The major reasons are:
- Rise in Prices and galloping inflation. It surged from 6.7% to near about 16%
- Increase in the Fiscal deficit. Increase in non -development expenditure.
- Adverse Balance of payment and pressure on Balance of Payment.
- Iran-Kuwait war led to increase in Petrol price and hence pressure on Indian Imports.
- Adopted approach of socialism failed. Efficiency of PSU’s were dismal.
- Fall in Foreign exchange reserve increased the vulnerability. It also created the macroeconomic instability.