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India’s Current Account:An Analysis of Growth
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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.
Keywords
Current Account, Growth, Stability.
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- Balance of payment manual (IMF). The fifth edition of the Balance of Payments Manual (the Manual) continues the series of international standards that have been issued by the International Monetary Fund (IMF) for providing guidance to member countries in the compilation of balance of payments and related data on the international investment position.
- See, Sachs, 1981; Obstfeld and Rogoff, 1995, 1996; Ghosh, 1995; Razin, 1995.
- See, Glick and Rogoff, 1995; Razin, 1995.
- The term `second generation reform' was coined by the IMF in the context of the perception by some that the globalization of the world economy, while benefiting developing countries to a degree with an increase in trade and investment, would also create certain problems of a magnitude sufficient to result in their near or complete marginalization. The IMF intended that second generation reform would supplement basic reform structured on the achievement of balance of payments viability, reduction of government deficits, trade liberalization and a reduction of the role of the state. [See, Michel Camdessus, 1999].
- The dummy variable approach allows testing of variety of hypotheses about any structural break. It allows to, determine if it is the intercept or slope that is different. If Chow test is used then it will reduces the degrees of freedom.
- Similarly, ‘D’ the intercept dummy assumes the value one for the post-adjustment period and zero for the adjustment period.
- The situation exacerbated in the aftermath of the September 11 terrorist attacks in US. Consequently, export growth has suffered and industrial profitability has also been affected by the prevailing low commodity and product prices globally
- Export growth has fallen due deepening of the global financial crises mid-way through 2008-09.
- This was the result of the sharp rise in the international prices of metals, chemicals and edible oils.
- See, Economic Survey 2005-06.
- Volatility is measured by coefficient of variation (See. Table-1).
- Current account registered a higher growth from 27.95% in pre-reform period to 35.07% in post-reform period this due to higher growth of imports during the post –reform period.
- The decline owed to sluggish global demand and low global commodity prices, particularly of petroleum.
- POL, imports declined by 41.4 per cent to US$ 73.1 billion in 2015- 16 (April-January) as against US$ 124.8 billion in 2014-15 (April-January), as a result of the steep fall in international crude oil prices. (See, Economic Survey 2015-16).
- Exports growth fell from 20.22% in R1 to 15.90% in R2 (i.e. by -4.32%), similarly, imports growth also fell from 19.12% in R1 to 17.42% (i.e. by -1.7%).
- See, Dr. Jomon Mathew (2013).
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