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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


    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



    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


    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



    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


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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


    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


    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


    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


    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


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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-


    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


    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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    ReferencesSloman, John (2004).Economics.Penguin. pp. 516, 517, 555559.

    Dictionary of Banking Terms, 5th edition, by Thomas P. Fitch, published by Barron's Educational Series,



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

    http://www. Press Releases