Economic Reform
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 in the next five years 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.
