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The process of economic reform initiated by the Narasimha Rao government is well into its third year. The government has been meticulously unshackling the economy from the bonds of excessive economic control and bureaucracy, what popularly came to be known as the licence raj. Wide ranging pragmatic policy measures have been taken to remove unnecessary controls on the one hand and introduce policies that would stimulate growth in the economy on the other.
The policy measures undertaken by the government in the initial couple of years have been mainly targeted at the external sector. India which faced a balance-of-payments crisis in 1991 could ill-afford to successfully operate in the global environment without taking cognizance of the external environment. A number of radical measures taken by the government such as the devaluation of the rupee and mortgaging of the Reserve Bank of India's (RBI) gold reserves to raise debt during the foreign exchange crisis were severely criticized. However, the success of these measures are there for all to see. The country's foreign exchange reserves, which had shrunk to just about 15 days of imports or approximately US$1 billion, have risen to stand at over US$24 billion at present (including gold and special drawing rights
SDRs
of about US$4.5 billion).
The strength of the Indian rupee has broadly reflected the health of India's external trade performance and the success of the liberalization process. The stability of the rupee was vividly brought out when one newspaper carried a report titled Rupee devalued, when the rupee moved from Rs31.37 to Rs31.40 to the US dollar in one day. In fact, from a situation of protecting the value of the rupee, the RBI has had to intervene in the market to protect the value of the US dollar over the past three years. Except for a slight hiccup in February/ March 1995 when speculators and rumours of a devaluation took the rupee up to Rs32.15 to the US dollar, the Indian currency has been holding steady at around Rs31.40 to the US dollar.
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