Daunting Challenges Ahead – Indian Economy
Trade deficit: One of the major reasons for the dwindling forex reserves is the ever-increasing trade deficit between total imports and exports made by the country. For the Seventh Plan, the annualized average of trade deficit was Rs 8252/- crore. As per the data released by the Ministry of Commerce, the country’s trade deficit in the period April-October ’90 stood at Rs. 5334 cr. (Increase of 31.6%) whereas the April-September ’90 period trade deficit was Rs 4233 cr. , it increased in the April-October ’90 period to Rs. 5334 cr and then spiraled to Rs 7193 cr in the April-November ’90 period-mainly due to the Gulf crisis which was almost equal to the annual trade deficit in the year 1988-89.
Out of India’s total annual exports, agro based products (12%), minerals and ore (98.2%), readymade garments (10.3%) gems and jewellery (21.7%) and leather goods (7.3%) contribute the main earnings. Whereas, out of total imports, petroleum products (15.5%), capital goods (24.6%) and chemicals (6.9%) take away a majority of the hard currency.
Rupee-value devaluation: With casual and quite irresponsible statements like ‘empty coffers of the country’ and ‘national bankruptcy’ being made by men at the helm, it is but natural that the Indian currency and its credit worthiness have witnessed a constant downslide. In fact, one of the two international credit rating agencies namely Standard Poor’s and Moody’s have both degraded India from the stable ‘investment’ grade to uncertain ‘speculation’ grade recently. Only a glimpse of the slide of value of the rupee vis-à-vis the US dollar and pound sterling will tell the remaining story. The official exchange rate (unofficial rates are even higher) of the US dollar and pound sterling have both shown an increase of over 32% in the past four years.
Budget deficit: In simplified terms, the shortfall of the revenues expected over the expenditure proposed during the year is the budget deficit. For the year 1990-91, the budget deficit at the time of presentation of the budget was estimated at Rs. 7206 cr. But actual deficit exceeded Rs 14000 cr. Similarly the total budget deficit for the seventh plan had been envisaged at Rs 14000 cr. But trends reveal that it will exceed expectation by 27% at Rs 37946 cr. The overall budget deficit has increased from Rs 5315 cr in 1985-86 to Rs 10592 cr in 1989-90. Not only this, a very deplorable practice of meeting revenue expenditure out of capital receipts has been started, thereby diverting funds required for essential developmental activities like employment generation, poverty eradication to mundane wage and administration expenses.
External debt: According to the debt figures published by the world Bank in 1990-91, India’s total foreign debt at the end of 1989 stood at 62.52 billion dollars (Rs 1,13,150 cr) out of which 56.25 billion dollars were long term debt, 4.79 billion dollars was short term debts and 1.57 billion dollars were loans from the IMF notably the total external debt has increased threefold in the past nine years.
With this, the debt-service ration of the country is also coming under great strain, leading to a vicious cycle of debt-trap with the country borrowing from abroad mainly to repay previous loans and interest. This practice leads to a catastrophic situation where the fresh borrowing fall short even of the interest liabilities, let alone the repayment of the principal amount. At present, India is the fourth largest ‘indebted’ nation in the world.