New on FinoLib · Volume I: Global Economy
I have added a new article to FinoLib, my finance education website: 1991 Economic Crisis in India and the Reserve Bank of India, part of Volume I: Global Economy. This page gives you the core of the topic in expert but plain language; the full article goes much deeper.
10.1 1991 — The Crisis That Created Modern India
The idea in plain words
In mid-1991 India’s reserves, about ₹2,500 crore or roughly $1 billion, would have paid for only about two weeks of imports, and the country pledged gold abroad. The reforms that followed dismantled the License Raj.
Key points
■For four decades the License Raj required permits to produce almost anything, producing the “Hindu rate of growth” of about 3.5% a year while East Asia boomed.
■The crisis followed fiscal deficits, the 1990 Gulf War oil spike and lost Gulf remittances; about 47 metric tons of gold was airlifted to the Bank of England.
■After the reforms growth roughly doubled to 6–7%+, and reserves stood at $747.6 billion on September 25, 2026, against about $1 billion then.
A closer look
For four decades after independence, India ran a socialist-inspired command economy: the License Raj, under which producing almost anything required government permits specifying what, how much, and where; imports faced tariffs among the world’s highest; foreign investment was unwelcome (Coca-Cola and IBM exited in 1977); and the result was the sardonic “Hindu rate of growth” — ~3.5% a year while East Asia boomed.
Recap
In mid-1991 India’s reserves, about ₹2,500 crore or roughly $1 billion, would have paid for only about two weeks of imports, after fiscal deficits, a Gulf War oil shock and lost Gulf remittances. The response under Narasimha Rao and Manmohan Singh devalued the rupee in two steps (about 19% combined), abolished industrial licensing for most industries and opened the economy; reserves reached $747.6 billion by September 2026.
10.2 The Reserve Bank of India — The Economy’s Guardian
The idea in plain words
The RBI’s six-member Monetary Policy Committee sets the repo rate to hold CPI inflation at 4% within a 2% to 6% band. Floating loans linked to the repo rate reset within three months, so an Indian EMI reprices within a quarter while a US 30-year fixed mortgage does not.
Key points
■The RBI was founded in 1935, and since the RBI Act was amended in 2016 the policy rate has been set by the six-member MPC.
■The 4% target with a 2% to 6% tolerance band was kept on March 25, 2026, for April 2026 to March 2031; if inflation stays outside the band for three consecutive quarters, the RBI must report to the government why.
■The standing deposit facility rate (repo − 0.25) is the floor and the marginal standing facility rate (repo + 0.25) the ceiling of the corridor; the SDF replaced the old fixed reverse repo rate as the floor in April 2022.
A closer look
Where chapter 2.3 gave you the Fed, here is India’s counterpart, founded in 1935 and broader in remit. Since the RBI Act was amended in 2016, the policy rate has been set by a six-member Monetary Policy Committee (MPC): the Governor, who chairs it; the Deputy Governor in charge of monetary policy; one other RBI officer; and three external members appointed by the government. The RBI publishes the minutes, with each member’s vote, on the fourteenth day after every meeting. The committee’s task is set in law: keep consumer price inflation (CPI) at an inflation target of 4%, inside a tolerance band of 2% to 6%. The government reviews the target every five years; on March 25, 2026, it kept both for April 2026 to March 2031. If average inflation stays above 6% (or below 2%) for three consecutive quarters, the RBI must report to the government why.
A worked example
Worked Example: the 2022 Hikes on a ₹50 Lakh Loan, and a US Mortgage
Take a ₹50 lakh (₹5,000,000) floating-rate home loan over 20 years (240 months) at an EBLR equal to repo plus an illustrative spread of 3.00 points. The EMI formula is EMI = P × i ÷ (1 − (1 + i)^−n), with i the monthly rate and n the number of months. Step Repo rate Loan rate EMI Before the hikes (May 2022) 4.00% 7.00% ₹38,765 After +2.50 points (Feb 2023) 6.50% 9.50% ₹46,607 Change +2.50 +2.50 +₹7,842 a month (+20.2%) Over a year that is ₹7,842 × 12 = ₹94,104 more (₹94,099 at unrounded EMIs).
Recap
The RBI’s six-member Monetary Policy Committee sets the repo rate to hold CPI inflation at 4% within a 2% to 6% band; the SDF (repo − 0.25) and MSF (repo + 0.25) form the corridor, and liquidity operations steer the weighted average call rate toward repo.
What the full article covers
In the full article I take you through these sections:
■10.1 1991 — The Crisis That Created Modern India
■10.2 The Reserve Bank of India — The Economy’s Guardian
It includes worked examples, a look under the hood at the mechanics, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume I: Global Economy
Read the full article on FinoLib
The complete article, 1991 Economic Crisis in India and the Reserve Bank of India, with every worked example, diagram, quiz and source, is free to read in Volume I, Global Economy on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance