INDIA 1991 CRISIS

SRINIVASAN Ramanujan
ANALYSIS
Srinivasan Ramanujan Group PGPMFX17 - GLIM
Sai Balaji Satish Monisha
AGENDA

BRIEF HAPPENINGS DURING 1935 1947

PROBLEM PESTEL ANALYSIS
SERIOUS PROBLEM 1 CENTRE'S REVENUE
RECEIPTS AND REVENUE EXPENDITURE (% OF GDP)
SERIOUS PROBLEM FISCAL / TRADE /CURRENT
ACCOUNT
CRISIS
RESOLUTION
KEY COMPARISONS AND WHERE ARE WE
BRIEF HAPPENINGS DURING 1935 - 1947
Statistics bear testimony to the fact that the genesis of the economic crisis in India, which surfaced in
1991, lies in the large and persistent macroeconomic imbalances that developed over the 1980s root
cause analysis growing fiscal imbalance

Firstly Indian Independence No Denying Its a fact

World War 2 ( 1939-1945). Did we really fight? Yes, Under British Command

Was our economy hit? No

During this point of time and the information available to the world, India had strong GDP and was in the

top 30 countries by GDP

Important to note India is a socialistic country

The next slides will cover the analysis in steps of Problems Serious Problems Crisis Resolution
PROBLEM PESTEL ANALYSIS
Political Technological
India was imploding why? Due to non-liberal economy, tech. available
Bofors Scandal, IPKF Mis-adventures to global level was unavailable in India
Thus entrepreneurship chance was not
Shah Bano Case
available.
Economical
Legal
Political instability , after Rajiv Gandhi V.P
Nehru Planning System (aka License Raj)
Singh , Chandra Sekar took over with each
Coca-Cola case
one year term
400% custom duty on many products
Balance of payment crisis
Environment
Social
Saddam Hussian mis-adventure in Kuwait
India believed in Hindu rate of growth
US war with Iraq Oil Prices raised
India is a socialistic country
Dissolution of Russia(Russia was split into 15
India believed we are better off with our
countries) Why it is important to India?
own market and foreign investments is not Russia was major buyer of Indian goods and
required service
SERIOUS PROBLEM 1 CENTRE'S REVENUE RECEIPTS AND REVENUE
EXPENDITURE (% OF GDP)
SERIOUS PROBLEM FISCAL / TRADE
/CURRENT ACCOUNT Gross Fiscal Deficit rose from 9.0% of GDP
to 12.7% GDP.

With the increasing deficit. Where did the

money come from? International debt
Consequence debt rising from 35% of GDP
in 1980-1981 to 53% of GDP in 1990-1991

Trade and Dollar Income

Dollar were coming to India by
NRI Investments / Deposits
Govt. Controlled foreign Investments
CRISIS
Combining all the factors above led to Balance of payment crisis
India had just $1.2 Billion which was enough for two weeks of import Who was

heading the government? Congress so you know whom to blame

Indias credit limit was reached and exhausted by govt. expenditure since 1980

Govt. air lifted Indian bullion as collateral for IMF loan of $3.8 Billion dollars to make the

country running
RESOLUTION
India began economic resolution under new leader P.V Narasimha Rao
IMF came with conditions that to bail out India, India has to open its market to the
Global players
But how to tune the conditions to India environment Narasimha Rao unleashed the
caged Tiger (Dr. Manmohan Singh)
Import license was abolished
License Raj ( Nehru Planning system) was slowing moving away from the system
Abolished Gold Smuggling (Allowed expats to bring in 5KG of gold)
Disinvestments
Allowed the decisions to the market
KEY COMPARISONS AND WHERE ARE WE
South Korea Why is at present south
Korea is more developed than India
when during 1947 South Korean
economy was 40 times less than India
Capitalistic country
Govt. encouraged Korea made products to
be globalized
2008 US Sub-Prime crisis Are we too
dependent on the global economic
forces?