Question

Which move helped to tide over the balance of payment crisis in 1991?

Answer 1

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 a large fiscal deficit. 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 devaluation of the rupee, which in turn exacerbated the twin deficit problem.[1] This led the 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.[2]

The crisis later led to the liberalisation of the Indian economy.