.
Indian economy has progressed structurally when we consider the growth of capital
goods industries, expansion of the infrastructure, performance of the public sector, etc.
These factors over the years are believed to have created an element of dynamism in the
countrys economy and one can now hopefully say that it would sustain development in
the future.

Concept of Sustainable Growth
Inclusive growth is a concept which advances equitable opportunities for economic
participants during the process of economic growth with benefits incurred by every
section of society.
inclusiveness a concept that encompasses equality of opportunity, and protection
in market and employment transitions is an essential ingredient of any successful
growth strategy

The Indian economy, which has over the last six decades passed through various
phases of growth, is now all set to enter an altogether different orbit: one marked
by a high rate of expansion, combined with inclusive growth. In the last few
years, inclusive growth has been at the forefront of studies sponsored by
multilateral aid agencies, such as the United Nations, the World Bank, Asian
Development Bank, and several nongovernmental organizations (NGOs).
Successive governments have initiated several projects, such as Jawahar Rozgar
Yojna, Integrated Rural Development Program, Rural Housing Scheme,
Swarnjayanti Gram Swarozgar Yojana and Mahatama Gandhi National Rural
Employment Guarantee Act to promote inclusive growth.

However, for inclusive growth to happen in a country with the scale and size of
India, private sector involvement is equally important. The private sector has
started contributing with initiatives, such as the ICICI Foundation having been set
up with the sole purpose of promoting inclusive growth. The government and
private sector can play complementary roles in driving inclusive growth. There is a
need for the public and the private sector in India to have a unified approach
towards how they can extend, innovate, and collaborate in new ways to drive
inclusive growth.This paper elaborates the need to build Inclusive India and
emphasizes why it is imperative to focus on inclusive growth now. It presents the
opportunities available for building an inclusive India by identifying key levers in
governance, education, energy and resources, telecom and technology,
infrastructure, healthcare, financial inclusion, and business model innovation. It
also highlights some of the reasons why efforts to build an Inclusive India in the
past have had only limited success and what can be done better in the future so that
inclusive growth is realized. The paper further stresses upon the need for the public
and the private sector to work in tandem and leverage each others strengths to
drive inclusive growth.

Elements of Inclusive Growth


According to Prime Minister, Sri. Manmohan Singh, the key components of the
inclusive growth strategy included a sharp increase in investment in rural areas,
ruralinfrastructure and agriculture spurt in credit for farmers,increase in rural
employment through a unique social safety net and a sharp increase in public
spending on education and health care. The interrelated elements of inclusive
growth are:
Poverty Reduction
Employment generation and Increase in quantity & quality of employment.
Agriculture Development
Industrial Development
Social Sector Development
Reduction in regional disparities
Protecting the environment.
Equal distribution of income




Employment Generation
Poverty Reduction Agriculture Development

Industrial
development Social sect Devt


Reduction in regional Disparities Equal distribution of income

Environmental protection

Concept of Sustainable Development
Sustainable development is a roadmap, the action plan, for achieving sustainability in any activity
that uses resources and where immediate and intergenerational replication is demanded. As such,
sustainable development is the organizing principle for sustaining finite resources necessary to
provide for the needs of future generations of life on the planet.
Sustainable development is development that meets the needs of the present
without compromising the ability of future generations to meet their own
needs
Towards Sustainable Development
Sustainable development in India includes a variety of development schemes in
social, cleantech (clean energy, clean water and sustainable agriculture) and human
resources segments, having attracted the attention of both Central and State
governments and also public and private sectors. Social sector, cleantech
investments into green energy and fuel alternatives and development schemes for
backward and below the poverty line (BPL) families are being touted as some of
the more heavily invested segments in India in 2009, despite the economic

Elements of
Inclusive Growth
slowdown.
Sustainable development is a term that can be defined in many different ways.
However, the most widely recognized definition is found in the Bruntland Report.
Titled Our Common Future, the report defines sustainable development
as development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.
From this definition, sustainable development can be reduced to two key concepts:
needs and limitations. The needs, of course, being those of the worlds poor, the
needy. The limitations are those imposed by the state of technology and social
organization on the environments ability to meet present and future needs.
Here are five examples of sustainable development that meet both those needs and
those limitations.
1. Solar Energy
The best thing about the suns energy is that it is completely free. Since solar
energy is available in limitless supply, this provides a huge advantage to
consumers, while also reducing pollution. Replacing non-renewable energy with
this type of energy is both environmentally and financially effective.
2. Wind Energy
Wind energy is another readily available source of energy. Harnessing the power
of wind energy is as easy as investing in a windmill. The major problem is finding
a suitable location. However, since wind energy can supplement or even replace
the cost of grid power, it may be a good investment and remains a great example of
sustainable development.
3. Crop Rotation
The online dictionary defines crop rotation as the successive planting of different
crops on the same land to improve soil fertility and help control insects and
diseases. This practice is beneficial in several ways, most notably because it is is
chemical-free. Crop rotation has been proven to maximize the growth potential of
land, while also preventing disease and insects in the soil. Not only can this form
of development benefit commercial farmers, but it can also aid those who garden at
home.
4. Efficient Water Fixtures
Replacing current construction practices and supporting the installation efficient
showerheads, toilets and other water appliances can conserve one of Earths most
precious resources: water. Examples of efficient fixtures include products from the
EPAs WaterSense program, as well as dual-flush and composting toilets.
5. Green Space
Green spaces include parks and other areas where plants and wildlife are
encouraged to thrive. These spaces also offer the public great opportunities to
enjoy outdoor recreation, especially in dense, urban areas.

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