India was bankrupt. Its forex reserves were abysmal. They wouldn’t even cover 2 weeks worth of import – especially expensive foreign oil. Currency was devalued by 20 percent. Part of India’s gold reserves were pledged with IMF for a $2.2 billion emergency loan. The year was 1991.
Fast forward to 2009.
India bought 200 metric tons of gold from IMF for $6.7 billion. This is part of IMF’s plan to sell its gold at market price to shore up its finances, which will be used to fund poorer countries. The fact that India bought a portion of it is giving me goose bumps. Now, India’s forex reserves are inching towards $300 billion.
To what do we owe this remarkable turn around?
India has been socialistic for so many years. As Atanu Dey has pointed out, Socialism almost never works. And it did not work for India. So India gave capitalism or controlled capitalism a try – out of compulsion. What followed after that is history and a perfect case study.
India’s flood gates opened, foreign investment flowed in, entrepreneurs increased by dozens and voila we have a emerging economy. This also changed the status of India geo-politically. These changes meant that India will no longer be hyphenated with Pakistan. It would be hyphenated with many countries like Brazil, Russia and most importantly with China. The term ChIndia wouldn’t have happened if it wasn’t for India’s bankruptcy.
There were very few non-state owned companies which were started before 1991 and survived. Reliance Industries, Infosys, TCS and Patni are the four companies I can think of without relying on Google. Any other company you touch and it will have a economic reforms to tell. Indian telecom which is the cynosure of all eyes did not even exist pre-1991.
So there you have it. India turned from a gold pledging nation to a gold buying nation. And if you think India is obsessed with gold then you are wrong. As per this excellent analysis India (private+public) owns only 9.6% of world’s gold.