easons for deficit in Capital Account:
apital account structure has changed considerably over the period. Most of the deficit was financedthrough the inflow of concessional assistance during the period 1956-57 to 1979-80. This facilityreduced the debt servicing burden. But almost the entire deficit was financed through loans atmarket rate of interest durin1980-81 to 1997-98. The loans at concessional interest rates was nearly90 per cent of the total in 1980 and it declined to 80 percent in 1990.The average maturity period of loans was 40.8 years in 1980 and 29.1 years in 1990 The interest rate were increased during the period 1980-81 to 1998-99 compared to that of 1956-57to 1979-80Decline in the quality of external financing during the year 1980-81 to 1998-99.Total debt increased from Rs. 19470 crores in 1980-81 to Rs. 336646 crore in 1996-97.Substantial amount of current account deficit has been financed from the inflow of capital since1984-85.
urrent account deficit was financed from the funds drawn under extended fund facility frominternational monetary fund during 1980-81 to 1984-85. The amount drawn was Rs. 5 billion.
Balance of payment:
Government of Indian has drawn substantially from the international monitory fund in 1990-91consequent upon the deteriorating balance of payment position due to the impact of gulf warOur country has drawn Rs. 2077 crores in 1991-92 and Rs. 3363 crores in 1992-93 under the standbyarrangement from the fund.The increased trade deficits, declining private remittances and decreasing concessional aid tofinance the balance of payments deficit, made India resort to high cost sources of finances likecommercial borrowings, NRI deposits and loans from IMF. NRI deposits and commercial borrowingrepresent a substantial failure liability.Increased outflow of foreign capital and declining inflow during 1990-91, to 1992-93 seriouslyaffected the foreign exchange reserve position. This in turn downgraded Indias credit rating.There has been a slight improvement in the Indias external debt position. It declined from US$ 99billion at the end of march 1995 to US$ 92.2 billion at the end of march 1997.There is structural change in the capital account. This change relates to reduction in debt creatingflows and an enhanced resource to non-debt creating foreign investment flow since 1993-94.