Economic Liberalization
How India's 1991 economic crisis forced open a closed economy, the transformation that followed, and the political forces that continue to shape economic policy.
From License Raj to Liberalization
For four decades after independence, India's economy was defined by the 'License Raj,' a system of permits, quotas, and state controls that regulated virtually every aspect of economic activity. Starting a business, expanding production, or importing goods required government approval. The system was designed to promote self-reliance and prevent monopolies but in practice created massive bureaucratic corruption and economic stagnation. India's growth rate averaged roughly 3.5% per year, barely above population growth, mockingly called the 'Hindu rate of growth.'
In 1991, a balance of payments crisis brought India to the brink of default. Foreign exchange reserves fell to levels covering less than two weeks of imports. The government had to airlift gold to London as collateral for an emergency IMF loan. Finance Minister Manmohan Singh, under Prime Minister Narasimha Rao, used the crisis to dismantle the License Raj. Industrial licensing was abolished for most sectors. Foreign investment was liberalized. Tariffs were slashed. The rupee was devalued.