The authorities talk of the impending crisis in India’s balance of payments as if it had no history. They trace it to various immediate causes: the alleged ‘excess’ domestic demand generated by fiscal deficits, high international oil prices, low domestic oil prices, the mysterious Indian fascination with gold, high domestic inflation which drives Indian savers to buy gold, the slump in demand for India’s exports due to the sluggish state of the world economy, and so on. In other words, the balance of payments crisis is presented as a malady which is either amenable to a ready cure within the existing policy framework (such as slashing Government spending and hiking domestic petroleum product prices), or is self-limiting, and merely awaits a revival of the world economy (or even limited windfalls such as a fall in international oil and gold prices).
Leaving aside the untenability of such explanations and remedies, what we need to note is that balance of payments problems are not something new to India: they have been endemic to its post-1947 history. And they have deep roots in the political economy of India. As with any phenomenon, it helps to look into the history of India’s balance of payments to understand its present.