In this context, the status quo contains incorporates serious problems for long-term food security, with agricultural infrastructure mainly built through private investment without much external economy, and with the public investment which could exert external economy through, for example, construction of canals decreasing.
6. Economic Liberalization and Agricultural Problems
The disequilibrium of the Indian macro-economy led to the economic crisis of April, 1991 in which the foreign exchange reserve dropped as low as a two-week share of the annual imports. India attempted to overcome this grave situation by Structural Adjustment Loan (SAL) from IMF and the World Bank. The loan with conditionalities eventually forced the economy into liberalization. At this point in time, India's budget deficit was at the critical level.
The first chapter of the Economic Review 1991, Fiscal Policy" began as follows.
The fiscal situation, which was under strain throughout the 1980s, reached a critical situation in 1990-91 with a sharp deterioration in the revenue deficit. Fiscal deficits generates pressure on inflation as well as on the balance of payments. The gross fiscal deficit of the Central Government, which measures the total resource gap, has been more than 9 per cent of GDP since 1985-86, as compared with 6 per cent at the beginning of 1980s and 4 per cent in the mid-1970s. Such fiscal deficit are unsustainable and would lead the country into a debt-trap. The unabated growth of non-plan expenditure and poor returns from investments made in the public sector have been the main contributory factors in the fiscal crisis. Since the major cause of the fiscal deficit has been the subsidies to the agricultural sector (chemical fertilizers and foods), any cut in such expenditures would provoke vested-interest groups' resistance.
