KARTIK RAI" The Indian Economy in Adversity and Debt Purely in terms of its symptoms the crisis that overtook the Indian economy in 1991 was quite unprecedented in the history of post-Independence India. We did of course have higher inflation on a couple of occasions in the past, but we never had inflation of such a high order of magnitude (which even official spokesmen privately admit is nearly 20 per cent in terms of the consumer price index) in a year in which the harvest was excellent, in which there were no external price shocks such as we had in 1973-74 and 1979-80, and which followed two previous years of excellent harvests too. By way of comparison one can take 1964-65 when also prices, including agricultural prices had risen despite an excellent harvest; but 1964-65 had been sandwiched between two years of very poor harvests, so the price increase of that year was less unaccountable than that of the recent past. Likewise, we did have another episode of a serious foreign exchange crisis in 1957. But the recent exchange crisis was not only far more acute, with the foreign exchange reserves at one stage barely sufficient to cover two weeks' import-bill, but, unlike the earlier occasion, was unrelated to any specific development on the trade front. The 1957 foreign exchange crisis was because of a surge in imports which occurred at the beginning of the Second Plan with the government liberally giving out import licences in the confident belief that the sterling reserves we had accumulated would see us through; as the reserves declined precipitously it had to clamp down on imports. But, while the recent crisis was accompanied no doubt by a significant widening of the trade, and more importantly of the current account, deficit on the balance of payments (on which more later), this widening alone can scarcely be held responsible for the crisis: its immediate cause has to be located in the capital rather than the current account of the balance of payments. It is obvious that the crisis, manifested in a combination of inflation and foreign exchange shortage, was acute. What is unprecedented how- Kartik Rai writes on economic affairs in People's Democracy. Social Scientist, Vol. 20, Nos. 1-2, January-February 1992