- Weak Macroeconomic Fundamentals:
- Fiscal deficit of 8.4% of GDP in 1990-91.
- Current account deficit of 3.1%.
- High inflation of 17%.
- High external debt.
- Balance of Payments Crisis:
- Short-term debt of about 6billion,with2 billion rolled over daily.
- Rapid withdrawal of NRI deposits (over $10 billion).
- Foreign exchange reserves down to $1 billion (enough for fortnight’s imports).
- Iraqi invasion of Kuwait (1990) increased oil prices and import bill.
- Fall in Indian exports to Middle East.
- India’s international credit rating sharply downgraded.
- Difficulty in raising foreign credit.
- Forced to pledge 67 tonnes of gold as collateral.
- Structural Weaknesses: Pervasive industrial control (license raj), MRTP Act, nationalization, inward-looking trade policy.