Rashmi and Sonia were discussing about the external debt crisis India faced in the year 1991, following which government introduced a new set of policy measures which changed the direction of our developmental strategies. What was the cause of crisis?

Depleting foreign exchange reserves

Depleting foreign exchange reserves was the immediate reason of crisis of 1991. Foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needed to be paid to international lenders. Also no country or international funder was willing to lend to India.