The years 1990-1991 and 1991-1992 were a turning point in India's economic history, marked by political instability, a struggling economy, and the brewing of a new economic policy. Let's delve deeper into the factors you mentioned:
Internal and External Triggers
International:
Gulf War: The 1990 Gulf War led to oil price hikes and global economic uncertainty, impacting India's oil imports and trade.
Global Recession: The worldwide economic downturn further aggravated India's economic woes, highlighting the need for diversification and new trade partnerships.
Domestic:
Political Instability: Frequent changes in government leadership and political uncertainty created an environment of instability and hindered economic decision-making.
Excessive Socialist Commitment: The reliance on heavy industries and state control in the previous plans led to inefficiencies, bureaucratic hurdles, and a lack of dynamism.
Bunching of Loans: The accumulation of foreign debt and loan obligations put immense pressure on the government's finances.
Erosion of International Credibility: High inflation, fiscal deficits, and a loss of confidence from foreign investors further worsened the economic situation.
Loss-Making PSUs: Public sector undertakings (PSUs) were often inefficient and financially unsustainable, draining resources from the government.
Oil Pool Deficit: The government's policy of subsidizing oil prices created a massive deficit, putting further strain on the budget.
Overvalued Rupee: An artificially high rupee exchange rate made exports less competitive and hampered foreign trade.
Need for a New Policy
These internal and external factors created a perfect storm, highlighting the need for a drastic shift in India's economic approach. The existing model, based on centralized planning, heavy state intervention, and protectionism, was no longer sustainable. A new economic policy was necessary to address these challenges, promote growth, and integrate India into the global economy.
The Stage for Liberalization
The annual plans of 1990-1991 and 1991-1992 served as a bridge between the old and new. They provided a window for temporary measures to stabilize the economy while laying the groundwork for the comprehensive economic reforms that would be introduced in 1991 with the launch of the New Economic Policy (NEP).