1991 economic crisis in india||1991 economic reforms india|LPG 1991 Reform||So simple Documentary
Reform 1991|Indian Economic crisis1991|Manmohan singh budget|LPG 1991 Reform
The collapse of the Chandra Shekhar government in the midst of the crisis and the assassination of Rajiv Gandhi led to the election of a new Congress government led by P. V. Narasimha Rao.[32] He selected Amar Nath Verma to be his Principal Secretary and Manmohan Singh to be finance minister and gave them complete support in doing whatever they thought was necessary to solve the crisis.[32] Verma helped draft the New Industrial Policy alongside Chief Economic Advisor Rakesh Mohan, and it laid out a plan to foster Indian industry in five points.[33][34] Firstly, it abolished the License Raj by removing licensing restrictions for all industries except for 18 that "related to security and strategic concerns, social reasons, problems related to safety and overriding environmental issues."[33]
Reform 1991|Indian Economic crisis1991|Manmohan singh budget|LPG 1991 Reform
technology and industrial development.[32][33] To further incentivize technological advancement, the old policy of government approval for foreign technology agreements was scrapped. The fourth point proposed to dismantle public monopolies by floating shares of public sector companies and limiting public sector growth to essential infrastructure, goods and services, mineral exploration, and defense manufacturing.[32][33] Finally the concept of an MRTP company, where companies whose assets surpassed a certain value were placed under government supervision, was scrapped.[32][35]
Meanwhile, Manmohan Singh worked on a new budget that would come to be known as the Epochal Budget.[36] The primary concern was getting the fiscal deficit under control, and he sought to do this by curbing government expenses. Part of this was the disinvestment in public sector companies, but accompanying this was a reduction in subsidies for fertilizer and abolition of subsidies for sugar.[37] He also dealt with the depletion of foreign exchange reserves during the crisis with a 19 per cent devaluation of the rupee with respect to the US dollar, a change which sought to make exports cheaper and accordingly provide the necessary foreign exchange reserves.[38][39] The devaluation made petroleum more expensive to import, so Singh proposed to lower the price of kerosine to benefit the poorer citizens who depended on it while raising petroleum prices for industry and fuel.[40] On 24 July 1991, Manmohan Singh presented the budget alongside his outline for broader reform.[36] During the speech he laid out a new trade policy oriented towards promoting exports and removing import controls.[41] Specifically, he proposed limiting tariff rates to no more than 150 percent while also lowering rates across the board, reducing excise duties, and abolishing export subsidies.[41]
In August 1991, the Reserve Bank of India (RBI) Governor established the Narasimham Committee to recommend changes to the financial system.[42] Recommendations included reducing the statutory liquidity ratio (SLR) and cash reserve ratio (CRR) from 38.5% and 15% respectively to 25% and 10% respectively, allowing market forces to dictate interest rates instead of the government, placing banks under the sole control of the RBI, and reducing the number of public sector banks.[43] The government heeded some of these suggestions, including cutting the SLR and CRR rates, liberalizing interest rates, loosening restrictions on private banks, and allowing banks to open branches free from government mandate.[44][37]
On 12 November 1991, based on an application from the Government of India, World Bank sanctioned a structural adjustment loan/credit that consisted of two components – an IBRD loan of $250 million to be paid over 20 years, and an IDA credit of SDR 183.8 million (equivalent to $250 million) with 35 years maturity, through India's ministry of finance, with the President of India as the borrower. The loan was meant primarily to support the government's program of stabilization and economic reform. This specified deregulation, increased foreign direct investment, liberalization of the trade regime, reforming domestic interest rates, strengthening capital markets (stock exchanges), and initiating public enterprise reform (selling off public enterprises).[45] As part of a bailout deal with the IMF, India was forced to pledge 20 tonnes of gold to Union Bank of Switzerland and 47 tonnes to the Bank of England and Bank of Japan.[46]
Miss Poonam (Editor )
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