Crisis of June 1991   Major elements of the crisis situation which led the Government of In
Channel: Doubtnut
Date: 09/05/2020

Crisis of June 1991   Major elements of the crisis situation which led the Government of India to announce economic reform were :  .A serious fiscal crisis in which the fiscal deficit reached the level of 6.6 per cent of GDP in 1990-91.    Heavy internal debt which rose to about 50 per cent of GDP with interest payments draining about 39 percent of total revenue collections of the central government.   Low GNP growth rate which fell to 14 per cent from the peak level of 10.5 per cent in 1988-89 (at 1980-81 prices).  Low overall agricultural production, foodgrain production and industrial production showed negative growth rates of -2.8 per cent,-5.3 per cent and -0.1 per cent respectively.   Soaring inflation rate based both on wholesale price index and consumer price index (for industrial workers) at 13-14 per cent    Shrinkage of foreign trade, imports (in terms) fell by 19.4 per cent and exports by 15 per cent. Depreciation of rupee by 26.7 per cent vis-à-vis US dollars.   Fall of foreign exchange reserves to such a low level that they were barely adequate to meet the  import requirements of a few weeks Non-resident Indians (NRIS) were withdrawing their deposits at an alarmingly high rate  The confidence of the international financial institutions was badly shaken and in just over a year its creditworthiness rating fell from AAA to BB+ (put on credit watch).   The country was on the verge of defaulting on international financial obligations and the situation warranted immediate policy action to save the situation. In May 1991, the Government had to lease 20 tons of gold out of its stock to the State Bank of India to enable it to sell the gold with repurchase option after six months. In addition, Reserve Bank of India was allowed to pledge 47 tones of gold to the Bank of England to raise a loan of $600 million  Name one component of business environment affected in the above case. Explain it briefly