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International Trade and Finance



                  Notes          of promotional measures. These two factors explained the gradual decline in the deficit in the trade
                                 balance and the appearance of a surplus in the trade balance in 1976-77. But the persistent upward
                                 rise in imports and the inadequate increase in exports due to the relative decline in export prices
                                 were responsible for the revival of deficit trade balance in the last two years of the Fifth Plan period.
                                 Another outstanding feature of this period was the sharp increase in net invisibles receipts during
                                 1975-76 to 1978-79. Table 1 shows that net invisibles amounting to ` 6,261 crores more than made up
                                 the trade balance deficit of ` 3,179 crores and thus India was able to have huge surplus balance of
                                 payments of ` 3,082 crores. For the first time since planning started, India was in a comfortable
                                 position in its external account.





                                          The main factors responsible for the increase in invisible receipts were : (i) stringent
                                          measures taken against smuggling and illegal payment transactions; (ii) the relative
                                          stability in the external value of the rupee at a time when major international currencies
                                          were experiencing sizeable fluctuations; (iii) increase in earnings from tourists; (iv) the
                                          growth of earnings from technical, consultancy and contracting services; and (v) increase
                                          in the number of Indian nationals going abroad for employment and larger remittances
                                          sent by them to India.


                                 The Sixth and the Seventh Plan Period
                                 There has been a sea change in the balance of payments position since 1979-80. As against the surplus
                                 balance of payments experienced by the country during the whole of the Fifth Plan, India started
                                 experiencing adverse balance of payments from 1979-80 onwards. For one thing, trade deficit began
                                 to widen from 1978-79. The trade deficit which was more than offset by the flow of funds under net
                                 invisibles during the Fifth Plan period, could not be so offset since 1979-80. The current balance of
                                 payments became adverse to the tune of ` 11,384 crores during the Sixth Plan. Apart from net external
                                 assistance, India had to meet this colossal deficit in the current account through withdrawals of SDRs
                                 and borrowing from IMF under the extended facility arrangement. Besides, India used part of its
                                 accumulated foreign exchange reserves to meet its deficit in the balance of payments.
                                 During 1985-86 and 1989-90, the total trade deficit amounted to ` 54,204 crores for the Seventh Plan.
                                 Making an adjustment for the positive balance on invisible account, the deficit in balance of payment
                                 on current account was ` 41,047 crores. The highly adverse balance of payments position was the
                                 cause for serious concern.
                                 1990-91 and Thereafter

                                 For the first time during the last 40 years, net invisibles became negative to the tune of ` 435 crores in
                                 1990-91. This was largely the consequence of a net outflow of investment income of the order of
                                 ` 6,732 crores in 1990-91 as against ` 4,875 crores in 1989-90—as increase by 38 per cent. Thus, the
                                 cushion available through net invisibles to partly neutralise the trade deficit was removed.
                                 During the Eighth Plan (1992-93 to 1996-97), trade deficit has been mounting, by 1996-97, it has
                                 reached a record level of ` 52,561 crores from that of ` 16,934 crores in 1990-91—a threefold increase.
                                 For the Eighth Plan period, invisibles neutralised the trade deficit to the extent of about 58 per cent—
                                 a really commendable achievement. Despite this, the balance of payments has shown continuously a
                                 deficit in all the years.
                                 During 2001-02, although trade deficit was 54,955 crores, but the heavy receipts on account of invisibles
                                 amounting to ` 71,381 crores not only wiped out the trade deficit, they also created a surplus in
                                 current account balance of the order of ` 16,926 crores. Taking the entire Ninth Plan period (1997-98
                                 to 2001 -02), trade deficit was wiped out to the extent of 82 per cent by invisible account surplus.
                                 Consequently, the total deficit in current account balance was of the order of the ` 53,175 crores for
                                 the Ninth Plan.



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