The Reform Period:
The main effect of the balance of payments crisis was the loss of India’s position on the global scale especially in the eyes of the World Bank. India had huge debts to repay and could not do so without the aid of the World Bank and such financial institutions. Also, due to the closed door policy of the government foreign trade was meagre and the foreign investments into the country were well below required levels. The rupee now valued 25.79 against the USD which was a massive devaluation. Like all conventional tales, when all hope is lost, the people need a hero to come to their rescue. Manmohan Singh has very often been criticized for his nonchalant stance as prime minister of India but back then he was the finance minister or “the hero” of India. Under PV Narasimha Rao and Manmohan Singh’s leadership Indian policies were reinvigorated and major changes were made. The World Bank agreed to give India financial support but in return India had to globalize and liberalize. India agreed to do so and slowly the situation started improving. Some key policies were implemented such as a more capitalist approach by disinvestment of public sector and privatization. Import substitution was removed and taxes were reduced to encourage foreign investments/trade into the country. Importance was given to industrial growth and development of the tertiary sector. All the heavy licensing procedures were abolished and the government trimmed the role of the RBI in regulating the financial sector which resulted in the emergence of various financial institutions. Also, during this time various small scale industries emerged which formed an integral part of the economy in terms of GDP and employment. By the end of Narasimha Rao’s term India was look at the end of the millennium with hope of better things to come.
The Growth Period:
When the hero marks his victory over the villain, the story still has an unfinished part that is the hero and heroine getting together and having a happy ending. Almost a decade later, Manmohan Singh became the prime minister of India. Although, between 2000-2010 India did not see the growth which met its potential but substantial improvement was there. India’s trade as a proportion of GDP rose from 13.1 per cent in 1990 to 20.3 per cent in 2000. Economic reforms picked up pace in 2000-04 and fiscal deficits trended down after 2002 and there was a based upswing in Indian industrial output and investment from the second half of 2002. India’s Tenth Five-Year Plan (2002-07) targeted an annual growth rate of eight per cent. Along with this growth target, the government also laid down targets for human and social development. A reduction of the poverty rate by five percentage points by 2007; providing gainful employment to at least those who join the labor force during 2002-07; education for all children in schools by 2003; and an increase in the literacy rate to 75 percent by March 2007. The GDP too saw a huge upward growth.
At the present, it is the NDA government which is in full swing and India is en-route to becoming an influential and key player in the world economy and continues to improve in the Na Mo era.