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1991 CEPrimary source · 2 sourcesWell documented

The 1991 Reforms Open the Indian Economy

A balance-of-payments crisis forces the end of the license raj and the start of India's high-growth era

On the timeline · around 1991 CE · Independent IndiaIndependent IndiaThe 1991 Reforms Open the Indian Economy19651970197519801985199019952000

Quick facts

Trigger
1991 balance-of-payments crisis
Key leaders
PM Narasimha Rao, FM Manmohan Singh
Opening move
19 percent devaluation of the rupee
Core reform
Ending the license raj; trade liberalization

What happened

By 1991 the Nehru-era model had run into a wall. A balance-of-payments crisis left India with almost no usable foreign exchange reserves. Under Prime Minister Narasimha Rao and Finance Minister Manmohan Singh, the government launched sweeping reforms. An IMF account of the period records that the adjustment strategy adopted in mid-1991 contained four major elements, beginning with immediate stabilization measures, including a 19 percent devaluation of the rupee and increases in interest rates. The early emphasis of the reforms, the IMF notes, was on industrial deregulation and trade liberalization, in a push to reduce drastically licensing requirements for investment and imports, dismantling the permit-and-license system known as the license raj. Growth dipped and then accelerated, beginning the fast-growth decades that made India a major economy and a global software and services exporter.

Why it matters

The 1991 reforms ended four decades of state-led, inward-looking economic policy and set India on the trajectory that turned it into one of the world's largest economies and a global technology power. They rank among the most consequential policy shifts in the country's post-independence history.

How we know

The 1991 crisis and reform package are documented by the International Monetary Fund's own analysis of India's adjustment program, drawing on the government's fiscal and monetary record.

Sources

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The 1991 Reforms Open the Indian Economy · History of India · SourcedStory