1991 Indian economic crisis

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By 1985, India had started having balance of payments problems. By the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had been reduced to such a point that India could barely finance three weeks’ worth of imports which led the Indian government to airlift national gold reserves as a pledge to the International Monetary Fund (IMF) in exchange for a loan to cover balance of payment debts.[1]


With India’s foreign exchange reserves at $1.2 billion in January 1991[2][3][4] and depleted by half by June,[4] barely enough to last for roughly 3 weeks of essential imports,[3][5] India was only weeks way from defaulting on its external balance of payment obligations.[3][4]

Government of India's immediate response was to secure an emergency loan of $2.2 billion[6][7][8] from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral.[1][7] The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England[9][2] and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.[9][2][10] 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.[9][5] Interestingly, it was later revealed that the van transporting the gold to the airport broke down on route and panic followed.[1] A chartered plane ferried the precious cargo to London between 21 May and 31 May 1991, jolting the country out of an economic slumber.[9] The Chandra Shekhar government had collapsed a few months after having authorised the airlift.[9] The move helped tide over the balance of payment crisis and kick-started P.V.Narasimha Rao’s economic reform process.[2]

P. V. Narasimha Rao took over as Prime Minister in June, and roped in Manmohan Singh as Finance Minister.[9] The Narasimha Rao government ushered in several reforms that are collectively termed as liberalisation in the Indian media. Although, most of these reforms came because IMF required those reforms as a condition for loaning money to India in order to overcome the crisis. There were significant opposition to such reforms, suggesting they are 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." [11] The foreign reserves started picking up with the onset of the liberalisation policies and peaked to $353.876 billion in the week to May 2015.[12]


A program of economic policy reform 1991 has since been put in place which has yielded very satisfactory results so far. While much still remains on the unfinished reform agenda, the prospects of macro stability and growth are indeed encouraging.

See also[edit]


  1. ^ a b c "I think a stimulus package is necessary, yes. Bailouts, no". Rediff News. Retrieved 2009-10-20. 
  2. ^ a b c d Rajghatta, Chidanand; Sinha, Prabhakar. "Full circle: India buys 200 tons gold from IMF". Rediff News. Retrieved 2009-10-20. 
  3. ^ a b c "Why India bought IMF gold". Rediff News. Archived from the original on 6 November 2009. Retrieved 2009-10-20. 
  4. ^ a b c "RBI to buy 200 tonnes of IMF gold". LiveMint. Archived from the original on 3 November 2009. Retrieved 2009-10-20. 
  5. ^ a b "RBI's gold buying has its own sentimental value: FM". PTI. Archived from the original on 6 November 2009. Retrieved 2009-10-20. 
  6. ^ Meredith, Robyn (2007). The Elephant and the Dragon. W. W. Norton & Company. ISBN 0-393-06236-8. 
  7. ^ a b "RBI buys 200 tonnes of gold from MF". The Hindu. Archived from the original on 6 November 2009. Retrieved 2009-10-20. 
  8. ^ "1991 Country Economic Memorandum" (PDF). World Bank. India Country Department. 
  9. ^ a b c d e f "India shining, India scraping". The Telegraph. Archived from the original on 6 November 2009. Retrieved 2009-10-20. 
  10. ^ "Only Indians, not foreigners, are exercised over swadeshi: FM". Rediff News. Retrieved 2009-10-20. 
  11. ^ Economic Crisis Forcing Once Self-Reliant India to Seek Aid, New York Times, 29 June 1991
  12. ^ "Forex Reserves up $917 Million at $352 Billion: RBI". NDTV. Retrieved 2015-06-06.