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date: 17 November 2019

Abstract and Keywords

This article provides an analytical discussion of the sources of the 1991 BOP crisis and the trade and exchange rate reforms that followed thereafter. The BOP crisis offers a natural experiment to study policy complementarities in the Indian context. This article hopes to encourage more formal modern macrowork in this area. The article argues that exchange controls (along with the pegged regime), implemented partly through import quotas, lead to a black market for foreign exchange and encouraged underinvoicing of exports, thereby, aggravating the BOP crisis. It discusses what exchange rate reforms were intended to come out of the crisis, and to what extent these have been effective in lowering the black market premium on foreign exchange and improving India's trade balance.

Keywords: BOP Crisis, economic reforms, Indian economy, trade balance, black market, exchange rate reforms

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