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IMMEDIATE TRIGGERS OF 1991-CRISIS

IMMEDIATE TRIGGERS OF 1991-CRISIS. I. FISCAL PROFLIGACY OF 1980s Total Expenditure of Indian Govt. System (Centre & State/UTS) Increased Sharply In 1990-91: 33% of GDP (Average in 1970s:20%)

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IMMEDIATE TRIGGERS OF 1991-CRISIS

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  1. IMMEDIATE TRIGGERS OF 1991-CRISIS I. FISCAL PROFLIGACY OF 1980s • Total Expenditure of Indian Govt. System (Centre & State/UTS) Increased Sharply In 1990-91: 33% of GDP (Average in 1970s:20%) • Total Revenue in 1990-91 : 21 % of GDP • Fiscal Deficit in 1990-91 : 12% of GDP. II. GULF WAR of 1990 • Cost of Crude Oil  • Exports to Gulf Area  • Inward Remittances from Indians in West Asia  • Expenses incurred on Repatriation of Indians from West Asia  III. UNSTABLE COALITION GOVERNMENT • Political Uncertainty leading to Fall in Confidence of External Creditors including NRIs 

  2. IMMEDIATE TRIGGERS OF 1991- CRISIS • HIGH (DOUBLE DIGIT) INFLATION • OUTFLOW OF NRI DEPOSITS • ANTICIPATION OF DEVALUATION Resulting in • Lengthening of Lag between Exports and Corresponding Forex Receipts; and • Shortening of Lag between Imports and Payments Therefore; leading to • Steep fall in Forex Reserves to Only 2 Weeks’ Import Cost VII. FINAL OUTCOME OF I, II, III, IV, V AND VI Fear of Default on Payment against International Commitments became a Possibility.

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