Geography Reference
In-Depth Information
accusations of corruption within Gandhi's inner circle further constrained the
government.
A comparison of the 1985-86 budget proposals, described earlier, with the one
introduced for 1986-87 reveals the extent to which the Gandhi government
backpedaled on liberalization. To counter the effects of being painted as pro-
rich, the government responded by levying duties on televisions, air
conditioners, cars, and refrigerators, tax-cuts for wage-earners, and an increase in
spending on poverty alleviation programs of 65 per cent. These measures
together effectively signaled the end of the market-reform effort. Despite this
failure, however, the idea of liberalization had taken root in some bureaucratic
circles in Delhi. Members of these circles would play an important role in a
renewed reform program only five years later, one that was spurred by economic
crisis.
THE 1990S: A DECADE OF REFORM
Though the 1990s saw steady economic growth and achievements in economic
reform, it began in crisis. A broad confluence of factors contributed to India's
economic bind in 1991. Although the Indian economy grew more quickly during
the 1980s than it had during previous decades, the proportion of the central
government's fiscal deficit grew over the decade as well. By the mid-1980s, the
fiscal deficit represented approximately 8 per cent of GDP, and it continued at
that volume through the remainder of the 1980s. Inflation also grew over the
course of the 1980s, and stood at 10 per cent at the start of the 1990s. The public
sector continued to absorb much of the country's investment capital without
contributing to the economy proportionately.
Iraq's invasion of Kuwait in August 1990 and the ensuing Gulf War strained
India's already precarious economic position. The World Bank asserted that
India, along with several other South Asian and East Asian countries, was among
the most adversely affected due to the escalation in oil prices, loss of foreign
exchange earnings of workers in the Gulf region, displaced workers, and
reductions in export profits.
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In the culmination of these dynamics, India found itself with foreign exchange
reserves adequate to finance only two weeks of necessary imports, a lowered
investment rating that made additional loans more costly, and the prospect of
defaulting on its international debt payments.
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The immediate task of the
government was to re-establish macroeconomic stability, prevent a default on
debt payments, and bring down inflation, all of which the government
accomplished despite being one of the most fragile governments since
independence.
Since the early days of crisis management, the Indian government has
implemented decisive market-oriented reforms in areas of economic life. The
