Table 1 Gross flows (current and capital accounts)
(Billion USD)__________ (Percent to GDP)
|
Current |
Capital |
Total |
Current |
Capital |
Total | |
|
1957 |
4.4 |
01.7 |
5.2 |
16.8 |
2.7 |
19.5 |
|
1967 |
6.2 |
3.5 |
9.6 |
13.3 |
7.4 |
20.7 |
|
1977 |
15.4 |
5.0 |
20.4 |
16.7 |
5.4 |
22.0 |
|
1987 |
38.3 |
14.6 |
53.0 |
17.3 |
6.6 |
23.9 |
|
1997 |
115.8 |
61.4 |
177.3 |
32.6 |
17.3 |
49.9 |
|
2007 |
501.1 |
408.1 |
909.3 |
60.6 |
49.4 |
110.0 |
2 What has changed
Compared with these initial conditions, a sea change has taken place in the post-1991
period.
2.1 Globalisation
From an economic perspective, globalisation involves integration into the world economy
for trade in goods and services, and capital flows. The familiar trade/GDP ratio measures
the trade-intensity of a country by summing across merchandise imports and exports,
and expressing these relative to GDP. In similar fashion, an effective way of measuring
globalisation is to sum up the flows coming into and out of the country on the current
account and the capital account. This is shown in Table 1 in units of billion USD and
percent to GDP.
Measured in USD, we see substantial growth, going from $5 billion in 1956-57 to $909
billion in 2006-07. The most important features are, however, revealed when viewed as
percent to GDP. Total flows stagnated at roughly 20% of GDP between 1956-57 and 1986-
87. The reforms of the early 1990s led to a much bigger value of 49.9% in 1996-97. From
there, the recent years have seen a dramatic expansion to 110% of GDP in 2006-07. This
suggests a rapid and unprecedented globalisation of the Indian economy (Kelkar, 2004b).
Continued progress is likely in removing tariff and non-tariff barriers, building infras-
tructure for transportation and communications, and removing capital controls.2 Hence,
gross flows across the boundary are likely to continue to grow faster than GDP.
Of particular importance is the size of the current account, which has grown from
17.3% of GDP in 1986-87 to 60.6% of GDP in 2006-07. Economic agents are able to use
misinvoicing to transfer substantial resources across a large current account (Mishra et al.,
2007; Patnaik and Vasudevan, 2000). Hence openness on the current account inevitably
goes along with substantial de facto openness on the capital account. In particular, with
2See Nothing calibrated about CAC in Business Standard, at http://www.mayin.org/ajayshah/MEDIA/
2007/worry_cac.html on the web, for a discussion of the lags between changes in the institutional envi-
ronment, and their translation into substantial cross-border flows on the current account and the capital
account.