ECONOMIC CRISIS IN 1990 s www presentationgo com

ECONOMIC CRISIS IN 1990 s www. presentationgo. com

ORIGIN OF ECONOMIC CRISIS IN 1990 s Eroded international confidence in Indian economy- Credit rating in the international capital market declined sharply Political instability in the country Gulf crisis in the late 1990 accentuated macroeconomic problems 06 Directly attributable to the cavalier macro management of the economy during 1980 s 01 02 REASONS 05 04 03 www. presentationgo. com Growing fiscal deficits and current account deficits- borrowings from abroad Internal imbalance in fiscal situation and external imbalance in payment situationabsence of prudence

MACRO ECONOMIC CRISIS: FISCAL IMBALANCE Interest payments alone had eaten up 39. 1% of TR collections Fiscal deficit – 1980 -81 -5. 1 rose to 7. 8 in 1990 -91 The danger of the government falling into debt-trap was real Fiscal deficit had to be met from resource borrowingsinternal debt increased from 33. 35 of GDP in 198081 to 49. 7% in 1990 -91 Increased burden of servicing debt Interest payment increased from 2% to 3. 8% 10% of TE to 22% of TE Unchecked growth of Non Plan revenue expenditure www. presentationgo. com

MACRO ECONOMIC CRISIS: Fragile BOP Situation The Current Account Deficit 1. 35% of GDP in 1980 -81 rose to 3. 69% in 1990 -91 Had to be financed by borrowing from outsideexternal debt rose from 12% to 23% of GDP Increased debt service burden from 10% of current account receipts to 22% A 5% of export earning to 30% The level of foreign exchange reserves dropped to levels which were not sufficient to finance imports of even ten days www. presentationgo. com

MACRO ECONOMIC CRISIS: Mounting Inflationary Pressures Inflation during 10980 s was not alarming- 6. 7% in terms of whole sale price index Rate of inflation rose to 10. 3% in 1990 -91 In terms of CPI inflation climbed to 11. 2% per annum Most disquieting feature of this inflationary situation- prices of food rose substantially in spite of good monsoons www. presentationgo. com