Wp Crisis 1991

INDIAS 1990-91 CRISIS: refineS, MYTHS AND PARADOXES Arvind Virmani

December 2001

PLANNING COMMISSION Working musical theme No. 4 /2001-PC

INDIAS 1990-91 CRISIS: REFORMS, MYTHS AND PARADOXES

By Arvind Virmani*

Any views convey in this paper are the personal views of the author and do not necessarily reflect those of the Planning Commission.

*

I would corresponding to thank Prof. T. N. Srinivasan, Dr. Isher Ahluwalia, Dr. Surjit Bhalla, Dr. Roberto Zagha, Dr. Suman Bery, Dr. John Williamson, Dr. Urjit Patel, Dr. Homi Kharas, Dr. James Gordon, Mr. Sudhir Mulji, Dr. Willima Wadhwa Dr. Shankar Acharya, Mr M. S. Ahluwalia, Prof. Suresh Tendulkar and Mr. R. S. Lodha for their comments on earlier versions of the paper. I would also like to thank Dr. Vijay Kelkar for his suggestions.

TABLE OF CONTENTS rogue No. I. INTRODUCTION 1 3 3 4 4 5 5 6 7 14 18 21 22 27 30 31 31 32 34 36 37 37 39 40 40 41 41 44 46 46 48 49 53

II. PRELUDE TO CRISIS: THE mid-eighties A. 1. 2. 3. 4. B. 1. 2. 3. 4. 5. C. III. A. B. 1. 2. 3. C.



SHOCKS: EXTERNAL & DOMESTIC Break-up of Soviet Bloc Iraq-Kuwait War political uncertainty Confidence MACROECONOMIC IMBALANCE Fiscal licentiousness Trade Deficit Trends Invisibles Trends Borrowing & Debt Exchange Rate, Fiscal & remote Balance RESULT: BOP CRISIS OF 1990-91 RESPONSE: COMPREHENSIVE REFORM MACRO-ADJUSTMENT TRADE REFORM Import Controls: QRs impost Tariffs Exports

FOREIGN law OPENING 1. Foreign Direct Investment (FDI) 2. Portfolio Capital: FII 3. Indian FDI DEBT 1. 2. 3. EXCHANGE CONTROL Partial Convertibility: LERMS Gold Import contemporary Account Convertibility BUREAUCRATICS IMPACT OF NINETIES REFORM TRADE genuine ACCOUNT

D. E.

F. IV. A. B.

C. D. E. F. V. VI. VII. A. 1. 2. 3. 4. 5. B.

FISCAL DEFICIT CAPITAL FLOWS BOP & REER COMPARATIVE prospect CONCLUSION REFERENCES ANNEXURE Background Analysis: Authors papers Macroeconomic & Growth Foreign Exchange Trade Customs Tariffs Capital Account END-NOTES

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