The Indian Economy Since 1991, 2nd Edition

17

Capital Account Convertibility in India

B. A. Prakash

17.1 Introduction

In 1991, the Indian economy faced an unprecedented balance of payment crisis. The current account deficit soared to a level of 3.2 per cent of the GDP, which in 1990–91 was unsustainable. The foreign currency assets dipped from $3.4 billion at the end of March 1990, to a low of $975 million on 12, July, 1991, equivalent to barely a week’s imports. To face the crisis, the government of India implemented the Structural Adjustment Reforms, aiming to achieve stabilization, restructuring and globalization of the economy. The exchange rate was adjusted downwards in two stages in July 1991, which amounted to a cumulative downward adjustment of about 18 per cent. The quantitative ...