In the year 1991, India faced a crisis in terms of foreign debts. The government was not in a position to pay its foreign debt. The foreign exchange reserves, normally maintained for the import of essential commodities like petroleum etc., were not enough to pay the required imports for fifteen days. This crisis was further intensified by the rise in prices of essential commodities. India approached the World Bank and the International Monetary Fund (IMF) and received a loan of $7 billion to face the crisis. These international organizations put certain conditions before India to get the loan. Like the government will liberalize, remove restrictions on the private sector and government intervention in many areas. It was also expected that restrictions on foreign trade between India and other countries would be removed. India accepted the conditions of the World Bank and IMF and announced the New Economic Policy (NEP).

Bringing inflation under control was a _____ measure undertaken by the Government in 1991.

Stabilisation

The correct answer is Option (2) → Stabilisation

The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. This set of policies can broadly be classified into two groups: the stabilisation measures and the structural reform measures. Stabilisation measures are short term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control. On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy. The government initiated a variety of policies which fall under three heads viz., liberalisation, privatisation and globalisation.