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Can We Afford Build-up of External Liabilities?
Tracing the exchange rate policy post 1991, and particularly since 2007-08, it is argued that an exchange rate policy with an external account targeting approach is required to arrest the build-up of net external liabilities.
This is the 25th year since the balance of payments crisis of 1991 and the subsequent changes in the economic policies in India. Incidentally, it is also 50 years since 1966, when a major devaluation of the rupee took place in the fixed exchange rate era.
Before looking at the last 25 years, it might be as well to start with a brief history of the rupee’s exchange rate pre-1991.
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