a) Macroeconomic stabilization measures

Macroeconomic stabilization was a short-term programme adopted to overcome the macroeconomic crisis by regulating the total demand in the economy

To correct the twin deficit i.e. the BOP problem & fiscal deficit, the reform package was announced in 1991 as a short term measure, which had the following three components:

♤ Fiscal stabilization measures: To check the growing fiscal deficit, it proposed to step up the investment by the State in areas of social sector (school, hospitals etc) & infrastructure (roads, power etc) without creating inflationary pressures on the economy to generate demand.

♤ Internal sector Liberalization: Selectively control & permit the private sector to make their production and investment decisions as per the market conditions of demand & supply & allow them to invest liberally.

♤ External sector Liberalization: Integration of Indian economy with the Global economy to benefit from the resource inflows & competition, by removing controls on foreign trade & exchange rates & a policy to attract FDI etc.

It was believed that these measures would generate investment & high productivity in the economy, creating more employment opportunities & boost demand. This demand would lead the economy to a high growth path. This was however a short-term strategy, a package that was intended to correct the economic lapses in the system that existed that time.

The result was that India was able to pay its dues to IMF in time. Not only this, the Indian economy was back on track & achieved an average annual growth rate of 6.5% against a targeted 5.6% during 8th FYP. But India launched another set of medium to long term measures as well, termed as Structural reforms.