Pathways Through Financial Crisis - 7619 Words

Global Governance 12 (2006), 413– 429 Pathways Through Financial Crisis: India Arunabha Ghosh India survived near-crisis situations twice in the 1990s. How did internal and external constraints shape that country’s ability to respond to the crises? This article argues that India’s success can be attributed to four sets of decisions taken during the period 1991–1997: devaluation, involvement of the IMF, partial liberalization of the domestic financial sector, and gradual opening up of the external sector. The article analyzes the options, political opposition, and eventual outcomes for each set of decisions. India’s ownership of its reform program helped set the pace of reform, while close interaction between technocrats and the IMF added†¦show more content†¦Petroleum import costs in 1990–1991 increased by half to US$5.7 billion.10 The government had to bear the additional burden of airlifting and rehabilitating 112,000 Indian workers from the Middle East as remittances from the region declined.11 The second shock was global recessi on: world growth had declined from 4.5 percent in 1988 to 2.25 percent in 1991.12 Export growth in the United States—India’s largest market—turned negative in 1991. Conditions in the Soviet Union, another major export destination, had also worsened. In 1990–1991 India’s exports grew only 4 percent. India was also suffering from internal political instability. The fragile National Front coalition faced a nationwide crisis in the summer of 1990 over its affirmative action policies. By autumn, a campaign by the BJP (an upper caste–dominated coalition partner) to build a Hindu temple at the site of a sixteenth-century mosque in Ayodhya resulted in widespread communal violence. The government collapsed when the BJP pulled out. A new minority government failed to pass the scheduled budget in February 1991 when it lost the Congress Party’s external support. In May 1991, while Arunabha Ghosh 415 campaigning for the general elections, former prime minister Rajiv Gandhi was assassinated. In reaction, and in parallel to these developments, the economic situation worsened. By September 1990, net inflows of Non-Resident Indian deposits had turned negative. 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