Crisis or Opportunity?
Edited by Peter Draper, Philip Alves and Razeen Sally
Chapter 7: India
S. Narayan INTRODUCTION After several decades of controls and restrictions on imports and exports, comprehensive reforms to open the Indian economy were initiated in the early 1990s. Trade reforms were accompanied by reforms in the industrial sector, lifting of exchange controls, liberalization of foreign investment policy, removal of restrictions on the current account, opening up of financial markets, and other measures. The changes in policy were triggered by the serious balance of payments crisis in 1991. Earlier coalition governments did not have the mandate to take difficult economic decisions, but in 1991, after a gap of three years, a new political leadership came into power that could address these issues. Further, the Uruguay round of global trade negotiations had been going on for some time, and was nearing completion, and would necessitate the unravelling of several restrictive measures in trade policy. The changed political environment was conducive to this initiative. The former Prime Minister Mr Rajiv Gandhi had been assassinated, and though the Congress Government that came to power in 1991 did not have an absolute majority, they had the sympathy and support of the public. The new Prime Minister Mr Narasimha Rao brought in Dr Manmohan Singh, an eminent economist, as Finance Minister, and Mr Pranab Mukherjee, a veteran at negotiations, as Commerce Minister. India lost an important ally in the collapse of the Soviet Union, and had to find fresh trading partners urgently. The new government realized the importance of making friends with the United States and of...
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