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BALANCE OF

PAYMENT
INDIAN
CRISIS 1990
WHAT IS BALANCE OF
PAYMENT ?
A BoP is a double entry system of
record of all economic transactions
between the residents of a country and
the rest of the world carried out in a
specific period of time.

In other words BoP means the exports &
imports of all kinds including consumer
goods, consumer durables, FMCG,
capital goods, technical equipment &
services like banking, insurance,
tourism, transportation etc. and
DEFICITS IN BoP
• There was a deficit in BoP from the
1st five yr plan (19951-56) onwards
• At that time deficit is
BoP CRISIS IN 1990
• The deficit problem is a long-standing
one, it took on a serious turn in the
early 1990’s and continues to be a
difficult one at present, although
there is some easing of the situation.
FACTORS CONTRIBUTING
BoP CRISIS
• LARGE IMBALANCES
The continuing deficits become
massive around the second half of
1990. Because,
• Gulf crisis
• Rise in the value of imports of oil
greatly expanded the size of deficit.
From an avg of Rs499 cr ($ 287 m) pre
month in June-Aug 1990, the value of
importsrose massively to Rs 1221 cr ($
•This in turn largely accounted for a
doubling of the BoP deficit from an avg
of Rs 619cr ($ 356 m) per month in
June-Aug 1990 to Rs.1229 cr ($ 679 m)
per month in the six months followed.
•Indian workers employed in

Kuwait had to be airlifted to India.

UN trade embargo exports to Iraq

•LOSS OF CONFIDENCE
•Outside world had lost confidence in

the country’s ability to manage the
crisis. There was an expectation that
the country would default on its debts.
And that the Rupee would fall heavily
in the world mkt.
•There was a drying up of short-term

credits from a level of about $ 2 billion
•BIG SIZE
•One reason why the problem is a

serious one, is that the deficit in the
trade balance is a big figure. An
indication of the same can be had by
relating it to GDP. As a proportion of
GDP, it has remained as high as
around 3% for most of the yrs. This is
larger than the projections in several
plans. This is only a reflection of the
•STRAINS ON FORIGN EXCHANGE
RESOURCES
•These reserves are comprised of forign

currency assets of the RBI, gold
holding of RBI and special drawing
rights(SDR) of the IMF. These reserves
are maximum that the country can
draw upon freely. However there are
limits beyond which these cannot be
drawn.
•LARGE INCREASE IN DEBT BURDEN
•The country have heavy burden of

return of the loans & payment of
interest. The loans drawn from various
sources like IMF cerdits, commercial
borrowings & supplier’s credits. The
total external debt was $ 23.5 bn in
1980-81. This increased by over four
times to $ 99.6 bn in 2001.
MEASURES TO CONTROL
BoP
• IMPORT CONTROL
• EXPORT PROMOTION
• ATTRACTION OF NRI DEPOSITS
• LIBERALISED EXCHANGE RATE MGT
SYSTEM
• UNIFIED EXCHANGE RATE
• CURRENT ACCOUNT CONVRTABILITY
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