India's 1991 Liberalization

For decades after independence in 1947, India followed a planned, inward-looking strategy with heavy state ownership and an extensive system of industrial licenses, nicknamed the 'License Raj'. Growth was slow by Asian standards, sometimes called the 'Hindu rate of growth', a phrase coined by economist Raj Krishna for growth of around 3. 5 percent. In 1991 a balance of payments crisis, worsened by the Gulf War oil price spike and the loss of Soviet trade, left India with reserves enough for only a few weeks of imports. The government of Prime Minister P.

V. Narasimha Rao and Finance Minister Manmohan Singh devalued the rupee, dismantled most industrial licensing, cut tariffs and opened sectors to foreign investment. Growth accelerated in the following decades, and services such as information technology boomed. Critics note that manufacturing jobs and agriculture lagged and inequality widened, while some economists argue growth had begun to rise in the 1980s, before the reforms.