stipulated in the World Bank loan

(structural reform), requiring India to open

itself up to participation from foreign
entities in its industries, including state
owned enterprises.[8]

Causes and consequences

The crisis was caused by currency
devaluation;[9] the current account deficit,
and investor confidence played significant
role in the sharp exchange rate
depreciation.[10][11][12]

The economic crisis was primarily due to

the large and growing fiscal imbalances
over the 1980s. During the mid-eighties,
India started having balance of payments
problems. Precipitated by the Gulf War,
India’s oil import bill swelled, exports
slumped, credit dried up, and investors
took their money out.[13] Large fiscal
deficits, over time, had a spillover effect on
the trade deficit culminating in an external
payments crisis. By the end of the 1980s,
India was in serious economic trouble.

The gross fiscal deficit of the government

(centre and states) rose from 9.0 percent
of GDP in 1980-81 to 10.4 percent in 1985-
86 and to 12.7 percent in 1990-91. For the
centre alone, the gross fiscal deficit rose
from 6.1 percent of GDP in 1980-81 to 8.3
percent in 1985-86 and to 8.4 percent in
1990-91. Since these deficits had to be
met by borrowings, the internal debt of the
government accumulated rapidly, rising
from 35 percent of GDP at the end of
1980-81 to 53 percent of GDP at the end of
1990-91. The foreign exchange reserves
had dried up to the point that India could
barely finance three weeks worth of
imports.[14]

In mid-1991, India's exchange rate was

subjected to a severe adjustment. This
event began with a slide in the value of the
Indian rupee leading up to mid-1991. The
authorities at the Reserve Bank of India
took partial action, defending the currency
by expanding international reserves and
slowing the decline in value. However, in
mid-1991, with foreign reserves nearly
depleted, the Indian government permitted
a sharp devaluation that took place in two
steps within three days (1 July and 3 July
1991) against major currencies.

Recovery
With India’s foreign exchange reserves at
$1.2 billion in January 1991[15][16][17] and
depleted by half by June,[17] barely enough
to last for roughly 3 weeks of essential
imports,[16][18] India was only weeks away
from defaulting on its external balance of
payment obligations.[16][17]

Government of India's immediate

response was to secure an emergency
loan of $2.2 billion[19][20][21] from the
International Monetary Fund by pledging
67 tons of India's gold reserves as
collateral security.[7][20] The Reserve Bank
of India had to airlift 47 tons of gold to the
Bank of England[13][15] and 20 tons of gold
to the Union Bank of Switzerland to raise
$600 million.[13][15][22] National sentiments
were outraged and there was public outcry
when it was learned that the government
had pledged the country's entire gold
reserves against the loan.[13][18] It was
later revealed that the van transporting the
gold to the airport broke down en route
and panic followed.[7] A chartered plane
ferried the precious cargo to London
between 21 May and 31 May 1991, jolting
the country out of an economic
slumber.[13] The Chandra Shekhar
government had collapsed a few months
after having authorised the airlift.[13] The
move helped tide over the balance of
payment crisis and kick-started P.V.
Narasimha Rao’s economic reform
process.[15]
P. V. Narasimha Rao took over as Prime
Minister in June, and roped in Manmohan
Singh as Finance Minister.[13] The
Narasimha Rao government ushered in
several reforms that are collectively
termed as liberalisation in the Indian
media. There was significant opposition to
such reforms, suggesting they were an
"interference with India's autonomy". Then
Prime Minister Rao's speech a week after
he took office highlighted the necessity for
reforms, as New York Times reported, "Mr.
Rao, who was sworn in as Prime Minister
last week, has already sent a signal to the
nation—as well as the I.M.F.—that India
faced no "soft options" and must open the
door to foreign investment, reduce red
tape that often cripples initiative, and
streamline industrial policy. Mr. Rao made
his comments in a speech to the nation
Saturday night." [23] The foreign reserves
started picking up with the onset of the
liberalisation policies and reached an all-
time high US$ 426.1 billion as on 13th of
April 2018 [24]

18 years after the incident, in 2009, India

bought 200 Metric tons of gold from
International Monetary Fund,which was
nearly three times the amount which India
pawned to IMF in 1991 proving the fact
that the economic reforms had worked
wonders. [25]

Aftermath
A program of economic policy reform
1991 was put in place which has yielded
mixed results so far.[26]

See also
Economic liberalisation in India
Corruption in India
Economic history of India
Economy of India
License Raj
References
1. "India - Structural Adjustment Credit
Project (English) - Presidents report" .
www.documents.worldbank.org. World
bank. Retrieved 30 October 2018.
2. "What Caused the 1991 Currency Crisis in
India?" (PDF). International Monetary Fund.
VALERIE CERRA and SWETA CHAMAN
SAXENA.
3. "1991, the untold story" . Yashwant
Sinha. The Hindu. 29 July 2016. Retrieved
21 December 2018.
4. "How the economy found its feet" .
Deepak Nayar. The Hindu. 18 October 2016.
Retrieved 21 December 2018.
5. "In fact: How govts pledged gold to pull
economy back from the brink" . Shaji
Vikraman. The Indian Express. 5 April 2017.
Retrieved 21 December 2018.
6. Stuart Corbridge; John Harriss (28 May
2013). Reinventing India: Liberalization,
Hindu Nationalism and Popular
Democracy . Wiley. pp. 144–. ISBN 978-0-
7456-6604-4. Retrieved 20 December 2018.
7. "I think a stimulus package is necessary,
yes. Bailouts, no" . Rediff News. Retrieved
2009-10-20.
8. "Structural adjustments in India - a
reportof the Independent Evaluation Group
(IEG)" . www.lnweb90.worldbank.org. World
bank. Retrieved 30 October 2018.
9. "What Caused the 1991 Currency Crisis in
India?" (PDF). International Monetary Fund.
VALERIE CERRA and SWETA CHAMAN
SAXENA.
10. Pathways Through Financial Crisis:
India Archived 25 October 2013 at the
Wayback Machine., Arunabha Ghosh, Global
Governance 12 (2006), 413–429.
11. India's Pathway through Financial
Crisis Archived 12 November 2011 at the
Wayback Machine.. Arunabha Ghosh.
Global Economic Governance Programme.
Retrieved on 2 March 2007.
12. http://findebookee.com/c/crisi-in-india
13. "India shining, India scraping" . The
Telegraph. Archived from the original on 6
November 2009. Retrieved 2009-10-20.
14. "Project proposal - Structured
adjustment of India" .
www.documents.worldbank.org. World
Bank. Retrieved 30 October 2018.
15. Rajghatta, Chidanand; Sinha, Prabhakar.
"Full circle: India buys 200 tons gold from
IMF" . Rediff News. Retrieved 2009-10-20.
16. "Why India bought IMF gold" . Rediff
News. Archived from the original on 6
November 2009. Retrieved 2009-10-20.
17. "RBI to buy 200 tonnes of IMF gold" .
LiveMint. Archived from the original on 3
November 2009. Retrieved 2009-10-20.
18. "RBI's gold buying has its own
sentimental value: FM" . PTI. Archived
from the original on 6 November 2009.
Retrieved 2009-10-20.
19. Meredith, Robyn (2007). The Elephant
and the Dragon. W. W. Norton & Company.
ISBN 0-393-06236-8.
20. "RBI buys 200 tonnes of gold from MF" .
The Hindu. Archived from the original on 6
November 2009. Retrieved 2009-10-20.
21. "1991 Country Economic
Memorandum" (PDF). World Bank. India
Country Department.
22. "Only Indians, not foreigners, are
exercised over swadeshi: FM" . Rediff
News. Retrieved 2009-10-20.
23. Economic Crisis Forcing Once Self-
Reliant India to Seek Aid , New York Times,
29 June 1991
24.
https://www.hindustantimes.com/business-
news/india-s-forex-reserves-at-a-life-time-
high-of-426-082-billion/story-
VN1S40wNLq6LG3thW1Eb6O.html
25.
http://m.timesofindia.com/business/india-
business/Full-circle-India-buys-200-tons-
gold-from-IMF/articleshow/5194338.cms
26. "India: 1991 country economic
memorandum" (PDF).
www.documents.worldbank.org. World
bank. Retrieved 30 October 2018.
Retrieved from
"https://en.wikipedia.org/w/index.php?
title=1991_Indian_economic_crisis&oldid=8770542
11"

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