IMF loan and debt structuring
External Debt Development and Management:
Some Reflections on India
Dr HK Pradhan
Professor of Finance and Economics
XLRI Jamshedpur
India
Regional Workshop on Capacity-building for External Debt Management in the Era of Rapid Globalization
6-7 July 2004
Bangkok
Introduction
In 1990-91 when India got into a severe foreign exchange crisis her outstanding level of external debt was $ 83. 8 billion. The level of debt was about 40 per cent of Gross Domestic Product and the debt service payment was about 30 per cent of exports of goods and services. Several destabilizing forces acting on the Indian foreign exchange markets were a downgrade of India’s sovereign credit ratings to non-investment grade, reversal of capital flows, exacerbated the foreign exchange crisis and withdrawal of the foreign currency deposits held by non-resident Indians. One can best describe the severity of the situation by quoting from the then Finance Minister of India Dr Manmohan Singh’s Budget 1992-93 speech to the Parliament:
"When the new Government assumed office (June 1991) we inherited an economy on the verge of collapse. Inflation was accelerating rapidly. The balance of payments was in serious trouble. The foreign exchange reserves were barely enough for two weeks of imports. Foreign commercial banks had stopped lending to India. Non-resident Indians were withdrawing their deposits. Shortages of foreign exchange had forced a massive import squeeze, which had halted the rapid industrial growth of earlier years and had produced negative growth rates from May 1991 onwards".
With this background a study on India’s external debt would obviously raise certain questions such as: how did India manage historically with a very low volume of external capital inflows; how is that the third world debt crisis of early 80s had a little impact; how is it then that India got into a massive foreign exchange crisis in 1990-91; how was India
Some Reflections on India
Dr HK Pradhan
Professor of Finance and Economics
XLRI Jamshedpur
India
Regional Workshop on Capacity-building for External Debt Management in the Era of Rapid Globalization
6-7 July 2004
Bangkok
Introduction
In 1990-91 when India got into a severe foreign exchange crisis her outstanding level of external debt was $ 83. 8 billion. The level of debt was about 40 per cent of Gross Domestic Product and the debt service payment was about 30 per cent of exports of goods and services. Several destabilizing forces acting on the Indian foreign exchange markets were a downgrade of India’s sovereign credit ratings to non-investment grade, reversal of capital flows, exacerbated the foreign exchange crisis and withdrawal of the foreign currency deposits held by non-resident Indians. One can best describe the severity of the situation by quoting from the then Finance Minister of India Dr Manmohan Singh’s Budget 1992-93 speech to the Parliament:
"When the new Government assumed office (June 1991) we inherited an economy on the verge of collapse. Inflation was accelerating rapidly. The balance of payments was in serious trouble. The foreign exchange reserves were barely enough for two weeks of imports. Foreign commercial banks had stopped lending to India. Non-resident Indians were withdrawing their deposits. Shortages of foreign exchange had forced a massive import squeeze, which had halted the rapid industrial growth of earlier years and had produced negative growth rates from May 1991 onwards".
With this background a study on India’s external debt would obviously raise certain questions such as: how did India manage historically with a very low volume of external capital inflows; how is that the third world debt crisis of early 80s had a little impact; how is it then that India got into a massive foreign exchange crisis in 1990-91; how was India