INTERNATIONAL TRADE AND DEBT 61 Resident deposits further declined from about $ 1306 million in 1989-90 to $ 229 million in 1990-91. During 1990-91, the country was forced to deplete its reserves to meet the normal requirements. The total foreign exchange reserves declined by more than $ 1.1 bn. despite a borrowing from the IMF of $ 1814 million. An additional $ 1.1 bn reserves were depleted in the first quarter of 1991-92. The dangerous strategy of relying on short term borrowings from international private banks made the entire BOP situation extremely vulnerable. The opportunity provided by the Gulf crisis to attract savings kept in these centres by immigrant workers was lost. Borrowings from IMF and other multilateral aid agencies were the only answer if India did not want to default on its re-payment obligations. PROSPECTS In conclusion, it can be said that the recent deterioration in India's balance of payments situation was due to the manner in which India's balance of payments was managed during the eighties. There were extremely favourable factors like the increasing domestic availability of petroleum and rising transfer payments. Export growth was unprecedented and if sustained could have led to an end to persistent large current account deficits. But these fortuitous factors were soon dissipated by the liberalised FTR and unprecedented import of armaments as the Indian ruling elite acquired hegemonistic ambitions. The sharp rise in imports of intermediate and capital goods for the rapidly changing industrial sector added to the pressures. The main beneficiaries of the liberalised import regime have been exporters in EEC who significantly increased their access to Indian market for military hardware, industrial products, and technology. What are the medium term prospects for overcoming the imbalances in the external sector? The Finance Minister prides himself on the improvement in the foreign reserves—built with additional borrowings from the IMF and IBRD with conditionalities. There has been a decline in the erosion of the NRI deposits. But the medium term outlook continues to be grim. The key to the adjustment programme's success lies in the country's ability to sustain the growth in exports experienced in the 1985-90 period and to maintain the flows in the invisibles account and external assistance on soft terms. Since the higher cost of borrowings will eat away into the surpluses on the invisibles account and the net aid flows will be lower due to rising amortisation payments, the trade deficit can be sustained only with increased borrowings from NRI deposits and direct investment. It is unlikely that the country can sustain a trade deficit of more than $ 4-5 bn. per year during the Eighth Plan period. This implies that India can ill afford to enter the arms bazaar once