Pre Liberalization of 1991: The Indian Economic policy direction post-Independence was driven on Centralized

Economic Planning inspired by Gandhi’s micro-economic development and Nehru’s Industrialization based

economic development, with Central Government having absolute control of distribution. The policies defined by

Government were primarily protectionist and this giving rise to extensive bureaucracy, red tape, unnecessary

regulations and trade barriers. These policies coupled with financial burden of partition, closed market policies,

poor FDI reforms resulted in underperforming growth rate of 2-3.5% over the period till 1990, much below the

potential.

Although the policies and reforms were devised to alleviate poverty, the opposite became true to due to

the high population rates, high imports, huge public sectors, multiple wars & state intervention in matters that

included industries, business, labour and financial markets – all this factors started to put pressure on the fiscal

deficit.

The shortage in self reliability & dependency on imports on several essential products and services - such

as oil, defense manufacturing, combined with agricultural subsidies gave way for higher fiscal deficit prompting

the country to take the extreme step of borrowing finance from external sources. From 1980-85, half of our

financing needs were met with external assistance and the debt grew as much to 40% of GDP in 1991-92, finally

reaching the worst tipping point of ‘Balance of Payment Crisis’.

Liberalization of 1992: Under the new government, the country embarked on liberalization policies under the

visionary goals to remove unnecessary bureaucratic controls, take careful measures to integrate the country with

world economy, remove restrictions on foreign investment and crack down on public sector