My sincere apologies for the delayed response. Your mail went to my ‘spam’ folder and unfortunately, I could retrieve it only today.

Response to Maria Madi:
Broadly, yes. India did learn a major lesson from its BOP led 1991 crisis which, in a way, forced them to reform its economy by liberalizing, privatizing and globalizing it. India realized, thanks to Iraq war, that its trade deficits driven mainly by its import bill for fuel, cannot be sustained by its exports (predominantly to Easter Europe, which came down significantly by the happenings in the then USSR), and foreign remittances from its non-residents. With reserves for less than 3 weeks imports, India had a precarious situation in 1991 and it had to attract foreign capital to avoid a default. It did it through a significant devaluation of its currency coupled with pledging of gold reserves, and simultaneously initiated a string of reforms.

As a result of these first generation reforms, the ‘permit raj’ was mostly removed. Businesses got more freedom for doing business. Politicians and bureaucrats’ interventions and ‘rents’ in business operations got reduced. The process, however, got slowed down later. But to its credit, it may said that the economy could withstand a serious Asian melt down in the late 1990s, relentless oil price increases from 2004 to 2008, and a severe global crisis in the 2000s. Thus the system did show a good level of improvement. However, the pause /slowdown in reforms does not augur well for the economy.

A major concern is the fact that India’s foreign reserves are arising out of its external capital borrowings and not generated from trade surpluses. As on 31st March 2018, the Indian Foreign reserves were of the order of US$ 424 billion and it external Debt as on that date was US$ 530 billion. With trade deficits back to higher levels, the position has become challenging again. The impact is partly offset by devaluation. The country has to improve its export competitiveness, to create a sustainable FX position and better international rating. A more long lasting structural shift has to take place, by way of cost efficient or innovative products from industrial and services sectors.

Response to Carmelo Ferlito:
The observations are valid and noted.

After I submitted the article, a major NBFC has defaulted in its debt payment in India, mainly due to ‘easy and excessive’ credit availed by it, and huge asset liability mismatches. The default has created some level of panic in the system, a fear expressed by the Austrian School of thought.

The problem of excess credit is mainly fueled by the obsession for ‘high growth’ by both politicians and corporates. Having grown at high rates in the last decade, the minimum benchmark performance in terms of GDP, has gone up for Indian politicians, and for incentive driven corporate leaders, any slowdown would have a bicycle effect, with repercussions on their remunerations. So the show goes on…

With best regards.

Thanks for your interesting paper on India.

However, I would like you to clarify the sentence of your abstract. “India has few lessons to learn from the crisis”.

Do you believe that India´s crisis of the 1990s was decisive for avoiding a deep financial crisis in the following decades ?

Maria