ARUN GHOSH' Economic Adjustment: A Programme for the Medium Term There are three aspects of economic adjustment over the medium term for any economy: first, the restoration of balance between aggregate demand and supply in the economy; secondly, and this is an extension of the first, the restoration of balance in external payments; and finally, an improvement of efficiency and productivity and therefore in the competitiveness of the economy. Since the immediate, short term balance of payments problem has been the cause of the greatest anxiety over the past year or so, this issue would be considered first. At the same time, the persistent inflationary trends observed in the economy—despite four consecutive good monsoons and four years of satisfactory improvement in industrial production—need to be addressed with firmness. This issue would be relevant for the balance of payments also because an excess of demand in the economy (in money terms) is likely to spill over to the balance of payments through an excess of imports over exports. The issue of increased efficiency and productivity—which, in a way, is the rationale for any adjustment programme—would be considered last. BALANCE OF PAYMENTS The foreign exchange assets of the Reserve Bank of India, as on December 27, 1991, were Rs. 9473 crore (or approximately Rs. 9500 crore), as per the Weekly Statistical Supplement of the RBI Bulletin of January 11,1992. Foreign exchange reserves are now officially stated to have reached the level of more than Rs. 10,000 crore, which is around three months import requirement. With this level of reserves, it is now possible to breathe more freely, provided that we do not fritter away the reserves. With this level of reserves, we should also endeavour to gradually restructure our external payments obligations, and manage our external payments in such a manner that: (a) we do not get into the sort of position that we did in June-July 1991, and (b) that we manage our exports and imports sensibly, taking note of both the internal and international situation. Former Member of Planning Commission. Social Scientist, Vol. 20, Nos. 1-2, January-February 1992