Why was Indian government forced to borrow from World Bank and International Monetary Fund in the late 1980's?
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The severe financial crunch forced India to borrow from World Bank and International Monetary Fund because:
- In the late 1980's, government expenditure exceeded its revenue by such large margins that it became unsustainable.
- Prices of many essential goods rose sharply.
- Imports rose more sharply than exports causing a serious balance of payments crisis.
- Foreign exchange reserves fell to $1 billion which was not sufficient to pay even for the interest to international lenders. India was on the verge of being declared a defaulter on payments.
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