Post independence, Indian economic policies were framed with the objective of achieving planned growth. Conservative policies were adopted to meet this end. For instance, to make the public sector the sole instrument of growth, it was given a dominant position. Fiscal policies revolved around mobilizing private sectorsâ€™ resources to channel and fund public investment in infrastructure. Monetary policies centred around keeping inflation under control. Foreign trade policies concentrated on protecting domestic industries and controlling trade balances.
Drawbacks of the conservative policy
- Consumption and expenditure exceeded revenue and led to heavy Government borrowings
- Resources were used inefficiently
- Industries were protected over acceptable limits
- There was mismanagement of firms and the economy
- Public sector enterprises had to face excessive losses
This led to a scene of mismanagement and in 1991, crises such as the ones given below sprung up.
- Low foreign exchange reserves: The available foreign exchange reserves could not finance imports adequately. It was sufficient to finance imports only for three weeks.
- Burden of national debt: National debt was 60 percent of the GNP in 1991
- Inflation: The wholesale prices increased at an annual average rate of 12% during 1991
To combat this, the Government introduced economic reforms in major sectors like:
- Industrial sector
- Financial sector
- External sector
- Fiscal policy