India’s Current Account:An Analysis of Growth

Faced with a severe balance of payments crisis, India entered into an IMF influenced structural adjustment program. In addition to the conventional expenditure switching and reducing policies, as part of the IMF agreement, a range of far-reaching economic policy reforms was launched in July 1991 in the external, industrial, financial and public sectors. These policies also influenced the structure of current account over period of time. A deficit in the current account leads to depletion of foreign currency assets as these assets are used as a source to fund deficit which forms part of capital account. Current account plays a vital role in the overall balance of payment a diversified current account regime is argued by many policymakers over a longer period. More focus was on import controls and export promotions. In context to this the paper tries to examine the changes that took place in current account and its components during the reform period (i.e. 1991-92 to 2015-16) as well as more precisely during the second generation reform period (i.e. 2001-02 to 2015-16). Here, an attempt is also made to examine the growth and stability during the two time period. Imports not only have witnessed higher growth but has also registered the higher instability during the second generation reform period.