India’s Balance of Payments Crisis and it’s Impacts
The paper attempts to study and analyze the various causes and factors that prompted the Balance of Payments crisis that occurred in India in 1991 and to evaluate the various steps taken by the Government and Central bank to fight the crisis and come out of it successfully.
The paper begins with explaining the Balance of payments as a determinant of the economic situation in a nation and enumerates the various uses of Balance of payments in various economic studies. Then the Indian economy in the pre crisis period, i.e. 1980-89 is studied in detail to understand the underlying causes which culminated during the period and eventually led to the crisis in 1991. We then move on to the crisis period and indicate the developments like enormous external debt and depleted for-ex reserves which deteriorated the condition of the economy in the period. And finally the paper elaborates on the various contingency measures taken by the government and central bank in order to recover from the crisis. Also, the long term effects of such policy changes are evaluated.
The paper provides good insights and learning as far as the BoP crisis is concerned.
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. 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...