that necessitated liberalisation of the economy in India?

The liberalization of the Indian economy in the early 1990s was a significant turning point in the country’s economic history. This policy shift marked the end of a long-standing approach of protectionism and state control over key sectors, ushering in a new era of globalization, deregulation, and market-driven growth. The decision to liberalize was not sudden; it arose due to various economic, political, and global factors that created a pressing need for reform. These factors are integral to understanding why liberalization became a necessity for India’s economic survival and growth in the changing global landscape.

### 1. Economic Stagnation and Fiscal Crisis

By the late 1980s, the Indian economy was facing severe stagnation, with growth rates of around 3.5% per year—often referred to as the “Hindu rate of growth.” While this was better than the previous decades, it was insufficient to meet the aspirations of a growing population. The core of the problem was a reliance on an inward-looking economic model characterized by heavy state intervention, protectionism, and regulation.

The fiscal deficit, which had been widening for years, was unsustainable. The government was spending far more than it could afford, financing its deficits through borrowing. This led to a build-up of external debt, which by the early 1990s became increasingly difficult to service. In 1990-91, India’s foreign exchange reserves were alarmingly low, barely enough to cover three ________ ______ _________ _________ ______ _____ __________ ______ _______ _________.
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