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Macro Economics

Notes 3. Imports of advanced countries (dollar terms) grew by an average rate of 11.5 per cent
during 1994-1997 compared with 2.1 per cent during 1990-1993.
4. Increase in India’s share in world exports of its three major commodity groups, viz.
textiles, yam and fabrics, pearls, precious and semi-precious stones; and clothing and
accessories during 1994-96.

5. Increase in the Index of Comparative Advantage (ICA) of the above.
6. Other export commodity groups in which India gained in terms of ICA during 1994-96
include fish and Iii preparations; rice; coffee and substitutes; organic chemicals; footwear;
and gold and silver jewellery.
Poor Performance Since 1996: However, the boom was short-lived. Since 1996, India’s export
performance has been poor.

!
Caution There could be several explanations for this, Firstly, there has been a major
downturn in world trade since 1996 which has affected India’s trade as well. Export growth
has been further hampered by an appreciation of the real effective exchange rate in
1996-97 and 1997-98. This trend has, however, been reversed since 1998-99. There has also
been an adverse movement in terms of trade, which appears to have affected exports.
Finally, there are the hosts of domestic factors-both public related and administrative-
which continue to hamper imports. These include infrastructure constraints, high transaction
costs, SSI reservations, labour inflexibility, quality problems and quantitative restrictions
on export of agricultural commodities.

Balance of Payment during 1992-2002: The impact of the continuum of reforms initiated in the
aftermath of the balance of payments crisis of 1991 on India’s current account and capital account
resulted in an accumulation of foreign exchange reserves of over US $ 70 billion as at end-
February 2003. Capital account surplus increased from US $ 3.9 billion during the 1980s to US $
8.6 billion during 1992-2002; with a steadily rising foreign investment. As a proportion of GDP,
capital flows increased from 1.6 per cent during 1980s to 2.3 per cent during 1992-2002. The
significant increase in capital flows during the 1990s raises the issue of their determinants as
well as their impact on growth.
Table 12.1: Major Items in India’s BOP (in US $ Millions)

Source: Reserve Bank of India Report
The key features of India’s BOP that emerged in Q3 of fiscal 2009-10 were: (i) Exports recorded a
growth of 13.2 per cent during Q3 of 2009-10 over the corresponding quarter of the previous

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