1. The Origin of Economic Crisis-1991 Unsustainable fiscal deficit of the government caused the crisis Internal imbalances in the fiscal situation and external imbalance in balance of payment situation was responsible for the crisis of 1991 Gulf crisis of the late 80s worsened the fiscal deficit and current account deficit dituation of Indi a

2. The fiscal imbalance Main indivcators of fiscal desicit are The budgetory deficit The revenue Deficit Gross Fiscal Deficit GFD

3. Revenue Deficit denotes the difference between revenue receipts and revenue expenditure. The conventional deficit (budgetary deficit) is the difference between all receipts and expenditure, both revenue and capital. The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts.

4. Indications of Crisis-1991 Budgetary deficit was 2.1% of GDP as against 0.9% in 80-91 Revenue deficit was 3.3% from 0.2 % in !980-81 Most alarming rise in GFD which rose up to 6.6 % Internal debt was 49.8%of GDP Interest payment was 3.8 % of GDP and 39.1 % of total government expediture

5. The Balance of Payment Situation

6. The Current Account The current account is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers and investments and the like are ignored. A nation is said to have a current account deficit if it is importing more than it exports. I

7. The Capital Account The capital account records all transactions between a domestic and foreign resident that involves a change of ownership of an asset. It is the net result of public and private international investment flowing in and out of a country. This includes foreign direct investment,

8. Balance of Payment Situation-1991 Current Account Deficit- 2.1 Billiollon $ or 1.25 % of GDP External Debt- 23 % of GDP 23% of Current Account Receipts were being used for debt servicing Foriegn Exchange to finance 10 days of inport

9. The Economic Reforms Macr economic Stabilisation Structural Reforms

10. Macroeconomic Stabilisation Fiscal Adjustments Fiscal readjustment programme were started by the government under which fiscal deficit was to be reduced to 5.37 % of GDP but the problem has not really been solved and fiscal deficit remains at 7% of GDP. If fiscal deficit is to be redused government expenditure should be at at 25% but in 2005-06 38 % of GDP To solve this problem resourse mobilisation is important

11. Macroeconomic Stabilisation Balance of Payment Adjostment The balance of payment adjustment programme has been satisfactory. current accont deficit is around 0.4% of GDP and foruegn exchange reserve is more than 200 bn $

12. Structural Reforms Trade and Capital Flows Reforms Devaluation of Rupee Current Account Convertibility of Rupee Libralisation of Import Regime Lowering of Tariff and custom rates

13. Rupee was devalued by 18% in 1991 Peak rate of import duty was gradually reduced from 300% to 10% Imports have been decentralised Capital flows have libralised in form of foriegn direct investment FERA has been replaced by FEMA

14. Structurel Flow Reforms Industrial Deregulation Limits on size of the companies have been removed. Scrapping of MRTP act Core industries reduced from 17 to 3 Private sector allowed in core sectors like iron, steel, Air transport, Ship building, Telecommunication, electricity etc

15. Structural Reforms Public Sector Reforms and Disinvestment Equitu amounting to Rs 4921403cror was disinvested to Public Sector Financial Institutes, Mutual funds and General Public. Policy was to sell of burdainsome psu's but gob=vernment seems to be blindly selling prime PSU's with a one sided aim of bridging gaps in gbudgetory deficit.

16. Structural Reforms Financial Sector Reforms Commision on financial system was set under chairmenshio of M Narsimah to examine to examine the country's financial system and its various components.

17. The commision was to make recommendation with respest to Improving the efficiency and effectiveness of the financial system To infuse greater compitiion Means of Better Supervision

18. The report of CFS was placed before the parliament in December 1991 and has sib=nce than become ab=n important document toundertake reforms in the financial sector

19. Major reforms suggested by CFS were  SLR reduced to 25 %  The CRR to be brought down to 3% ( it was 7.5 % in November 2007)‏  CRAR ( capital to risk weight asset ratio) minimum fixed at 9%  Revision of balance sheet provisions of banks  banks allowed to go public  Commercial banks compling with capital adequecy norms allowed to ppen new branches  Supervisory aspects of Rbi has been strengthened