1991-2012-The 360 degree journey.

Back in 1991, India saw itself battling its most critical economic and currency crisis ever. 


The government then did not have many options but to take up some tough reforms. Many barriers and restrictions were taken off. 


The new economic policy of 1991 was characterised by liberalisation, globalisation and privatisation. 


What followed these radical changes is now history.

Two decades have passed since then. The ghosts of 1991 have come again to haunt us. 


Take the twin deficits during both these period. 


The fiscal deficit was at 5.39% of GDP in 1991-92. In 2011-12 it was at 6.9%. 


Similarly, the current account deficit was at 3% of GDP in 1991. The same stood tall at 4.3% in March 2012. 


Short term external debt has shot up from 10% of GDP in 1991 to 22% currently.

Of course, it would be an overstatement to liken the current scenario to the 1991 crisis. The Indian economy has indeed come a long way since then. 


Back in 1991, India had foreign exchange that wouldn't last beyond two weeks. With current reserves of about US$ 290 bn, the economy can meet its import requirements of about 7 months. 


India's domestic savings rate has gone up from 20% of GDP to 31.6% during this intervening period. 


Even Indian companies are in much better financial health today than in 1991.

But there are also several new challenges now that didn't exist back then. One very major difference is the state of the global economy. 


Back in 1991, the overall economic environment in the global arena was favourable. Major economies were growing at a brisk pace. They were in a position to positively impact India's growth prospects. 


That is not the case anymore. 


All major developed economies are reeling under the burden of high debt and dwindling growth. 


Moreover, in 1991 India's economy was largely closed. Today we are quite integrated with the global economy. This has tremendously increased our vulnerability to external shocks.

It is important to understand that an interdependent global economy creates its own opportunities and challenges. 


Policymakers need to reciprocate effectively in a timely manner to the demands of the changing times. The slew of external shocks over the last couple of years has caught Indian policymakers unawares. 


The sad truth is that the Indian political establishment is accustomed to inaction. Unless, of course, it is forced to the brink of absolute disaster.

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