The Effects of India’s 1991 Balance of Payments Crisis

Abstract

Although today India can be identified as a nation with one of the fastest growing global economies, this was not always the case (Kotwal, et al.). Before India’s liberalization of 1991, the economy faced several problems. Issues such as risks of currency collapse, fiscal profligacy, inflated prices, and a decline in net receipts exacerbated into a final balance of payments crisis that threatened a collapse of the Indian economy (Krishnaswamy and Kanagasabapathy). The incompetent economic regulation during this time can be described through the pejorative “license-permit-quota raj”, or a “strict government-ruled economy". In an effort to prevent a calamity such as economic collapse, practices of gradualism through economic reforms were enforced with hope of a revival that would help the economy and the people of India. The balance of payments crisis of India in 1991 led to significant economic reform and growth as well as a drastic change in society and culture. This paper describes theses economic and social reform processes/changes in detail.