Why did P.V. Narasimha Rao and Manmohan Singh introduce economic liberalization in the 1990s?

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Mahatma Gandhi, holding a walking stick, walks beside Sarojini Naidu during the Salt March protest in 1930, with several men following behind them. — Indian National Congress Indian National Congress leaders Mahatma Gandhi (left) and Sarojini Naidu (right) on the Salt March in western India, March 1930.

In 1991, Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh introduced economic liberalization primarily to address a severe balance-of-payments crisis. At that time, India’s foreign exchange reserves had dwindled to a level sufficient for only two weeks of imports, creating a financial emergency that forced the government to seek assistance from the International Monetary Fund and the World Bank.1

To stabilize the economy, the administration launched a sweeping liberalization program that included:1

Dismantling the restrictive industrial licensing system.1
Reducing import tariffs.1
Easing controls on foreign investment.1
Implementing macroeconomic stabilization measures, such as floating exchange rates and efforts to reduce budget deficits.1

These reforms were essential to avert national bankruptcy and fundamentally shifted India away from its previous cycle of recurring financial crises.1