Throughout history, India has been the golden bird of the world. Asian countries as a whole are filled with riches. It wouldn't be a brag to say that about 50% of today's world wealth comes from ancient Asia. The distribution of wealth started after the Europeans began their quest to conquer the world. And then the rest is history.
India had a great economic development in the Ancient time, every king and every person was self-reliant. India had developed Infrastructure and spots that boosted the economy further. Apart from using gold and silver for money in circulation, India had a stock of gold as its ornament also. The period after the invasions led to a decline of economic activity as the society now had another issue of "Communal Adjustments" to deal with. The Britishers were the first to exploit this and were the ones who led to a decline in our Economic Growth.
The period after Independence wasn't the worse that India had experienced. The only setback was the Partition. India had lost almost and about 40% of its remaining wealth after independence to Partition. With all the jute plantation gone and all the economy disrupted we had only one choice and that was to look towards the sky and say " hey Bhagwan". Ohh no if you thought I'd say that then you are wrong. India had a lot of options for its economic revival. Our ancestors built a safe economy to protect our nation's present wealth. This meant closing doors for other countries. Russia had helped a lot in the Economic progress that India was lacking at that time. Not a lot of people know this but the Peace Policy that Jawaharlal Nehru framed had a great impact on the Progress in that period. We had import and export relations with countries without completely opening all doors.
Again if you think I am being political in this post then You are wrong, things that need to be criticized will be utterly destroyed and things that are to be praised will be praised. The first Industrial Policy was the foundation of what India's economy needed. The Policy was named Industrial Policy because at that time the economy was shifting its gears from the Primary sector to the Secondary and Tertiary sector. This policy had several benefits and several loopholes. A whopping number of 17 industries were reserved for the public sector and only 12 industries were reserved for the private sector. Apart from this, the private sector was also strictly regulated by the MRTP Act (MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT). Apart from this Import Substitution was introduced, which says that import goods be produced indigenously. This Import Substitution is great because it saves a lot of our Foreign Exchange. But the Policy Introduced after 1991 had a policy that was far superior to this policy of Import Substitution.
RBI also Introduced FERA ( Foreign Exchange Regulative Act ) to regulate FDI (Foreign Direct Investment) which in addition to Import Substitution lead to a total restrictive environment for India. Foreign companies could not come to India and Indian Companies weren't developed enough to face global competition.
All these policies did payback. The national Income rose, the Per Capita income rose, the savings and Investment policy had paid off and the savings and investments had increased in Real-Time. But on the contrary, India experienced abject poverty, high rates of inflation, and Inadequate Infrastructure to support the Economic Run that India was experiencing. All this Lead to the Economic Crisis of 1991.
Macroeconomic Indicators and Balance of Payments Situation in 1990-1991:
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The trade deficit increased from Rs. 12,400 crore in 1989-90 to Rs. 16,900 crore in 1990-91.
The current account deficit increased from Rs. 11,350 crore in 1989-90 to Rs. 17,350 crore in 1990-91.
The CAD/GDP ratio increased from 2.3 in 1989-90 to 3.1 percent in 1990-91. Besides this, the fiscal deficit to GDP ratio was more than 7 percent during the two years 1989-90 and 1990-91. The foreign exchange reserves, meant to cover import costs for two years (1989-1991), were just sufficient to cover close to two and half months of imports.
The average rate of inflation was 7.5 percent in 1989-90, which went up to 10 percent in the year 1990-91. In 1991-92, it crossed 13 percent. The GDP growth rate which was 6.5 percent in 1989-90, went down to 5.5 percent in 1990-91.
The Balance of Payments crisis also affected the performance of the industrial sector. The average industrial growth rate was 8 percent in the second half of the 1980s. In 1989-90, it was 8.6 percent and in 1990-91 it was 8.2 percent.
India’s foreign exchange reserves stood at Rs. 5,277 crore on 31 December 1989, which declined to Rs. 2,152 crore by the end of December 1990. Between May and July 1991, these reserves ranged between Rs. 2,500 crore to 3,300 crore.