What Caused the 1991 Currency Crisis in India?

1991 is regarded by many as the turnaround in the Indian economy. The Indian economy today is streamrolling at an astounding 8% GDP growth rate matched only by its closest rival – China – that is growing by an even better 10% GDP growth rate!

Questions remained unanswered there too. What caused this 1991 BoP crisis? I searched around the Internet for a long time and we even did analysis during the MIB classroom sessions on International macro economic policies to see what went wrong in 1991 in India.

It was primarily regarded as one caused due to a large current account deficit with not sufficient foreign exchange reserves to even sustain a week of imports. India had begun to prepare to mortgage their gold savings with the Bank of England to obtain the cash reserves needed to run the country – a reference to gold standard was made in my previous post quoting Dr. Alan Greenspan – the former Fed chief.

The below analysis was well documented.

What Caused the 1991 Currency Crisis in India

Source: http://www.imf.org/External/Pubs/FT/staffp/2002/03/pdf/cerra.pdf