PRE 1991 SCENARIO

Prior to 1991, India had a very closed and protectionist economic regime.
Indias growth rate stagnated at 3.5% from 1950s to 1980s, popularly known as Hindu
rate of growth. Under Nehru, the Planning Commission and the Industries
(Development and Regulation) Act of 1951 became the guiding tools for the economic
and trade policies. Most of the industry was dominated by Public Sector with Private
sector put under heavy regulations. The government micro-managed the industry on a
host of decisions like technology, location, scale of operation, foreign collaborations,
imports of capital goods etc. In the late 1960s all imports were either subject to
discretionary import licensing or were canalized by monopoly government trading
organizations, with some flexibility provided by changing Open General License
(OGL) lists.

The capping of foreign investment at 40 percent by Janata Party forced MNCs

like Coca-Cola and IBM to leave India. Backlash came from the industry when G D
Birla, the then leader of the Indian industry, urged the industrialists to break the law by
producing more than what their respective licences allowed. The foundation for reforms
was laid when the Rajiv Gandhi government relaxed some of the restrictions in the
license regime. His vision of incorporating technological changes laid the foundation
for IT industry bloom in India. The BOP crisis of 1991 triggered the liberalization
reforms discussed in the subsequent sections.