Podcast
Questions and Answers
What triggered India's economic crisis in 1991?
What triggered India's economic crisis in 1991?
- A political scandal
- A balance-of-payments problem (correct)
- A natural disaster
- A decrease in foreign investment
What policy did India abandon in order to integrate into the world economy?
What policy did India abandon in order to integrate into the world economy?
- Export promotion policy
- Import substitution policy (correct)
- Protectionist policy
- Industrial policy
How much did tariff rates on imports decrease from 1990 to 2009 in India?
How much did tariff rates on imports decrease from 1990 to 2009 in India?
- 50%
- 60%
- 70%
- 80% (correct)
What did India move to in terms of its exchange rate system?
What did India move to in terms of its exchange rate system?
How has India's external sector regime been described?
How has India's external sector regime been described?
Does India currently have a current account deficit?
Does India currently have a current account deficit?
Has India's CAD consistently decreased since 1991-92?
Has India's CAD consistently decreased since 1991-92?
What type of investments dominated the financing of India's CAD in 2014-15?
What type of investments dominated the financing of India's CAD in 2014-15?
How were India's foreign exchange reserves built?
How were India's foreign exchange reserves built?
Why is it important for India to keep the CAD at a level that can be financed by normal capital flows?
Why is it important for India to keep the CAD at a level that can be financed by normal capital flows?
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Study Notes
- In 1991, India faced an economic crisis triggered by a balance-of-payments problem.
- India abandoned the import substitution policy and began integrating into the world economy.
- Tariff rates on imports decreased from 76.3% in 1990 to 8.3% in 2009.
- India moved to a market-determined exchange rate system and allowed foreign direct investment.
- India's external sector regime has been beneficial and resilient.
- India still has a current account deficit, but it is low due to surplus in services.
- CAD has come down since 1991-92, except in 2011-12 and 2012-13.
- Financing of CAD has changed, with FDI and portfolio investment dominating in 2014-15.
- Foreign exchange reserves stand at $420 billion, built out of excess capital flows rather than current account surpluses.
- It is imperative to keep the CAD at a level that can be financed by normal capital flows.
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