There was a transformation of the party system with the emergence of a competitive multi party system. In this period from 1977 to 2000 we have number of coalition governments. The tensions between the economics of market and the politics of democracy begins to play it self out during this period. This period brings about a major change in the development strategy. At the same time old issues of religious and caste differences are repackaged and used for political mobilisation. The above issues showed their impact on the fundamental principles like democracy, unity and integrity and social and economic change.

Main Points
 *This period between 1975 to 1985 was a testing time for Indian democracy.
 *It began with the state of emergency in which basic democratic rights were denied and ended with the historic electoral victory of the congress led by Rajiv Gandhi.
 *The Congress Party was defeated at national level for the first time in the 1977 elections.
 *The Janata Party had come to power promising a restoration of democracy and freedom from authoritarian rule.

 *The functional struggle in the party soon culminated in the fall of the government with in three years leading to fresh elections in 1980.
 *The Congress Party returned to power in 1980. 
 *In West Bengal Left Front Government led by Jyothi Basu of CPM was formed in 1977.
 *N.T. Rama Rao formed Telugu Desam Party with the slogan of "Teluguvari Aatma Gauravam" in 1982. 
 *TDP came to power in 1982 elections in AP.
 *In Assam local people agitated against outsiders.
 *AASU led the agitation against the central government to make clear its demands.
 *Bhindranwale the leader of Militant Sikhs began to preach separatism and also demanded the formation of a sikh state - Khalistan.
 *An operation Blue star was conducted against Sikh Militants who hid in Golden Temple.
 *A fallout of all this was the assassination of Prime Minister Indira Gandhi in 1984.
 *The Congress led by Rajiv Gandhi won an unprecedented victory in the elections.
 *He initiated Telcom Revolution in India.
 *The first coalition government led by V.P. Singh's Janatadal formed.
 *Coalition governments led to policy paralysis and also caused political instability in the country.
 *In 1992 the new Congress Government under P.V. Narasimha Rao was formed it negotiated with the IMF for loans to tide over the crises.
 His Government introduced liberalisation in its economy.
* As a result of it many foreign companies entered India and many local companies closed down due to inflex of cheap foreign goods.
 *Indian Democracy has been able to with stand numerous challenges and in the process strengthen itself.
 By the turn of the century, there were also many questions being asked of India's democracy.
 *Our democratic politics still had not managed to solve the problem of acute poverty and gross in equality between caste, communities, regions and gender. These are the questions that Indian democracy will have to grapple with in the years to come.