Summary Report of Indian Economy during ( 1990-2000 )

Before 1991 , India was closed economy . Large fiscal deficit emerged as a result

Mounting government expenditure, particularly during second halfs of 80s

Fiscal deficit led to higher level of borrowings by government from RBI , IMF ,

World Bank.

Expenditure on subsidies rose from Rs 19.1 billion in 1980-1981 to Rs 107.2

Billion in 1990-1992.

Second main reason was Gulf War ( 2nd August 1990-28th Feb 1991 ) between Iraq

And Kuwait . Impact of gulf war on balance of payment situation was very serious

Trade deficit has increased all because of increase in import bill for crude oil &
petroleum products.

Loss of exports : Remittances from west Asia in particular Kuwait & iraq there was

Sharp decline in balance of trade .

It became more difficult to borrow money from international capital market

All this led to sharp decline in foreign exchange reserve.

Decline would have been still larger if govt did not resort to borrowing from IMF.

All this led to Indian Economic crisis 1991 .

Initiators of Economic Reforms .

Government at time was of Indian prime minister P.V Narsimha Rao and Finance
Minister Dr . Manmohan Singh .

What they have visualized before implementation of these changes ?

They saw that as foreign reserves were empty, gold reserves too , and to end Indian
Economic crisis 1991 to end .

They came out with solution Libralisation , Privatisation & Globalisation .

Reforms of Libralisation :
Introduced SEBI act 1992 to register & regulate all security market intermediaries

In 1994 NSE as a computer based trading system which served as an instrument to

leverage reform”s of India”s other stock exchange .

Impact of Reforms :

Total foreign investment in India grew from $132 million 1991-1992 to $5.3 billion

In 1995-1996.

LIBERALIZATION: Trading with other nations.

i. India became open economy.

ii. Multi national companies entered Indian market.

iii. Competition increased tremendously.

iv. India started developing very fast.

v. Import, Export, Foreign investments increased highly

Privatization : Transfer of ownership and / or management of an enterprise from

public sector to private sector .

i. Has reduced fiscal burden of the government.

ii. Enables government to increase fund

iii. Helps accelerate the pace of economic development as it attracts

more resources from private sector for development

iv. Public sector unit performance improved

GLOBALIZATION: Integration or interdependence of countries worldwide through

increasing volumes and variety of cross border.

i. Permitting Indian companies to collaborate with foreign companies

ii. Liberalizing inflow of FDI

iii. Removing of export subsidies

 iv. Replacing licensing of exports with duties

v. Allowing FII to invest in Indian capital market

Analysis of Indian Economy during 1991-2000 based on 12 Indicators suggested by

Economic Survey:

% Change with respect to previous year

Key Indicators 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999-
91 92 93 94 95 96 97 98 99 2000
GNP 16.2 15.2 13.9 16.2 18.7 16.1 16.2 11.9 15 10.3
GDP 16.4 15.5 14 16 18.4 15.9 15.9 11.8 15 10.2
Agricultural
Production 3 -2 14.1 3.8 5 -2.7 9.3 -2.4 6.2 0.3
Food grain Production 3.2 -4.5 6.6 2.7 3.9 -5.8 10.5 -3.6 5.9 3
Industrial Production 8.3 0.6 2.3 6 9.4 12.1 5.6 6.7 4.1 6.7
Electricity Generated 7.8 8.6 4.9 7.4 8.5 8.3 3.8 6.5 6.6 7.2
Wholesale Price
Index 12.1 14.6 7 10.8 10.4 5 6.9 4.5 5.3 6.5
Consumer Price Index 13.6 13.9 6.1 9.9 9.7 8.9 10 8.3 8.9 4.8
Money Supply (M3) 15.1 19.4 15.7 18.4 22.3 13.7 16.2 18 19.4 14.6
Import 22.3 10.8 32.4 15.3 23.1 36.4 13.2 11 15.7 20.7
Export 17.7 35.3 21.9 29.9 18.5 28.6 11.7 9.5 7.4 14.2
Foreign Currency
Asset -24.2 232.2 38.2 134.8 39.6 -11.5 37.5 27.5 22.3 21.9
Exchange Rate 7.2 27.2 14.9 7.7 -0.1 -6.1 -5.8 -4.5 -11.7 -2.9

1) GNP/GDP:

• There was continuous increase in GNP. As shown in the above table.

• All these data of GDP & GNP was taken considered at current price of
that year to avoid complication created by the base year. Earlier for
calculating GDP & GNP base year was 1980-81. During this decade
the base year was changed to 1993-94. So to avoid confusion it is
better to calculate them at current price for the analysis.

• Though there were some periods in which some decline compare to

its earlier % change but since the change was +ve. The overall
performance of GNP was quite good.

• The reason for continuous growth was the effect of LPG model of
development that had been implemented by the government.
 • In that Model, there were several major changes had been introduced
at domestic level like public sectors which were reserved earlier, they
were opened for private sectors.

• Government started disinvestment of highly profit making PSUs to

reduce fiscal deficits.

• Also foreign direct Investment had been encouraged.

• At the end of 1999-2000, India’s Rate of GDP growth was 6%

annually while China had 10.6% annually.

2) Agriculture & Food grains:

• Agriculture is the key factor for Indian Economy.

• LPG model of development has given more importance to Industry

which share’s only 10% of GDP.

• The model had neglected agriculture & agro based Industries.

• People were transferred to the Industrial sector.

• Also during 1995-96, monsoon was bad.

3) Electricity:

• It is observed that for growth electricity is required.

• Agriculture requires electricity for Irrigation.

• Industrialization leads to more consumption of electricity.

• Thus, the usage of electricity is one of the growth indicators for

economy.

• For India, The consumption of had doubled during the decade.

 • From the global perspective of per capita consumption of electricity,
India stood 5th at the end of the decade.

4) M3( Broad Money):

• There was continuous increase in M3 during the decade.

• The sudden increase M3 in year 1994-95 was mainly because of Fifth

Pay commission which had increased more money in people’s hand.

• People started saving in banks. There was significance increase in

deposits of general public with banks which they can withdraw through
Cheques & ATM cards.

• More people started investing in the stock market.

• The Volume of deposit money in country was:

1990-91: Rs. 92,890 Cr.

2000-01: Rs. 1, 69,900 Cr.

• Currency in circulation was:

1990-91: Rs.53, 660 Cr.

2000-01: Rs. 2, 21,850 Cr.