Foreign Trade and Real Exchange Rate Behaviour, 1980-96

In the 1980s, India's balance of trade deficit showed a tendency to decline in the face of a more rapid growth of exports than imports. The five-year period under NEP (1991-96), however, did not accelerate the process. Rather there is some indication for its failure on the balance of trade front. Contrary to the claim made in certain pro-NEP circles, exports did not pick up, while imports accelerated. Due to its failure to control domestic inflation vis-a-vis India's trading partners, the real (effective) exchange rate of the rupee appreciated in spite of substantial depreciation of nominal (effective) exchange rate.