Prudential norms were introduced early in the reform phase, followed by interest rate deregulation and gradual lowering of statutory pre-emptions. These policies were supplemented by strengthening of institutions, encouraging good market practices, rationalised tax structures and enabling legislative and accounting framework.
The two major negative supply shocks of the 1970s and the differing monetary policy reactions to them can be considered to have been decisive in changing attitudes towards monetary policy. This experience, in turn, led to the institutional changes just mentioned. The oil price rises of 1973-74 and 1979-80 were both accompanied by increases in inflation and declines in output in most industrial countries.