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Q.Analyse any two reasons that led to the economic crisis after the 1971 election.

CBSECBSE Class XII Board 2022Subjective· 2mImportance★★★★★
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The economic crisis after the 1971 election was driven by a massive refugee burden from the Bangladesh Liberation War and a sharp rise in global oil prices, which together drained India's foreign exchange reserves and fuelled inflation.

The 1971 election returned Indira Gandhi to power with a landslide, but the victory masked a gathering economic storm. Two interconnected shocks — one human, one global — hit India almost simultaneously, creating a crisis that would shape the politics of the 1970s.

The first and most immediate cause was the refugee crisis from the Bangladesh Liberation War. In 1971, as the Pakistani military cracked down on East Pakistan, an estimated 10 million refugees poured into India, mostly into West Bengal, Assam, and Tripura. The Indian government had to feed, shelter, and clothe this enormous population for months. The cost was staggering — the government spent roughly ₹400–500 crore on refugee relief, a sum that blew a hole in the budget. This was not planned expenditure; it was a sudden, unavoidable drain on resources. The central government had to borrow heavily from the Reserve Bank of India, printing money to meet the need. That injection of currency, without a corresponding increase in goods and services, stoked inflation. Prices of food and essential commodities began to climb sharply.

The second shock came from the global oil crisis. In 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo, and the price of crude oil quadrupled almost overnight. India, which imported most of its oil, was hit hard. The import bill ballooned, while exports could not keep pace. Foreign exchange reserves, already strained by the refugee expenditure, began to deplete rapidly. The government had to borrow from the International Monetary Fund (IMF) under strict conditions, including a devaluation of the rupee in 1973. This made imports even more expensive, feeding further inflation. Fertiliser prices rose, hurting agricultural output, and industrial production slowed as raw material costs climbed.

Note

The oil shock of 1973 was a global phenomenon, but India was especially vulnerable because its foreign exchange reserves were already low after the 1971 war and refugee crisis. Many developing countries faced similar difficulties, but India's situation was compounded by the earlier fiscal strain. …

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