- Two successive monsoon failures in 1965 and 1966.
- Agriculture showed signs of stagnation.
- Inflation rose to 12% (1965-1968), food prices rose to 20%.
- Wars of 1962 (China) and 1965 (Pakistan) increased defence expenditure.
- Consolidated fiscal deficit reached 7.3% of GDP in 1966-67.
- Balance of Payment (BoP) deteriorated further.
- Foreign exchange reserves were low ($340 million in 1964-65).
- US suspended aid and refused to renew PL-480 agreement.
- Perceived failure of rupee devaluation and trade liberalization.
- Reversal to earlier policies of control and State intervention.