Reforms in 90s & Crisis in 21st century

Reforms in 90s & Crisis in 21st century

(GS PAPER-3, Mobilization of Resources

Source- The Hindu)


  • Thirty years ago, the liberalization regime launched in 1991 completed its 30 years in 2021. 
  • 1991 was a landmark moment in India’s post-independence history that changed the character of the economy in fundamental ways.
  • A drastic balance of payments problem triggered an acute depression in 1991. 
  • To counter it, India’s economic establishment launched a multipronged reforms agenda to repair India’s macroeconomic record and ignite growth.
  • Three decades later, the country faces another big test thanks to the Covid-19 pandemic. 
  • While the 2 crises are distinctly different in content and structure, they’re completely comparable in their respective severities.


India’s Post-1990 Economic Strategy

  • It dismantled the huge network of controls and permits that dominated the financial system.
  • It reintroduced the role of the state as a facilitator of economic transactions and as a neutral regulator instead of the first provider of products and services.
  • It led to moving away ahead from a regime important substitution and to integrate fully with the worldwide trading system.

The outcome of Reforms:

  • By the primary decade of the 21st century, India began to be seen as the fastest-growing emerging market.
  • The 1991 reforms unleashed the energies of Indian entrepreneurs, gave untold options to consumers, and altered the face of the Indian economy.
  • Far from poverty increasing, for the primary time, there was a considerable reduction in it.

Comparing 1991 Crisis With 2021:

Highest  Fiscal Deficit and Macroeconomic Situation

1991 crisis-

  • The 1991 crisis was caused by excess domestic demand sucking in imports and widening the present account deficit (CAD).
  • A reduction in confidence triggered an outflow of funds and financing CAD forced a pointy drawdown in reserves.
  • India had to pledge tonnes of gold to debar a default sovereign debt. Then, we had almost moved out of the exchange to buy critical imports.

2021 Crisis: 

  • The pandemic-induced lockdown brought the wheels of economic activity to a grinding halt, triggering a pointy economic contraction.
  • This has resulted in a collapse in production following the disruption caused by the pandemic, which, in turn, has caused a fall in demand.
  • Faced with a collapse in demand, it’s appropriate to extend the fiscal deficit. 
  • The government allowed the fiscal deficit to expand to 9.6% last year.
  • Today, the economy is shrinking at a rapid pace, with the central government defaulting on its revenue commitments to the states.
  • Today, we’ve run out of jobs for our hordes of unemployed; poverty is increasing after decades of decline.

Criticism of the Reform-

1991 Reforms: 

  • The 1991 reforms package faced heavy criticism as being dictated by the International fund (IMF) and International Bank for Reconstruction and Development.
  • Further, a number of the reforms were criticized as an agent to capitalists.

2021 Reforms: 

  • Such a centralized approach to reforms might not work now. 
  • It is often seen within the protest emanating from three farm laws.

Way Forward:

Sustaining Public Expenditure: 

  • In the short term, sustaining public expenditure may be a key to reviving growth.
  • Currently, public expenditure is very advantageous for providing more funds for vaccination and to hide expanded demand for the MGNREGA which is proving to be a valuable safety net.
  • Also, there’s a requirement to undertake a reputable path for deficit reduction over the subsequent three years and revising revenue targets to a more realistic level.

Mutually Supportive Reforms: 

  • The 1991 reforms elevated because they were structured around a core package of mutually supportive reforms.
  • Thus, the necessity is to maneuver far away from an extended list of reforms towards a more strategic approach, focussing on the foremost critical reforms needed immediately.
  • In this context, the facility sector, the economic system, governance structures, and even agricultural marketing need reforms.

Improving Investment Climate: 

Investment may be a key source of aggregate demand and economic process, during this context:

  • Perceptions regarding growth prospects are key.
  • The policy framework must be supportive of new investments in order that entrepreneurs are encouraged to require risks.
  • Non-economic factors like a peaceful and sustainable environment and social cohesion also are relevant.
  • The government must begin to act on these fronts.


Maruti Model of Disinvestment:

  • The government should reduce its ownership to 26% in each undertaking, including banks, to strategic partners, recommending it under the Maruti disinvestment following 1991 reforms.
  • In this context, PSUs like Air India, BPCL, and Concor are often sold within subsequent six months, with the commitment that twenty-four PSUs would be divested at the ‘Maruti model’ per annum for the subsequent five years.
  • This will help in generating billions of rupees of investible surplus for the government.

Multi-stakeholders Approach:

  • Today’s reforms also require far more discussion and consensus-building. 
  • The central government must work in tandem with state governments and consult different stakeholders impacted by reform decisions.


  • The 1991 reforms helped the economy debar a crisis then bloom.
  •  It’s time to stipulate a reputable new reform agenda that will not just bring GDP back to pre-crisis levels, but also ensure growth rates above it had when it entered the pandemic

-Khyati Khare

Download Daily Current Affairs of 24th June 2021

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