Government of India initiated slew of measures to put barrier on foreign trade and investment owing to following reasons:

● To safeguard the domestic producers from foreign competition.

● Ideological leaning, which prompted the newly independent government to see foreign dependence as the harbinger of imperialism.

However in such scenario, government did allow the import of essential commodities required for undertaking Industrialisation and development of the country.

In the subsequent years, following situation compelled the government to open up the Indian economy-

● Lack of innovation and efficiency of domestic producer owing to lack of competition.

● Sub-standard GDP growth rate.

● Fragile Balance of payment condition in early 1990s, wherein India didn’t have adequate foreign reserve to pay for the imports.