International Trade and Debt: India in the Eighties
The balance of payments crisis that has necessitated the IMF guided structural adjustment programme took many observers of the Indian economy by surprise. It was well known that India had been unusually conservative in commercial borrowing from international banks abroad even during periods of pressure on its foreign exchange reserves, like after the oil shocks, and had cut its imports to match the availability of concessional credits from multilateral institutions like the World Bank. This had been a costly strategy in the eyes of many critics, and perhaps slowed down the rate of investment. Thus, when the international debt crisis broke in the early 1980s, Indian policy makers were patting themselves on the back and pointing to the low debt servicing ratios as signs of economic strength and prudent management. But during the brief span of few years the scenario has undergone a radical change. During the 1980s, India's foreign debt has risen by about 300 per cent to touch the $ 70 billion mark by 1989, and recent reports mention a figure of $ 81 billion for 1991. The rising cost of servicing this debt has eroded the economy's capacity to sustain growth and has mortgaged the future of the country to international bankers and the transnational corporations. In other words, though the totaly foreign liabilities ot the country since Independence to 1983 were within manageable limits of $ 28.7 bn, during a brief span of 6-7 years the country accumulated additional $ 40 bn in debts. Not only was the speed of build up of these liabilities astounding, its composition too underwent a structural change with short term and commercial borrowings constituting a greater proportion of the total liabilities.
This paper hopes to trace the major trends and policies pertaining to foreign trade and balance of payments during the eighties in a bid to appreciate the factors that led to the balance of payments crisis and throw light on the probability of success of the structural adjustment programme.
Indian Institute of Management, Calcutta
Social Scientist, Vol. 20, Nos. 1-2, January-February 1992