India has frequently encountered balance of payments difficulties (see table 23, Appendix). The usual recourse has been to contract imports, thereby reducing production and economic growth, although the amount of foreign aid available has been an important factor in how harsh the restrictions have become. Following the first round of oil price increases in 1973-74, increased foreign aid and some belt-tightening overcame the country's balance of payments problems. The growth of exports and the increased remittances from Indians working abroad in the late 1970s permitted a buildup of substantial foreign-currency reserves. Toward the end of the 1970s, the country's external payments situation was more favorable than it had been for many years.
The second large oil price increase, in the 1979-80 period, quickly altered India's terms of trade and balance of payments situation. Between FY 1978 and FY 1980, India's oil bill increased threefold, by about US$4.6 billion. The deficit on the balance of trade rose from US$1.5 billion in FY 1979 to US$7.7 billion in FY 1980. Officials negotiated a substantial loan from the IMF, which, along with the foreign-exchange reserves, foreign aid, and export possibilities, made adjustments possible. The intent was to keep annual economic growth at 5 percent or more to reduce poverty, while making structural adjustments in the economy to compensate for the change in the external environment. Nonetheless, the external debt rose from US$20.6 billion in 1980 to nearly US$70.2 billion in 1990. In FY 1990, commercial loans accounted for 26.3 percent of the external debt; loans from international institutions, especially the World Bank, made up 45.2 percent; borrowing from foreign governments accounted for 28.5 percent. The largest sums were owed to Japan, Germany, and the United States. At the time of the economic crisis of 1990, external debt was increasing at around US$8 billion a year. By 1993-94, the annual increase had been cut to less than US$1 billion and was expected to be further reduced. India's foreign currency reserves, which stood at US$1 billion in June 1991, had reached a record level of US$20 billion by March 1995.
Data as of September 1995