Assertion: The new economic policy was initiated in 1991 to make Indian economy more efficient.

Reasoning: The need for reform of economic policy was widely felt in 1990s in the context of changing global economic scenario.

Both Assertion (A) and reasoning (R) are correct and but R is not the correct explanation of A.

Both Assertion (A) and reasoning (R) are correct and but R is not the correct explanation of A.

Assertion: The new economic policy was initiated in 1991 to make Indian economy more efficient. This statement is correct. 

Reasoning: The need for reform of economic policy was widely felt in 1990s in the context of changing global economic scenario. This statement is correct. By the late 1980s, India's economic growth had stagnated due to a rigid, socialist-inspired policy framework. Excessive government regulation prevented growth of entrepreneurship. In the name of selfreliance, Indian producers were protected against foreign competition and this did not give them the incentive to improve the quality of goods that they produced. Indian policies were ‘inward oriented’ that failed to develop a strong export sector. The changing global economic landscape, with increased competition and globalization, made the need for reform even more pressing.

However, the reasoning does not capture the immediate reason for explaining the assertion i.e. launch of new economic reforms in 1991. The Balance of Payments crisis was the main reason for the launch of economic reforms in India. The BOP crisis reached a critical point in 1991 when India faced the imminent risk of defaulting on its international debt payments. In return of financial assistance from IMF to tide over the BOP crisis, India was required to initiate economic reforms.