India in the 1990s

Corruption was the main issue in the 1989 elections. Once again the Congress (I) lost its power, this time to a coalition led by V. P. Singh, who had served as Rajiv Gandhi’s finance and then defense minister before being expelled from the Congress (I) Party for investigating corruption allegations. Singh’s National Front coalition collapsed when L. K. Advani, the leader of the Hindu nationalist Bharatiya Janata Party (BJP), was arrested for campaigning to replace the 16th-century Babri Masjid (Mosque of Babur) in Ayodhya with a temple to the god Rama. The BJP withdrew its support for Singh’s government. The government that replaced it, led by Chandra Shekhar, was scuttled in 1991 by the Congress (I) Party, which had initially supported it. In the meantime, India’s finances were badly hit when Iraq invaded Kuwait in 1990: Remittances from Indian workers in Kuwait and Iraq abruptly ceased, and the workers had to be brought home at great cost.

In May 1991 Rajiv Gandhi was assassinated by a Sri Lankan Tamil terrorist during a campaign rally. The assassination disrupted the May elections, and a second round of voting was scheduled for June. P. V. Narasimha Rao, who had once served as Gandhi’s foreign minister, was chosen to replace Gandhi as head of the Congress (I). Rao led the party to a near majority in the second round of voting, and took office as India’s new prime minister. Encarta

When Rao took office, India was facing an economic crisis that threatened the country with bankruptcy. Rao made economic reform the first item on his agenda. Under his reforms, many of the most burdensome controls on private enterprise, such as licenses to build or expand factories, were abolished. His government also welcomed foreign investment, and lowered tariff rates to encourage trade. India’s economy responded with growth in the gross domestic product, a rapid expansion of trade, and new vigor in the private sector, visible in new products from automobiles to breakfast cereals. Other parts of the reform package were only partially implemented. Subsidies to farmers were cut barely at all, privatization of public-sector enterprises was attempted with great caution, and little was done to change laws that made labor management difficult. The states began to compete vigorously for private investment, including foreign investment, and also took some small steps to privatize their own public-sector enterprises. Encarta