India's reform plan, which began in July 1991, was a blend of macroeconomic stabilisation and structural

change. It was guided by both short- and long-term goals. In the short term, stabilisation was required to
restore balance of payments equilibrium and contain inflation. Simultaneously, modifying the structure
of institutions through reforms was equally crucial from a long-term perspective.

The new government moved quickly to put in place a macroeconomic stabilisation programme based
on fiscal correction. Aside from that, fundamental reforms in commerce, industry, and the public sector
have been implemented.

Major steps in 1991 reforms -

Fiscal Reforms: Restoring fiscal discipline was a key component of the stabilisation effort. According to
the data, the budget deficit in 1990-91 was as high as 8.4% of GDP. The 1991-92 budget takes a bold
move toward rectifying the fiscal imbalance. It called for a nearly two-percentage-point reduction in the
fiscal deficit from 8.4% of GDP in 1990-91 to 6.5 percent in 1991-92.

The budget aimed to reduce government spending while increasing revenues, as well as reversing the
downward trend in the share of direct taxes in overall tax receipts and restraining extravagant spending.
Reduced fertiliser subsidies, abolition of sugar subsidies, disinvestment of a portion of the government's
equity holdings in select public sector undertakings, and acceptance of major recommendations of the
Tax Reforms Committee headed by Raja Chelliah were some of the major policy initiatives introduced in
the budget for the year 1991-92 to correct the fiscal imbalance. These suggestions attempted to
increase revenue by improving compliance with income tax, excise, and customs taxes, as well as
making the tax structure more stable and transparent.

Monetary and Financial Sector Reforms: Monetary reforms aimed at removing interest rate distortions
and reorganising the lending rate structure.

The new policy attempted to improve the financial sector in a variety of ways. Reserve Requirements: in
accordance with the recommendations of the Narasimham Committee Report, 1991, the statutory
liquidity ratio (SLR) and the cash reserve ratio (CRR) were reduced. SLR and CRR were extremely high in
mid-1991. Within three years, the SLR was projected to be reduced from 38.5 percent to 25 percent.
Similarly, it was recommended that the CRR br be reduced to 10% (from the previous 25%) over a four-
year period.

 Interest Rate Liberalization: Previously, the RBI controlled the rates payable on various
maturities of deposits, as well as the rates that might be charged for bank loans, which varied
according on the sector of use and the loan size. Interest rates on time deposits were
deregulated in stages, first with longer-term deposits and gradually expanding to shorter-term
accounts.
 Increased rivalry between public, commercial, and foreign banks, as well as the removal of
administrative barriers.
 Bank branch licencing policy should be liberalised in order to rationalise the existing branch
network.
 The ability for banks to relocate branches and open specialist branches was granted.
 Regulations for the establishment of new private sector banks.
Capital Market Reforms: The Narasimham Committee's recommendations were implemented in order
to reform capital markets, with the goal of removing direct government control and replacing it with a
regulatory framework based on transparency and disclosure overseen by an independent regulator. The
Securities and Exchange Board of India (SEBI), which was established in 1988, received statutory
recognition in 1992 as a result of the Narasimham Committee's recommendations. SEBI's mandate is to
create an environment that facilitates the mobilisation of adequate resources and their efficient
allocation through the securities market.

Industrial Policy Reforms: A series of reforms in the Industrial Policy were implemented in order to
cement the gains made during the 1980s and to offer a more competitive stimulus to domestic industry.
On July 24, 1991, the government launched a New Industrial Policy. The 1991 New Industrial Policy aims
to significantly de-regulate industry in order to support the development of a more efficient and
competitive industrial sector.

Trade Policy Reforms: The fundamental goal of trade policy reforms was to increase openness. As a
result, the policy package was mostly focused on the outside world. In trade policy, new initiatives were
taken to create an environment that would encourage exports while also reducing the degree of
regulation and licencing control on international trade.

Exchange rate policy: The devaluation of the rupee was one of the most important actions adopted to
address the balance of payments crisis. The rupee was devalued by roughly 20% in the first week of July
1991. The goal was to close the gap between real and nominal exchange rates that had opened up as a
result of rising inflation, making exports more competitive.

Promoting Foreign Investment: During the post-reform period, the government adopted a number of
steps to encourage foreign investment in India. The following are some of the most crucial indicators:

 The government established in 1991 a list of high-tech and high-investment priority industries
for which automatic authorisation for foreign direct investment (FDI) up to 51 percent foreign
equity was granted. For several of these industries, the cap was lifted to 74 percent and then to
100 percent. Furthermore, over time, many new industries have been added to the list.
 The Foreign Investment Promotion Board (FIPB) was established to engage with international
companies and approve direct foreign investment in certain sectors.
 From time to time, steps were taken to encourage foreign institutional investment (FII) in India.