Crisis of 1991

In: Business and Management

Submitted By ambuli
Words 3569
Pages 15
1991 Indian economic crisis
By 1985, India had started having balance of payments problems. By the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had been reduced to such a point that India could barely finance three weeks’ worth of imports which lead the Indian government to airlift national gold reserves as a pledge to the International Monetary Fund (IMF) in exchange for a loan to cover balance of payment debts
Recovery
With India’s foreign exchange reserves at $1.2 billion in January 1991[2][3][4] and depleted by half by June,[4] barely enough to last for roughly 3 weeks of essential imports,[3][5] India was only weeks way from defaulting on its external balance of payment obligations.[3][4]
Government of India's immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral. The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.[9][2][10] 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. Interestingly, it was later revealed that the van transporting the gold to the airport broke down on route and panic followed.[1] A chartered plane ferried the precious cargo to London between 21 May and 31 May 1991, jolting the country out of an economic slumber.[9] The Chandra Shekhar government had collapsed a few months after having authorized the airlift.[9] The move helped tide over the balance of payment crisis and kick-started P.V.Narasimha Rao’s economic reform process.[2]
P. V. Narasimha Rao took over as Prime Minister in June, and roped in…...

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