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Indias Balance of

Payments Crisis and itsImpacts

Submitted to: Submitted by:

Dr. Manoj Kumar Sharma Rahul Chhabra

MBA Gen (Sec A)

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1. Balance of Payments

1.1)Definition

Balance of payments is an accounting record of all monetary transactions of a country with rest of the

world which includes payments for exports and imports of goods, services, capital and financial transfers

for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency

for the country concerned. [1]The transactions are presented in the form of double-entry book keeping.

Reserve Bank of India defines Balance of payment as

The balance of payments of a country is a systematic record of all economic transactions between the

residents of a country and the rest of the world. It presents a classified record of all receipts on account of

goods exported, services rendered and capital received by residents and payments made by them on

account of goods imported and services received and capital transferred to non-residents or foreigners.

1.2)Deficits & Surplus

Exports and receipts of loans and investments are recorded as surplus items. Imports or funds used to

invest in foreign countries are recorded as deficit items. Generally surplus is recorded as positive and

deficit is expressed as negative. A negative balance of payments means that more money is flowing out of

the country than coming in, and vice versa.

A BOP surplus means a nation has more funds coming in than it pays out to other countries from trade

and investments, which results in appreciation of its national currency versus currencies of other nations.

A deficit in the balance of payments has the opposite effect: an excess of imports over exports, a

dependence on foreign investors, and an overvalued currency. Countries experiencing a payments deficit

must make up the difference by exporting gold or Hard Currency reserves, such as the U.S. Dollar, that

are accepted currencies for settlement of international debts. [2]

1.3)Types of Accounts

The balance of payments for any country is divided into two broad categories:

The Current Account: It reports the various trades in import and export plus income derived

from tourism, profits earned overseas, and payments of interest

The capital account: It reports sum of bank deposits, private investments and debt securities sold

by a central bank or official government agencies.

The official reserve account: It is a subdivision of the capital account which contains foreign

currency and securities held by the government or the central bank, which is used to balance the

payments from year to year. It is known as the balancing item and can be considered a "plug

factor" for summing the balance of payments accounts to zero. [3]

Overall balance of payment = Current Account Balance+ Capital account balance+ Official

Reserve Account

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1.4)Uses :

BoP data gives a comprehensive overview of the macro-economic and monetary situation of

national economy and is very vital for monetary and financial monitoring purposes for policy

deliberations in both the domestic and international contexts. The data provides objective basis

for assessing the macro-economic and monetary situation of an economy. BoP analysis helps in

macro-economic review on the following aspects of an economy :

o income growth

o external orientation

o relationships between trade in goods and services and direct investment flows

o international banking transactions

o assets securitization and financial market developments

o external debt situation

Study on prospects for direct investment. Direct investment income data which is available in the

BoP current account and the economy's stock of direct investment provides a methodology for

analyzing profitability of FDI.

Implications of BoP performance on exchange rate movements. Exchange rate movements are of

concern for traders and investors as they reflect the competitiveness of the exports of an

economy, the changing costs as well as the exchange rate risk associated with external

investment.

1.5)Causes:

A situation where sufficient financing on affordable terms cannot be obtained to meet international

payment obligations causes problems with BoP. If difficulties persist, it may lead to a crisis.

Domestic currency depreciates rapidly, making international goods and capital expensive and the

economy may reach a situation of a stand still. It may spread to other countries that are tightly linked

with the domestic economy.

Key factors are weak domestic financial systems; large and persistent fiscal deficits; high levels of

external and/or public debt; exchange rates fixed at inappropriate levels; natural disasters; or armed

conflicts or a sudden and strong increase in the price of key commodities such as food and fuel. Some of

these factors will reduce exports or/ and increase imports. Others may reduce the foreign financing

available. Also investors may lose confidence in a country's prospects leading to massive sales of assets,

the so called "capital flight." Crises get complicated by inter- linkages between various sectors of the

economy. An imbalance in even one of the sectors will rapidly spread to other sectors and will lead to

culminating in a widespread economic disruption. [6]

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2. Indian Economy: Pre-Crisis Period(1980-89)

Indian Economy was in a growth mode in the 1980s. From FY 1980 to FY 1989, the economy grew at an

annual rate of 5.5 percent, or 3.3 percent on a per capita basis. Industry grew at an annual rate of 6.6

percent and agriculture at a rate of 3.6 percent. A high rate of investment was a major factor in improved

economic growth. Investment went from about 19 percent of GDP in the early 1970s to nearly 25 percent

in the early 1980s. India, however, required a higher rate of investment to attain comparable economic

growth than did most other low-income developing countries, indicating a lower rate of return on

investments.

Private savings financed most of India's investment, but by the mid-1980s further growth in private

savings was difficult because they were already at quite a high level. As a result, during the late 1980s

India relied increasingly on borrowing from foreign countries.

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2.1) Economic Policies during 1980-89

i) Protectionist Policies :

The Government had a defined objective of attaining self reliance through industrialization, i.e. Import

substitution and export promotion. Basic Industries had to be set up which required capital goods imports

and an enormous amount of funding. The objective of import substitution was attempted to be realized

through various non price, physical interventionist policies like licensing, quotas, tariffs etc. This actually

was only effective in case of substitution of consumer goods while the capital goods industries were still

import intensive. The high degree of protection to Indian industries actually resulted in shutting off them

from competition and thus poor quality production and inefficiencies were too common. The high cost of

production due to inadequate technical knowhow further aggravated the situation. All this led to an

eventual decline in the exports and a widened trade deficit of the country along with a heavy debt burden.

ii) External Debt:

India had a very limited resource base due to lower per capita income and savings. The Government

resorted to heavy foreign borrowing for the developmental efforts and also to correct the BoP situation in

the short run. The debt service obligations grew enormously due to changes in exchange rates and

repayments to the IMF along with a loss of credit confidence on India which led to harder average terms

of external debt and fall in concessional aid flow.

iii) Export promotion:

Indian exports were mainly constituted of primary products, the prices of which fluctuated heavily with

the fluctuations in the global market demand. The earnings from such primary products were relatively

low and the primary product exporting countries were always put in unfavorable terms of trade. The

quality of Indian products was another area of concern due to which the exports were lagging behind

expectations. Further, the licensing and other disruptive policies were proving cumbersome for exporters

and hence dis-incentivised them from export promotion.

iv) Exchange Rate:

The instability in exchange rate also posed a great threat to economic stability of India. The constant

devaluations of the rupee increased the amount of external debt. It was also a cause of concern for the

export and import areas, also led to flourishing of hawala trade due to the strict for-ex controls in the

market. The inflation rates remained higher towards the end of the decade and hence it was imminent onthe central bank to change the exchange rates accordingly

2.2)Trends in Indian Economy during 1980-89

i) Government Deficit:

As its evident from the graph below, the government deficits have shown a steady increase from the

beginning of 1980s and peaks during the 1985-86 period. The further dip in the deficit can be accounted

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to the various attempts by the government to monetize the deficit with the help of the central bank which

eventually created a lot of other macroeconomic pressures whose culmination led to the crisis eventually.

Fig 1.1: Government deficit

The table below shows the buildup of the revenue deficit in the period after 1986 which is increasing

heavily in the years to come. We can see that till 1989, the government attempts to control the budget

deficit but it turns out to shoot up in the post crisis period, i.e. post 1991.

Table 1.1: Revenue deficit and Budget deficit

ii)Current

Account:

The graph below shows the position of the current account in the pre crisis period. We can see that the

current account balance declined sharply during the end of the decade. The imports rose sharply (for e.g.:

the petroleum imports rose by nearly 40% from the period 1986-87 to 1989-90) and the export growth

was very disappointing which led to the widening of the trade deficit and deterioration if current account

balances.

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Fig 1.2: Current Account balances

The trade deficits were increasing all through the 1980s as shown in the table below. This indicated the

fact that it was highly imperative to resort to some corrective measures failing which this would affect the

BoP and lead to a crisis in the near future.

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Table 1.2: Trade deficits

iii) Capital Account and For-ex reserves:

The capital inflows to India mainly consisted of aid flows, commercial deposits and deposits from Non

resident Indians. The heavy restriction on FDIs in almost all sectors was a main limiting factor in the

economy to attract enough foreign investments for its development projects in infrastructure sectors. The

only ray of hope came from the provision of Institutional investors, but their investments too were

channelized to a few public sector bonds and literally there were no investments from abroad in Indias

attempt to catch up to the mainstream of the world.

The situation worsened when India was gradually losing out its forex reserves (see table) due to constant

devaluations of the rupee against dollar and widening trade deficit. The forex reserves fell from a

comfortable $8151 mm in 1987 to $ 5331mm in 1990 and further to $ 1877mm by 1991.

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Fig 1.3: For- Ex reserves

Table 1.3: For-ex reserves ( figures)

iv) External Debt

The external debt of India doubled from 1984-85 ($35 bn) to 1990-91 ($69 bn). It is also evident from the

graph below that the external debt kept on rising from the early 1980s towards the end of the decade. The

investor confidence declined rapidly due to the economic situation of India and hence it resulted in the

outflows being increasingly dependent on short term external debts. The gulf crisis which occurred in the

early 1990 along with the existence of an unstable government at the centre further aggravated the

situation. There was increasingly an adverse impression globally about Indias creditworthiness.

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Fig 1.4: External Debt

v) Exchange Rates

The exchange rates kept on falling owing to the changes in the world market. The world economy had an

increasing effect on Indian currency due to heavy dependence on foreign funds and capital goods imports.

This, as already explained, had many adverse effects including the multiplying effect on the external debt

and trade deficit.

The graphs below show the trends in exchange rates, both real and nominal.

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Fig 1.5: Real exchange rates

Fig 1.6: Nominal Exchange rates

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3. Balance of Payments: CRISIS

3.1)The lead up to the crisis: 1990-91

i) Break up of the Soviet Union

The Soviet Union had been one of the largest export markets for India prior to its breakup in India. The

Soviet breakup therefore negatively affected Indias precarious trade balance, which slipped further into

red.

ii) The Gulf war

Current account deficit averaging 2.2% of the GDP hit hard by the Gulf war .The Gulf war began in

August 1990 with Iraqs Invasion of Kuwait. Both Iraq and Kuwait were among the largest suppliers of

oil to India, especially Iraq with whom India had long term arrangements .Due to the war many of these

long term contracts were hit, which forced the government to buy from the spot market at high prices

resulting in the oil bill ballooning to $2 billion in the latter half of 1990.

iii) Fall in remittances

The Gulf war also caused many Indian workers working in Kuwait and Iraq to return, resulting in a fall in

remittances. This was significant since NRI remittances had been an important source of inflows to the

country throughout the eighties thus reducing the severity of the balance of payments. The situation was

further aggravated further with the government having to airlift Indian residents in Kuwait.

iv) Political uncertainty

The period between1990-91 was marked with high political uncertainty at the central level with the

country seeing three successive government changes. This reduced the focus of the government on the

looming economic crisis as there was no clear policy to deal with the unexpected situation. When a stable

majority government did was setup in 1991, it was a little too late as the damage had been done.

3.2)THE CRISIS

The rapid loss of foreign exchange reserves had prompted the government to take steps to reduce the

trade deficit, by restricting the imports .In October 1990; the RBI imposed a cash margin of 25percent on

all imports other than capital goods. Capital goods imports were allowed only with foreign sources of

credit. Additionally, a surcharge of 50 percent was imposed on all Petroleum and oil imports except

domestic gas. Along with increases in custom duties, the above mentioned policies had the desired impact

of controlling the imports, which started falling in the latter half of 1991. By late of 1991, the decline of

imports had reached a stage where it was starting to affect the domestic production, which started

declining (as shown). Hence any further measured in this direction was ruled out.

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Fig1.7: Import Trends

Fig1.8: IIP and Imports

By the end of 1990 and the beginning of 1991 it was clear that Trade deficit was not the deciding factor ,

as it had come down to $382 million in Jan-Feb 1991 and further to $172 million in May 1991( Source

:RBI) 59 76 310 . The main reason for such a drastic fall in reserves was due to the withdrawal of foreign

currency non-resident deposits (FCNR), which accelerated from $59 million in Oct-Dec 1990, to $76million in Jan-Mar 1991 and finally to 310 million in June 1991.

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Fig1.9: Reserves

It was clear that the crisis had been clearly due to crisis of confidence in the Indian Government to

prevent a default. This is more akin to a sort of speculative attack, in which the foreign investors fearing

devaluation of the currency (the most likely step for the government to prevent a default) withdraw their

deposits from the country. Further, in expectation of devaluation import receipts are forwarded and export

receipts are postponed .This together with the downgrading of credit risk pushes the country more

towards the default, with the Central Bank under more pressure not to devalue the currency. This situation

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is pictorially depicted below

4. THE RESPONSEIn June 1991, Foreign exchange reserves fell below $1billion. This was barely enough to cover 2 weeks

of imports. Further, the short term debt to foreign currency reserve ratio rose from 2.2 in March 1990 to

3.8 in March 1991 putting extraordinary pressure on the reserves (It should be noted that this ratio had

increased from 0.9 in 1989 to2.2 in 1990 which was a strong precursor).These short term debts had higher

costs and were subject to greater volatility, subjecting the reserves to greater risks. However, during this

time the government took a number of steps starting with an agreement with IMF for a withdrawal of

$1,025 billion under its Compensatory and Contingency Financing Facility (CCFF).Withdrawals of $789

million from the first credit tranche made in Jan, 1991. In May 1991, the government leased 20 tones of

confiscated gold to State bank of India to sell it abroad with an option to repurchase it within 6 months.

Further in July 1991, the government allowed the RBI to ship 47 tons of Gold to the Bank of England and

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Bank of Japan which allowed RBI to raise $600 million. This pledged gold was later retrieved in

September 1991.

It was against this background that a two-step downward adjustment in the exchange rate of rupee was

effected on July 1 and 3, 1991, which resulted in devaluation of around 18 per cent against major

international currencies. Devaluation at no time was free from controversy. But given the grim situation

that the country faced on the external front, a downward adjustment of the exchange rate had become

inevitable. The extent of devaluation was determined primarily by the degree of correction that was

required in the balance of payments.

Another consideration was whether, instead of making a discrete change, small changes in the exchange

rate should be made , as had been policy since 1985 . It was decided that a sharp discrete change was

needed to quell expectations. This two-stage discrete devaluation process in the exchange rate also

intrigued many observers. An explanation for this is that it was done partly to test the waters and gauge

the reaction to the first change before making the next. After the first announcement, to avoid

destabilizing expectations, the required change was completed in the second round.

The devaluation of the rupee was complemented with changes in the external trade regime. Perhaps

this is what made the devaluation of 1991, different from others. A process of establishing a more

liberalized trade regime was set in motion. A realistic exchange rate provided the basis for a credible

reform process.

5. Post Crisis: Reforms

India adopted a more cautious approach to reforms and liberalization than most of the other emerging

economies. The reforms program was undertaken in the face of a balance of payments crisis which forced

the country to seek IMF financial assistance.

To impart inherent competitive strength to the industrial economy, a program of structural reforms of

trade, industrial and public sector policies was also initiated

The objective was to evolve an industrial and trade policy framework would promote efficiency, reduce

bias in favor of excessive capital-intensity and encourage an employment-oriented form of

industrialization.

The four major steps taken by the government to address the balance of payments and structural rigidities

are discussed below:

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5.1)Fiscal Correction

The stabilization effort was the effort to restore fiscal discipline. Balance of payments and the persistent

inflationary pressure were the result of large budgetary fiscal deficits year after year.

1) Budget deficit reached Rs. 10,992 crore in 1989-90 and Rs. 10,772 crore in 1990-91

2) Reversal of the trend of fiscal expansion was necessary to restore balance in the economy

3) Budget projected a sharp decline in the budget deficit to Rs. 7719 corer in 1991-92

4) Fiscal deficit which represents the overall resource gap of the government, projected a decline

from Rs. 43,331 crore in 1990-91 to Rs. 37,772 in 1991-92

These improvements in the fiscal performance was mainly due to the decision to

a) abolish export subsidies

b) to increase fertilizer prices

c) and to keep non-plan expenditure in check

5.2)Trade policy Reforms

New initiatives were undertaken in trade policy that created an environment which would stimulate the

exports and at the same time reduce the degree of regulation and licensing control on the foreign trade.

The exchange rate was adjusted to 18% in the value of the rupee to stimulate exports

The important trade policies introduced in 1991-92 is.

1) Administered licensing of imports was replaced by import entitlements linked with export

earning2) Import entitlements renamed as EximScrips, were freely tradeable and attracted a premium in the

market. For exports at a uniform rate if 30% of Eximscrips was made applicable.

3) The advanced licensing system for exports was simplified so as to improve exporters access to

imported inputs at duty-free rates

4) Permission was granted to import capital goods without clearance from the indigenous

availability angle provided this import was covered by foreign equity or was up to 25% of the

value of plant and machinery, subject to a maximum of Rs. 2 crore

5) Trading houses were permitted a large range of imports including 51% in foreign equity6) Scope of canalization of both exports and imports was narrowed.

5.3)Industrial Policy Reforms

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To provide greater competitive stimulus to the domestic industry, a series of reforms were introduced in

Industrial Policy. This policy reforms should be seen as being complementary to those undertaken in trade

and fiscal policies and in the management of exchange rate and the financial sector.

The central elements of this reform were as follows:

1) Industrial licensing was abolished for all projects except 18 industries where strategic or

environmental concerns are paramount or where the industries produce goods with exceptionally

high import content.

2) The MRTP Act was amended to eliminate the need for prior approval by large companies for

capacity expansion and diversification

3) Areas reserved for the public sector was narrowed down, and greater participation by private

sector was permitted in core and basic industries.

4) Government clearance for the location of projects was dispensed with except in the case of 23

cities with a population of more than one million

5) Small scale industries were given an option to offer 24% of their share-holding to large scale and

other industrial undertaking

Along with industrial policy reforms, steps were taken to facilitate the inflow of direct foreign

Investments. The following measures were taken in this context:

1) Limit of foreign equity holdings was raised from 40% to 51% in a wide range of priority.

2) The procedure for investment in non-priority industries have been streamlined

3) Technology imports for priority industries was automatically approved for royalty payments up to

5% of domestic sales and 8% of export sales or for lump sum payments of Rs. 1crore

5.4)Public Sector Reforms

To enable the public sector to work efficiently, the public sector units have to be given the greatest

autonomy in their operations. These were the measures undertaken:

1) Government undertook a limited disinvestment of a part of public sector equity to the public

through financial institutions and mutual funds in order to raise non-inflationary finance for

development.

2) Government amended the Sick Industrial Companies Act to bring public sector undertaking alsowithin its purview.

6. Post Crisis: Impacts

6.1) Impacts

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i) Balance of Payments: 1992-93

Foreign exchange reserves had been building up to respectable level of $5.63 billion from a low

of $1.29 billion at the end of July 2001.

Introduction to LERMS( Liberalized exchange rate management system)

Mobilization of external assistance from IMF, World Bank , ADB and Bilateral donors to support

the BOP

Despite the increase in imports to more normal levels during 1992-93, it has been possible to

manage the BOP with the stable exchange rate and comfortable foreign exchange reserves

throughout the year.

ii) Introduction to LERMS (Liberalized exchange rate management system)

Liberalized exchange rate management system (LERMS) was introduced in March 1992.As a result of

this system, foreign exchange market in India effectively became a dual exchange rate system, with adirect exchange rate system in force, one official rate for select government and private transactions and

the market-determined rate for the others. But this system were in existence for not more than an year, In

March 1993 this system was abolished and again single exchange rate mechanism system came into the

market.

Main features of Liberalized Exchange Control Management System are as follows:-

The exchange rates of the domestic currency i.e. rupee are determined on the basis of demand

and supply. Free market rates are worked upon by authorized dealers (ADs).

Like any other market prices, the variations between the exchange rates of both types, i.e. spot

and forward can take place within a day or between days or months or on the basis of terms.

The commercial transactions in Balance of Payments i.e. Current account and capital account are

taken at the free-market driven rates, whether on government account or the private one.

Full convertibility was not applicable to the invisible trade.

All inward remittances and export proceeds need to be surrendered with a 156% retention option

in a foreign currency account with Authorized dealers.

The medium of currency exchange i.e. intervention currency continued to be U.S. dollar, which

the Reserve Bank can buy and sell .This route was used to provide temporary stabilization in the

exchange markets.

Depending on the market pressure. The 2 way quotes of the US dollar can vary several times in a

day.

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The Reserve Bank will not generally buy or sell any other currency, either spot or forward; rather

will take swap transactions with the Authorized dealers. The swap involves the Reserve Bank by

performing exchange i.e. buying the U.S. Dollar spot and selling forward simultaneously at one

time for delivery in two to six months.

The RBI will be selling US Dollars to Authorized dealers at the market rate, for debt payments on

Government Account and other payments.

For performing trade with Russian Republics, where the invoice is in freely convertible currency

the other one i.e. market related exchange rate isapplicable.

Transactions routed through ACU arrangement (except those that were settled in the Indian

rupee) will be based on Reserve Banks rate for ACU currencies and for the AMU i.e. Asian

Monetary Unit.

Treated current and capital transactions in different ways.

Decision to permit gold imports was linked to LERMS

6.2) Effects of Liberalization:

i) Balance of Payments Surplus :

a. External sector - growth rates moved up to 11 and 20% in the two years ended March

2001.India successfully withstood the sharp rise in international oil prices since the

closing months of 1999.

b. NRI deposits with the banking system in India on the rise from 13 billion dollars in 1991-

92 to 23.8 billion dollars by March 2001

c. BOP recorded an overall surplus consecutively for five years from 1996-97

d. Indias foreign exchange reserves, 1 billion in 1990 reached $ 40 billion the average

annual addition being 4.5 billion dollars

e. Net inflow on invisible account has continued to be a major support to the balance of

payments. Invisible receipts have shown extreme growth, reaching US $ 23.0 billion in

1997-98. Private transfer receipts increased by 25 per cent per annum i.e. from U.S. $ 3.9

billion in 1992-93 to U.S. $ 11.9 billion in 1997-98.

f. Capital account in the balance of payments had shown an impressive surplus of U.S. $

10.4 billion in 1997-98. Foreign direct investment (FDI), which had increased by 18.6 per

cent in 1997-98, has fallen by 38 per cent in April-December 1998.

g. Portfolio investment continued to decline from U.S. $ 3.3 billion in 1996-97 to U.S. $ 1.8

billion in 1997-98, to an outflow of $ 0.7 billion in April-December 1998.The reason

behind this decline was result of contagion from the East Asian crisis that has affected all

emerging & developed markets.

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h. The Resurgent India Bonds (RIB) scheme launched in 1998 was open to both

NRIs/OCBs. Net inflows under NRI deposits declined from U.S. $ 3.3 billion in 1996-97

to U.S. $ 1.1 billion in 1997-98.

i. External Commercial Borrowing (ECB) has been placed at US $ 3.8 billion compared to

U.S. $ 8.7 billion in 1997-98. Disbursements have declined more sharply from $ 4 billion

in April-September 1997-98 to US $ 1.6 billion in the first half of 1998-99. The reason

was the relative unattractiveness of ECB from the borrowers perspective.

ii) Trade and Investments :

a. The trade deficit has increased from 3.7 per cent of GDP in 1996-97 to 3.9 per cent in

1997-98, despite the sharp decline in import growth. This accounts to deceleration in

export growth, which continued for the third year in succession in 1998-99. Export

growth, in BOP terms, slowed from 5.6 per cent in US dollar terms in 1996-97 to 2.1 per

cent in 1997-98

b. Import growth in the advanced & developed economies, which were Indias major

trading partners has decelerated from 18.2 per cent in 1995 to 3.7 per cent in 1996 and to

2.5 per cent in 1997.

c. Reduction in the export prices of major items of manufactured goods.

d. Total imports, on BOP basis, increased by 4.4 per cent to US$ 51.1 billion in 1997-98

compared to 12.1 per cent growth in 1996-97, while the non-oil imports, excluding gold

and silver, grew by only 5 per cent in 1997-98.

e. Slowdown in global growth and international trade has led to the introduction of

protectionist measures in some countries.

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6.3) Developments made in the next decade( 1991-2001):

Some of the major developments are outlined as follows:

a. Acceleration of GDP growth to 6.7 per cent in the period 1992-97 was the highest India had ever

achieved over a five year period.

b. Sum of external current payments and receipts as a ratio to gross domestic product (GDP)

doubled from about 19% in 199091 to around 40% by March 2001

c. Manufacturing achieved average real growth of 11.3 per cent in the four years 1993-94 to 1996-

97

d. Export growth in dollar terms averaged 20 per cent in the three years 1994 1996 and the rates of

aggregate savings and investment in the economy peaked in 1995-96

e. Private Investments showed a high growth of 16.34 % per annum during 1992-96.

f. Real fixed investment rose by nearly 40 %, led by a more than 50 % increase in industrial

investments.

g. Declined in the external commercial borrowings in the year 1992. Certain steps have been taken

in the following years to overcome this deficit. Some of them are as follows:

i) Year: 1993-94: Result of a conscious government policy to maintain a strict control over

external indebtness and resulted favorably in improving the credit rating of India by

international agencies.

ii) Year:1994-95:Some private sector power and petroleum companies finalizing their

financing packages

iii) Year: 1995-96: Large demand for borrowing with projects in petroleum, oil exploration

and telecommunications.

h. PMU: Project Management Unit was introduced, as part of the department of Economic Affairs

to monitor, supervise and strengthen various projects.

i. In 1994-95 Government of India has decided not to approach IMF for medium term funds.

j. Advance release of funds to state governments.

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INDIAS 1990-91 CRISIS: REFORMS, MYTHS AND PARADOXES Arvind Virmani ,December 2001

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http://stats.oecd.org/mei/default.asp?lang=e&subject=13&country=IND

http://www.ieo.org/budget99/external_sector.html

www.uoit.ca/sas/Macroeconomic%20Issues/What1991CrisisIndia.pdf

indiabudget.nic.in/es1991-92.../2%20The%20Payments%20Crisis.pdf

en.wikipedia.org/wiki/1991_India_economic_crisis

www.imf.org/external/np/sta/bop/bop.htm

www.rbi.org.in Press Releases

http://www.imf.org/external/np/exr/facts/crises.htmhttp://indianblogger.com/indias-balance-of-payments-part-i/http://www.uoit.ca/sas/Macroeconomic%20Issues/What1991CrisisIndia.pdfhttp://www.vikalpa.com/pdf/articles/1991/1991_july_sep_47_53.pdfhttp://www.financialexpress.com/old/fe20010702/an1.htmhttp://www/http://www.vazecollege.net/commercialbanking.htmlhttp://stats.oecd.org/mei/default.asp?lang=e&subject=13&country=INDhttp://www.ieo.org/budget99/external_sector.htmlhttp://www.uoit.ca/sas/Macroeconomic%20Issues/What1991CrisisIndia.pdfhttp://www.imf.org/external/np/sta/bop/bop.htmhttp://www.imf.org/external/np/exr/facts/crises.htmhttp://indianblogger.com/indias-balance-of-payments-part-i/http://www.uoit.ca/sas/Macroeconomic%20Issues/What1991CrisisIndia.pdfhttp://www.vikalpa.com/pdf/articles/1991/1991_july_sep_47_53.pdfhttp://www.financialexpress.com/old/fe20010702/an1.htmhttp://www/http://www.vazecollege.net/commercialbanking.htmlhttp://stats.oecd.org/mei/default.asp?lang=e&subject=13&country=INDhttp://www.ieo.org/budget99/external_sector.htmlhttp://www.uoit.ca/sas/Macroeconomic%20Issues/What1991CrisisIndia.pdfhttp://www.imf.org/external/np/sta/bop/bop.htm