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Time to Revisit 1991! Economic Crisis Forcing Once Self-Reliant India to Seek Aid

Raj-Hindustani

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Economic Crisis Forcing Once Self-Reliant India to Seek Aid

Facing a grave economic crisis, the newly elected Indian Government has begun urgent talks with the International Monetary Fund seeking emergency aid of several billion dollars. Yet the conditions for such assistance are stirring anxiety in this nation, which historically prides itself on self-reliance.

At issue is not only the economy but also India's sensitivity to Western involvement. What makes the nation's plight especially delicate is the realization that, without bowing to Western conditions for economic change, India could slide into collapse.

The immediate issue is India's struggle to avoid defaulting on loans. It has never defaulted since independence 44 years ago. India's foreign debt has climbed to about $72 billion, making it the world's third largest debtor after Brazil and Mexico. In 1980, its foreign debt was $20.5 billion. At the moment, Western officials say, India has only $1.1 billion in its hard-currency reserves, enough for two weeks of imports. Policy Changes Required

Government officials and Western diplomats say that, to meet the emergency, India will seek anywhere from $5 billion to $7 billion from the International Monetary Fund. The I.M.F. pulls together packages of loans disbursed under conditions that often include altering policies viewed by the fund as mistaken or counterproductive.



The loan plan has been front-page news for several days, and the political opposition has responded with confusion. Essentially, parties on the right and left have expressed anxiety about India's perilous economic condition, but ask if there are other options besides going to an international agency that would attach firm strings to a huge loan. The Government says there are not.


Officials said that it would be the biggest loan the I.M.F. has ever made to India, and that it would hinge on a set of conditions demanding that India reduce its budget deficit, open its markets to foreign competition, diminish its maze of licensing requirements, cut subsidies, and liberalize investment. India, which still views itself as a socialist nonaligned leader, views the potential arrangement with pain, even embarrassment.
https://www.nytimes.com/1991/06/29/...cing-once-self-reliant-india-to-seek-aid.html



1991 Indian economic crisis

From Wikipedia, the free encyclopedia

The 1991 Indian economic crisis had its roots in 1985 when India began having balance of payments problems as imports swelled, leaving the country in a twin deficit: the Indian trade balance was in deficit at a time when the government was running on a large fiscal deficit.[1] By the end of 1990 in the run-up to the Gulf War, the situation became so serious that the Indian foreign exchange reserves could barely finance three weeks’ worth of imports while the government came close to defaulting on its financial obligations. By July that year, the low reserves had led to a sharp depreciation of the rupee, which in turn exacerbated the twin deficit problem.[2] Chandrasekhar government could not pass the budget in February 1991 [3] at a crucial time when Moody had downgraded India and it further went down after the budget was not passed and global credit-rating agencies further downgraded India from investment grade making it impossible to even get short term loans and the government was in no position to give any commitment to reform the economy. The World Bank and IMF also stopped their assistance, leaving the government with no option except mortgaging the country's gold to avoid defaulting on payments.[4][5][6]

This led the Indian government to airlift national gold reserves as a pledge to a large conditional bail out from the International Monetary Fund (IMF) and World Bank in exchange for a loan to cover balance of payment debts.[7]

The crisis led to the liberalisation of the Indian economy, as one of the conditions stipulated in the World Bank loan (structural reform), requiring India to open itself up to participation from foreign entities in its industries, including state owned enterprises.[8]

Causes and consequences
The crisis was caused by currency overvaluation;[2] the current account deficit, and investor confidence played significant role in the sharp exchange rate depreciation.[9][10][11]

The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s. During the mid-eighties, India started having the balance of payments problems. Precipitated by the Gulf War, India’s oil import bill swelled, exports slumped, credit dried up, and investors took their money out.[12] Large fiscal deficits, over time, had a spillover effect on the trade deficit culminating in an external payments crisis. By the end of the 1980s, India was in serious economic trouble.

The gross fiscal deficit of the government (centre and states) rose from 9.0 percent of Gross Domestic Product (GDP) in 1980-81 to 10.4 percent in 1985-86 and to 12.7 percent in 1990-91. For the centre alone, the gross fiscal deficit rose from 6.1 percent of GDP in 1980-81 to 8.3 percent in 1985-86 and to 8.4 percent in 1990-91. Since these deficits had to be met by borrowings, the internal debt of the government accumulated rapidly, rising from 35 percent of GDP at the end of 1980-81 to 53 percent of GDP at the end of 1990-91. The foreign exchange reserves had dried up to the point that India could barely finance three weeks worth of imports.[13]

In mid-1991, India's exchange rate was subjected to a severe adjustment. This event began with a slide in the value of the Indian rupee leading up to mid-1991. The authorities at the Reserve Bank of India took partial action, defending the currency by expanding international reserves and slowing the decline in value. However, in mid-1991, with foreign reserves nearly depleted, the Indian government permitted a sharp devaluation that took place in two steps within three days (1 July and 3 July 1991) against major currencies.

Recovery
Further information: Economic liberalisation in India

With India’s foreign exchange reserves at $1.2 billion in January 1991[14][15][16] and depleted by half by June,[16] barely enough to last for roughly 3 weeks of essential imports,[15][17] India was only weeks away from defaulting on its external balance of payment obligations.[15][16]

Government of India's immediate response was to secure an emergency loan of $2.2 billion[18][19][20] from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral security.[7][19] The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England[12][14] and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.[12][14][21] . The van transporting the gold to the airport broke down en route due to tyre burst and panic followed .[22][23][7]The airlift was done with secrecy as it was done in the midst of the 1991 Indian General elections.[24] National sentiments were outraged and there was public outcry when it was learned that the government had pledged the country's entire gold reserves against the loan.[12][17] A chartered plane ferried the precious cargo to London between 21 May and 31 May 1991, jolting the country out of an economic slumber.[12] The Chandra Shekhar government had collapsed a few months after having authorised the airlift.[12] The move helped tide over the balance of payment crisis and kick-started P.V. Narasimha Rao’s economic reform process.[14]

Under Narsimha Rao Government
P. V. Narasimha Rao took over as Prime Minister in June, and roped in Manmohan Singh as Finance Minister.[12] The Narasimha Rao government ushered in several reforms that are collectively termed as liberalisation in the Indian media.

The reforms formally began on 1 July 1991 when RBI devaluated Indian Rupee by 9% and by a further 11% on 3 July. It was done in two doses to test the reaction of the market first by making a smaller depreciation of 9%.[25] There was significant opposition to such reforms, suggesting they were an "interference with India's autonomy". Then Prime Minister Rao's speech a week after he took office highlighted the necessity for reforms, as New York Times reported, "Mr. Rao, who was sworn in as Prime Minister last week, has already sent a signal to the nation—as well as the I.M.F.—that India faced no "soft options" and must open the door to foreign investment, reduce red tape that often cripples initiative, and streamline industrial policy. Mr. Rao made his comments in a speech to the nation Saturday night." [26] The foreign reserves started picking up with the onset of the liberalisation policies and reached an all-time high US$426.1 billion as on 13 April 2018 [27]

Aftermath
The program of economic policy reform which was put in place in 1991 has yielded amazing results, dramatically improving the quality of life in India. Trade liberalisation in India has also corresponded with a dramatic rise in inequality and associated social issues, but these are normal for a developing economy. [28]

The Indian GDP rose from $266 billion in 1991 (inflation adjusted) to $3 trillion in 2019 (1100% increase) while its purchasing power parity rose from $1 trillion in 1991 to $12 trillion in 2019 (1100% increase).
https://www.wikiwand.com/en/1991_Indian_economic_crisis
 
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Raj-Hindustani

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Government of India's immediate response was to secure an emergency loan of $2.2 billionfrom the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral security.The Reserve Bank of India had to airlift 47 tons of gold to the Bank of Englandand 20 tons of gold to the Union Bank of Switzerland to raise $600 million. The van transporting the gold to the airport broke down en route due to tyre burst and panic followed .The airlift was done with secrecy as it was done in the midst of the 1991 Indian General election
 
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CrazyZ

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This crisis was the death of Ghandi's and Neru's founding vision of a self sufficient Indian economy.
 

GumNaam

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the article seems to be written by an amateur & a very ill informed one at that. india's foreign debt is not $72 billion, it's almost $560 billion!
Screenshot_20200417-202012_Samsung Internet.jpg

further more, when was india ever "self reliant" let alone "self reliant" enough to be proud of it? given the fact that india has been the biggest recipient of american aid dictates that india was never self reliant!
Screenshot_20200417-202540_Samsung Internet.jpg


suffice it to say,
was a bhukka nanga hindustan yesterday!
is a bhukka nanga hindustan today!
will remain as a bhukka nanga hindustan tomorrow!
 

Raj-Hindustani

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the article seems to be written by an amateur & a very ill informed one at that. india's foreign debt is not $72 billion, it's almost $560 billion!
View attachment 624606
further more, when was india ever "self reliant" let alone "self reliant" enough to be proud of it? given the fact that india has been the biggest recipient of american aid dictates that india was never self reliant!
View attachment 624607

suffice it to say,
was a bhukka nanga hindustan yesterday!
is a bhukka nanga hindustan today!
will remain as a bhukka nanga hindustan tomorrow!
Now you are trolling!

Do you know Pakistan got Approx 42 and 12 (military) billions from US (Aid) between 1947 to 2012.

Now, you have to look at who is bigger bhuka nanga even being 6 times less populated then India?
Per capita more aid recipients..
 
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GumNaam

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Now you are trolling!

Do you know Pakistan got Approx 42 and 12 (military) billions from US (Aid) between 1947 to 2012.

Now, you have to look at who is bigger bhuka nanga even being 6 times less populated then India?
Per capita more aid recipients..
oh hey but you are an indian...stop worrying about what Pakistan's approx facts n figures are...apnay bhukkay nangay hindustan ko sambhaalo, don't worry about us. We are sitting on hundreds of billions of tons of God given gold in our mountains while you have to air lift yours out to bank of england and switzerland as the article says...apni naphayr.
 

Raj-Hindustani

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oh hey but you are an indian...stop worrying about what Pakistan's approx facts n figures are...apnay bhukkay nangay hindustan ko sambhaalo, don't worry about us. We are sitting on hundreds of billions of tons of God given gold in our mountains while you have to air lift yours out to bank of england and switzerland as the article says...apni naphayr.
Bro the simple is that ek bhikari dusre bhikari per hans nahi sakta ki tu bhikari hai..

So, I didn't talk anything about Pakistan till you started trolling..
 

GumNaam

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Bro the simple is that ek bhikari dusre bhikari per hans nahi sakta ki tu bhikari hai..

So, I didn't talk anything about Pakistan till you started trolling..
first off, I ain't you "bro", I'm your worst nightmare. second, I wasn't trolling, I simply pointed out some of the errors in the article you posted & that too, from your own media sources.
 

Raj-Hindustani

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first off, I ain't you "bro", I'm your worst nightmare. second, I wasn't trolling, I simply pointed out some of the errors in the article you posted & that too, from your own media sources.
And, if you make your claims with proof then only it will useful otherwise useless trolling.

Israel got 65 billions from USA and I don't think that Israel is a poor country.
 

Jackdaws

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Another factor not covered here - collapse of the Soviet Union. The Soviets allowed India to pay for good and services in rupees, not in $.

So it was a triple whammy for India -

1. Oil bills rose due to Gulf War
2. Collapse of Soviet Union
3. Extremely weak coalition Govt of Chandrashekhar which was by now a care taker Govt having lost the vote of Confidence after Rajiv Gandhi pulled the plug.

the article seems to be written by an amateur & a very ill informed one at that. india's foreign debt is not $72 billion, it's almost $560 billion!
View attachment 624606
further more, when was india ever "self reliant" let alone "self reliant" enough to be proud of it? given the fact that india has been the biggest recipient of american aid dictates that india was never self reliant!
View attachment 624607

suffice it to say,
was a bhukka nanga hindustan yesterday!
is a bhukka nanga hindustan today!
will remain as a bhukka nanga hindustan tomorrow!
This is about 1991. We are currently in 2020. Just saying.
 

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