Economic liberalisation in India

The economic liberalisation in India refers to the series of policy changes aimed at opening up the country's economy to the world, with the objective of making it more market-oriented and consumption-driven. The goal was to expand the role of private and foreign investment, which was seen as a means of achieving economic growth and development.^[1][2] Although some attempts at liberalisation were made in 1966 and the early 1980s, a more thorough liberalisation was initiated in 1991.

The liberalisation process was prompted by a balance of payments crisis that had led to a severe recession, dissolution of the Soviet Union leaving the United States as the sole superpower, and the sharp rise in oil prices caused by the Gulf War of 1990–91. India's foreign exchange reserves fell to dangerously low levels, covering less than three weeks of imports. The country had to airlift gold to secure emergency loans. Trade disruptions with the USSR and a decline in remittances from Gulf countries further intensified the crisis. Political instability and a rising fiscal deficit added to the economic strain. In response, India approached the International Monetary Fund (IMF) and the World Bank for assistance. These institutions made financial support conditional on the implementation of structural adjustment programs. The liberalisation was not purely voluntary, but largely undertaken under pressure from the IMF and World Bank, which required sweeping economic reforms in exchange for loans. The crisis in 1991 forced the government to initiate a comprehensive reform agenda, including Liberalisation, Privatisation and Globalisation, referred to as LPG reforms. At his now famous budget introduction speech that instituted the reforms, Manmohan Singh said on 24 July 1991: "Let the whole world hear it loud and clear. India is now wide awake^[3]

The reform process had significant effects on the Indian economy, leading to an increase in foreign investment and a shift towards a more services-oriented economy. The impact of India's economic liberalisation policies on various sectors and social groups has been a topic of ongoing debate. While the policies have been credited with attracting foreign investment, some have expressed concerns about their potential negative consequences. One area of concern has been the environmental impact of the liberalisation policies, as industries have expanded and regulations have been relaxed to attract investment. Additionally, some critics argue that the policies have contributed to widening income inequality and social disparities, as the benefits of economic growth have not been equally distributed across the population.