Abstract
Following a severe balance of payments crisis in mid-1990, in July 1991 the Government of India embarked on a far-reaching stabilisation and structural adjustment programme. To support this effort, the International Monetary Fund and the World Bank subsequently provided financial assistance under a Stand-by arrangement of the former, and Structural Adjustment and Sectoral Adjustment Facilities of the latter. The Indian adjustment rested on policies to restrain the growth of domestic demand and on structural reforms to augment supply through an improved allocation of resources. The reforms, aimed at opening up the economy and promoting its reliance on market forces. These structural reforms were supported by mutually reinforcing macroeconomic stabilisation efforts comprising restrictive fiscal and monetary policies. The structural reforms consisted primarily of the following: broad-based price liberalisation, including market determination of exchange and interest rates; trade liberalisation; liberalisation of the exchange and payments systems; financial sector reform; streamlining of non-financial public enterprises; and comprehensive tax reforms. Thus, besides moving toward external and domestic stability, India has been undergoing a market-oriented transformation. The objective of this dissertation is to analyse the impact of this stabilisation and structural adjustment programme of the early 1990s. The reform programme has been successful in quickly stabilising prices and restoring external sector balance. However, in line with the experiences of conventional adjustment policies, a significant tradeoff could be observed in terms of decline in output growth and volume of investment. In part, this decline is the consequence of stabilisation measures. The decline in output growth was subsequently arrested successfully. Simultaneously, considerable progress has been made in initiating structural reform measures, most notably trade, foreign investment, and industrial policy reforms, although it will take some time before these reforms are fully implemented. However, the impact of these structural changes has yet to be realised. The eventual growth of investment and real output is predicated on completing structural reforms, such as the development of financial markets and the safeguarding of their stability, streamlining of public sector enterprises, minimising government interference with economic forces, and the imposition of a realistic budget constraint.