In 1991, the focus of the reforms had been on trade, exchange rate and industrial policies. This had everything to do with the immediacy of the balance-of-payments crisis the economy then faced. When the Rao government took charge, it was estimated that foreign exchange reserves would cover up to two weeks’ imports. A rule of thumb is that a country should aim at a cover of about six months. With debt servicing due, the speculation in the international circles was whether India would default on its commitments. In political memoirs of the moment India’s leadership comes across as motivated to ensure that India honoured her obligations. To contain the external deficit, Finance Minister had devalued the rupee and reined in public expenditure. He then went to the International Monetary Fund for balance-of-payments support. This would have required courage. Retrenchment, belt-tightening, and devaluation were unpopular across the political spectrum, even within the opposition party — though on the question of how the foreign exchange needed to finance international payments was to be acquired, the critics of the strategy had had little credible to offer. Within three years the crisis was surmounted and the programme with the IMF ended.
There can be no doubt that the reforms have eased India’s balance-of-payments constraint. India’s reserves today exceed $350 billion, compared to less than $6 billion in March 1991. Moreover, the period since is the longest recorded when the country has gone without a foreign exchange shortage. Earlier one had arisen in every decade, starting with the 1950s. It is also significant that this new-found has been achieved while the economy has got increasingly integrated with the rest of the world. This outcome has gone against the pessimistic prognosis of the time that eliminating controls would suck in imports and jeopardise the balance of payments. This did not happen as exports also rose, though mainly in a sector unimagined in 1991, that is, software services. Of course, the rupee has depreciated very substantially after it was floated.
There is the criticism that the balance of payments has been manageable only due to capital inflows, and that the portfolio flows they comprise are subject to resilience reversal. This is indeed correct. But a run has not occurred in 25 years, not even in the last decade when global capital may have stampeded out following the global financial crisis. Altogether, the reforms should be credited with having improved India’s external position. The current account deficit has been financed comfortably, most measures of external indebtedness show an improvement, and the dramatic increase in foreign exchange reserves tells its own story.
However, the reforms were not envisaged as merely staving off a balance-of-payments crisis. In Finance Minister’s words, spoken in Parliament, they were meant to be the harbinger of “the emergence of India as a major economic power in the world”. This is a worthy aspiration and the crude nationalism at times on display today should not discourage us from nursing it. The question is whether we are on the right path to the goal. If per capita income is taken as the measure then we are still some distance away from ‘great power’ status. The most recent World Bank data show that over 2011-15 GDP per capita — measured in PPP dollars — was 5,700 in India, 11,108 in Albania, 13,206 in China and, yes, 25,638 in Malaysia.
Though India’s economy may not at present compare well with that of other countries, it could yet be that its rate of growth has increased after the reforms. This has actually happened, but the claim often encountered that 1991 was a watershed year in that a stagnant economy had finally been energised is false. While the rate of growth of the economy accelerated after 1991, it had done so twice earlier, first in the 1950s and then in the late 1970s. So the reforms have only maintained an existing history with respect to economic growth
1 Which of the following options is/ are correct about The recent World Bank data over 2011-15 GDP per capita?
01. It was 5,700 in India.
02. It was 11,108 in Albania.
03. It was 13,206 in China and.
04. It was 25,638 in Malaysia.
05. All of the above
2 What is mentioned about the India’s reserves in the passage?
01. Is less that $ 6 billion in 1995
02. Exceeding $ 350 billion now
03. More than $ 10 billion now
04. Is decreasing gradually
05. All of the above.
3 Which of the following sentences is/are NOT TRUE in context of the passage?
01. 2011-15 GDP per capita was 5,700 in India
02. Malaysia had the highest GDP per capita
03. Before 1991 rate of growth of the economy accelerated twice.
04. foreign exchange shortage arose in every decade starting from 1970
05. All except 4
4 The longest period recorded when the country has gone without a foreign exchange shortage is?
01. 10 years approx.
02. 25 years approx.
03. 15 years approx.
04. 50 years approx
05. 5 years approx.
5 What according to the passage had been the focus of the reforms in 1991?
01. Exchange rate
02. Industrial policies.
03. Domestic and international trade
04. Balance-of-payments
05. All of the above.
6 Which of the following options expresses the meaning of the phrase "a rule of thumb' as given in the passage?
01. very important rule
02. very expensive or costly
03. authority to make the decision
04. a guide based on practice rather than theory
05. a good invention or innovation
7 Which of the following options is the most similar to the word 'harbinger' as given in the passage?
01. advertisement
02. promotion
03. acquaintance
04. endorsement
05. indication
8 Which of the following options is the most similar to the idiom 'belt- tightening' as given in the passage?
02. spend less money
03. high roller
04. grandiose
05. set limit
9 Which of the following options is the most opposite to the word 'reined' as given in the passage?
01. restraint
02. aliment
03. bridle
04. unleashed
05. victuals
02. impermeability
03. stiffness
04. vulnerability
05. vagueness
Answers
Q.1 (5)
Q.2 (2)
Q.3 (4)
Q.4 (3)
Q.5 (5)
Q.6 (4)
Q.7 (5)
Q.8 (2)
Q.9 (1)
Q.10 (3)
