The government introduced a new set of policy measures in the form of LPG (Liberalization, Privatization, and Globalization) reforms that changed the direction of our developmental strategies .
Reasons behind the 1991 economic reforms:
Inefficient management of the Indian economy in the 1980s .
The inflation rate increased to around 16.7% due to the rapid increase in the money supply.
Rise in Fiscal Deficit due to the increase in non-development expenditure resulting in a rise of public debt and interest . Hence, Statement 1 is correct.
Interest liability became 36.4% of total government expenditure .
Increase in adverse Balance of Payments.
Hence, Statement 3 is correct.
Rising prices of essential goods.
Hence, Statement 2 is correct.
Iraq War in 1990-91 led to a rise in petrol prices . The flow of foreign currency from Gulf countries stopped and this further aggravated the problem. Hence, Statement 4 is correct.
Dismal Performance of PSUs due to political interference and became a big liability for the government.
India’s foreign exchange reserve fell to a low ebb in 1990-91 and it was insufficient to pay for an import bill for 2 weeks.