India’s BoP during the 1980sDuring the 1980s, BoP again came under stress. The second oil shock led to a rapid increase in imports in early 1980s. Oil imports increased to about two-fifths of India`s imports during 1980-83. At the same time, India`s external sector policy was changing towards greater openness. Various measures were undertaken to promote exports and liberalise imports for exporters during this period. However, several factors weighed against external stability. First, despite a number of export promotion measures, the subdued growth conditions in the world economy constrained exports growth. Second, the surplus on account of invisibles also deteriorated due to moderation in private transfers. Third, the debt servicing had increased with greater recourse to debt creating flows such as external commercial borrowings (ECBs) and non-resident Indian (NRI) deposits. Fourth, deterioration is the fiscal position stemming from rising expenditures accentuated the twin deficit risks. Given the already emerging vulnerabilities in India`s BoP during the 1980s, the incipient signs of stress were discernible which culminated in the BoP crisis in 1991 when the Gulf War led to a sharp increase in the oil prices. On top of that, a slowdown in the world trade following the recessionary conditions in industrialised countries and the economic disruption in Eastern Europe including the erstwhile USSR had begun to affect India`s exports. A large number of Indian workers employed in Kuwait had to be airlifted to India and their remittances stopped. Foreign exchange reserves had already dwindled due to significant drawdown for financing of CAD in earlier years. During 199091, at one point of time, the foreign currency assets had dipped below US$ 1.0 billion, covering barely two weeks of imports. With increasing recourse to the borrowings on commercial terms in the previous years, financing of CAD had also become more sensitive to creditors` confidence in the Indian economy. current-affairs/2014-07-18/topics/703
Posted on: Fri, 18 Jul 2014 07:55:28 +0000
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