Economic Reforms Introduced in 1991

Introduction
In 1991, India met with an economic crises relating to its external debt - the government was not able to make repayments on its borrowings from abroad, foreign exchange reserves, which we generally maintain to import petrol and other important items, dropped to levels that were not sufficient for even a fortnight. The crisis was further compounded by rising prices of essential goods. All these led the government to introduce new set of policy measures which changed the direction of our developmental strategies.

Background
The origin of financial crisis can be traced from the inefficient management of the Indian Economy in the mid 1980s. We know that for implementing various policies and its general administration, the government generate funds from various sources such as taxation, running of public enterprises etc. When Expenditure is more than Income, the government borrows to finance the deficit from banks and also from public and also from international financial institutions.   
The continuing spending on development programmes of the government did not generate additional revenue. Moreover the government was not able to generate sufficiently from internal sources such as taxation. When the government was spending a large share of its income on areas which do not provide immediate returns such as social sector and defence, there was a need to utilise rest of the revenue in highly efficient manner. At times, our foreign exchange, borrowed from other countries and international financial institutions were spent on meeting consumption needs. 
In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings become unsustainable.
India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF) and received $7 billion as loan to manage the crisis. For availing the loan, these international agencies expected India to liberalise and open the economy by removing restrictions on the private sector, reduce the role of government in many areas and remove trade restrictions between India and other countries.
India agreed the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP). The NEP consisted of wide ranging economic reforms. The set of policies can be broadly classified into two groups: the stabilisation measures and the structural reform measures. Stabilisation Measures are short term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. On the other hand, Structural Reforms are long term measures, aimed at improving efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of Indian Economy.    

Liberalisation
Liberalisation was introduced to put an end to these restrictions and open various sectors of the economy. Though a few liberalisation measures were introduced in 1980s in areas of industrial licensing, export-import policy, technology upgradation, fiscal policy and foreign investment, reform policies initiated in 1991 were comprehensive. 
Reforms Introduced in 1991 under Liberlisation:
i) Deregulation of Industrial Sector
ii) Financial Sector Reforms
iii) Tax Reforms
iv) Foreign Exchange Reforms
v) Trade and Investment Policy Reforms


Privatisation
It implies shedding of the ownership or management of a government owned enterprise. Government Companies are owned in two ways (i) by withdrawal of the government from ownership and management of the public sector companies and or (ii) by outright sale of public sector companies.
Privatisation of  public sector enterprises by selling off part of the equity of PSEs to the public is known as disinvestment. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. For instance some PSUs have been granted special status as maharatnas, navratnas and miniratnas.  


Globalisation
Although Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards greater integration and interdependence. Globalisation attempts to establish links in such a way that happenings in India can be influenced by events happening miles away. It is turning the world into one whole or creating a borderless world.

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