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Day 42 – Q 3. The BoP crisis of the early 90s was a turning point in India’s economic history. Comment.

3. The BoP crisis of the early 90s was a turning point in India’s  economic history. Comment.

90 के दशक की शुरुआत में BoP का संकट भारत के आर्थिक इतिहास में एक महत्वपूर्ण मोड़ था। टिप्पणी करें।


India faced a balance of payment crisis in 1991.The crisis forced India to liberalise the economy.


An analysis of pre and post BoP crisis

Pre Reform EraPost Reform era(199onwards)
Import Substitution IndustrialisationExport led industrialisation
Controls in the form of licenses, permit, quota etc Removal of controls and regulations and hence de-licensing and debureaucratisation etc
State sponsored developmentMarket driven and technology led development
Inward looking trade policyOutward looking trade policy(open economy, globalisation)competition and knowledge drive society
Restrictions of FDIRemoval of restrictions of FDI for entry of MNCs
Private sector not allowed to enter in many industriesPrivate sector limited only in few sectors like defence
Control of interest ratesDe regulation of interest rates, sale of share of PSEs , entry of private banks, movement towards capital account convertibility
High as well as complex tax rate , as well as predominance of indirect taxes and high direct taxesSimplification of tax laws
RBI, a regulator and operator of banks and other institutions under strict scrutinyRbi-a facilitator


The crisis of 1991 which led to major changes impacted India in varied ways


  1. For the first time since Independence the absolute number of people living below poverty lines declined during 1994-2004.
  2. Large improvement in service sector: communication, insurance and IT services.
  3. Inflation kept under control after reforms.
  4. Between 1991 and 2016, per capita income rose from Rs 6,270 to Rs 93,293.
  5. India remained the second fastest growing economy in the world, behind China until 2015. Especially, between 2005 and 2008, the economy clocked the 9% mark annually. 


1) GDP growth rate has not brought about an increase in employment.

2) Agricultural sector is affected: International competition, export oriented production.

3) Industrial sector facing competition from imports, insufficient investment issues.


Indian economy has responded favourably to changes made post BoP crisis. However there is scope to increase growth further through rationalising labour policies and addressing challenges faced in agriculture and industrial sectors.

Best Answer: Gargi Gupta

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