Solution

In 1991, economic reforms were introduced in India because 1991 was the year of crisis for the Indian economy. It is clear from the following facts:

(a) National income was expanding at a pace of 0.8%.

(b) The inflation rate peaked at 16.8%.

(c) The balance of payments problem cost 10,000 crores.

(d) India was a very indebted nation. It was making annual interest payments of 30,000 crores.

(e) There were just 1.8 billion dollars in foreign exchange reserves, which was enough for three weeks.

(f) India sold the Bank of England a significant amount of gold.

(g) India requested a loan from the World Bank and IMF in the amount of $7 billion.

(h) The fiscal deficit exceeded 7.5%.

(i) The financing of deficits was about 3%.

(j) There was no longer any trade with the Soviet bloc.

(k) The war in the Arab nations caused remittances from Indian non-residents to halt.

(l) Price of petroleum products was very high.