Why were reforms introduced in India?
Economic reforms were introduced in India in 1991 primarily due to a crisis in the balance of payments. The country needed to maintain sufficient foreign exchange reserves and control rising prices, which required immediate corrective measures.
Earlier policies such as quantitative restrictions on imports, tight control over imports, and high tariffs had reduced efficiency and competitiveness of domestic industries. These policies led to slow growth of the manufacturing sector and made the economy rigid.
India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy. The reforms aimed at creating a more competitive environment, improving efficiency, and increasing international competitiveness by removing rigidities in various segments of the economy.
Explanation
The textbook clearly states that in 1991, a crisis in the balance of payments led to the introduction of economic reforms. The context explains that India had to agree to World Bank and IMF conditionalities. The reforms included stabilisation measures (short-term) to correct balance of payments weaknesses and control inflation, and structural reform measures (long-term) to improve efficiency and international competitiveness. The previous regime of quantitative restrictions, tight import controls, and high tariffs had reduced efficiency and competitiveness.