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1991 crisis
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India’s 1991 crisis and the RBI Governor’s role

The year 1991 crisis marked a pivotal moment in India’s economic history. The nation was grappling with a severe economic crisis that threatened its financial stability. The crisis was multifaceted, encompassing various factors such as fiscal mismanagement, balance of payment issues, dwindling foreign exchange reserves, and a burgeoning fiscal deficit.

At the heart of this economic turmoil was the Reserve Bank of India (RBI), the country’s central banking institution responsible for regulating the monetary policy and currency issuance. The role of the RBI Governor during this crisis played a critical part in navigating India through these turbulent times.

Understanding the 1991 crisis and the RBI Governor’s role:

1. Fiscal Mismanagement: India was facing a considerable fiscal deficit, largely due to excessive government spending, subsidies, and inefficient resource allocation.

2. Balance of Payment Crisis: The country’s foreign exchange reserves were depleting rapidly, making it difficult to meet its international payment obligations.

3. Economic Reforms: The crisis became a catalyst for economic reforms, prompting the government to embark on a path of liberalization, privatization, and globalization.

Role of the RBI Governor:

During this critical period, R. N. Malhotra served as the RBI Governor. His leadership and decisions were instrumental in stabilizing the economy and laying the groundwork for subsequent reforms. Here’s how the RBI Governor contributed:

1. Implementing Policy Measures: Malhotra initiated crucial policy measures to address the crisis. This included devaluing the Indian rupee to boost exports and reduce the trade deficit.

2. Liberalizing the Economy: He supported the government’s efforts to liberalize the economy, which involved reducing trade barriers, encouraging foreign investment, and deregulating certain sectors.

3. Strengthening Financial Institutions: The RBI under Malhotra’s guidance worked on strengthening financial institutions and implementing prudential norms to ensure stability in the banking sector.

4. Advocating Structural Reforms: As an advocate for structural reforms, Malhotra played a pivotal role in steering the economy towards a more market-oriented approach, laying the groundwork for future growth.

Impact and Legacy:

The initiatives undertaken during this period laid the foundation for India’s economic transformation. The reforms set in motion by Malhotra and the RBI Governor’s office were continued and expanded upon by subsequent leaders, contributing to India’s emergence as a global economic powerhouse.

The crisis of 1991crisis marked a turning point, highlighting the significance of effective central bank leadership in times of economic distress. The role of the RBI Governor, R. N. Malhotra, remains etched in history for his foresight and decisive actions during a period of unprecedented challenges.


India’s 1991crisis economic crisis was a watershed moment that reshaped the country’s economic policies and trajectory. The proactive measures taken by the RBI Governor and the institution played a pivotal role in steering India towards economic stability and setting the stage for future growth. The crisis underscored the importance of adept leadership and strategic decision-making in navigating through turbulent economic times.

…1991 crisis to the hearing in New Delhi on November 26, 1992 … There was speculation that India would default on its external … their heroic guarding of India’s international prestige and … India’s economy works.
(Pulapre Balakrishnan is visiting Professor, Krea University …from India Education News via IFTTT