During the 80s, India borrowed heavily to meet its developmental needs and brought the country to the verge of total economic collapse and it was rather impossible forIndia to meet its debt-servicing needs. India's international credit rating was at the low ebb and no other alternative was available to overcome the economic crisis. Trade deficit was at the high side, export growth-rate was low, foreign investment was inadequate, foreign aid was shrinking and growth rate in foreign remittances was at a low ebb. Whereas commercial borrowings were abnormal. But, since July 24, 1991, trends and situation have started moving in positive direction. The latest data on different counts show that between 1991-92 and 1995-96, the trade gap has recorded a rise of more than 220 per cent or more than 3.2 times. The said huge gap has been due to higher growth rate in India's imports due to liberalisation regime. The second vital component ie, remittances has gone up by nearly 98 per cent or 1.9 times. Whereas foreign investment has registered a rise of more than 30 times. While external aid went down at an alarming rate ie, more than 74 per cent during the said period. Similar trend hasbeen in case of commercial borrowings and accordingly the decline stood at nearly 67 per cent. This means theat remittances and foreign investment are the two vital facets of India's external sector plugging the trade gap on the one hand and on the other financing the developmental needs of the economy.

Now, the question as to why India's trade gap that was nearly $9 billion - the biggest in nature, volume and history - did not cause a crisis crops up. The answer is that remittances from Indians abroad came to the rescue. The second most vital reason is that foreign investment, both FDI and portfolio investment, made the trends and situation more positive.

Another positive indicator is that India received $4.4 billion from privatisation. But this figure is much less (no comparison) than the amount realised in case of Mexico ($27.164 billion) and Argentina ($17.148 billion). The most disturbing trend is that the number of privatisations in case of India stood at 57, but FDI due to these is almostnegligible. Similar trends have been witnessed in Bangladesh also.

Countries which have received substantial amounts through privatisation are Bolivia with $9.007 billion, Malaysia $6.639 billion, China (India's main rival) got $6.348 billion and Hungary netted $4.704 billion and the other rival countries - Pakistan and Sri Lanka realised $1.540 billion and $223 million respectively. The lowest realisation has been in the case of Bangladesh at just $55 million.

Pakistan, another vital SAARC nation received $29 million in terms of FDI flows from privatisation and Sri Lanka got $58 million.

With regard to fixed private investment in terms of share in GDP, the figure stood at 22.5 per cent (private 13.9 per cent and public 8.7 per cent). This means private investment has outclassed public investment. For Pakistan, the share ratio comes 17.6 per cent (private 9.3 per cent and public 8.3 per cent). Similar trends are in case of Bangladesh with a figure of 9.4 per cent in regard to private investment and 7.2per cent with regard to public investment. This all shows that since the beginning of the decade of 90s, the private investment has got dominant position and has started serving as a springboard for accelerating the pace of growth and development of SAARC nations. According to the latest report of International Finance Corporation (IFC) for the year 1995, private investment in SAARC nations remained nearly 10 per cent of the GDP and the most surprising and interesting fact is that Bangladesh has witnessed biggest rise of 1.6 percentage point. It is pertinent to point out here that "privatisation in developing countries continued its 10-year upward trend and this trend reflects the increasing role played by market forces in developing countries.

Solid economic progress, and concerted and continued efforts with regard to reforming and privatising the public sector, removal of price distortion, liberal foreign trade regime, opening up to FDI and consolidation of the capacity of financial system to mobiliseinternational savings and putting them into productive channels, have thus, led to increasing the existing share of private investment in developing nations, which is a healthy trend.

The GDP-weighted average of private investment in developing world during the year 1995 went up slightly more than 1.5 percentage point of GDP - the same increase attained in each of the last three years-to nearly 18 per cent of GDP which is certainly on higher side.

While overall public investment rates in developing world have been on the decline since early 80s and till the end of 1995, the rate went down to an alarming level of just six per cent of GDP, which is less than the 10 per cent attained during the 70s. The most alarming aspect is that the overall ratios have shown disparities with regard to investment performance. The silver lining is that the east Asian region still has much better ratio ie, 25 per cent of GDP in respect of private investment and similar trends are there in case of public investment ratio toGDP which is on the rise.

Approvals vs actual FDI flows

It is a matter of great disconcerting that the actual FDI flows continue to be much less than approvals, which are much larger and often publicised and hence actual inflows to India has been lagging for behind approvals.

The most surprising and most astonishing fact is that since 1991 the percentage of actual inflow of FDI has been of modest nature and top of it the same has been on the decline. In the year 1991, the percentage of realisation of FDI was 66 per cent. While in the year 1995 the percentage realisation of FDI came down to an alarming level of 19.8 per cent ie, a decline of 46 per cent during the period under review. But during the year of 1996 up to the end of November the percentage of realisation has improved slightly to a percentage of more than 22 per cent which is still lower than 25 per cent or 1/4 of the total FDI flows approved. This trend and situation have been of disturbing nature and need introspection.

The UShas been the largest investing nation in India altogether in terms of approvals and there are disparities of alarming proportion among the major investing nations. Since the year 1991 and till the end of 1995 the volume of FDI flows approved in case of USA has been many times higher than the volume of FDI flows approved with regard to the UK the second largest investing nation, Mauritius, Japan, Israel, South Korea, Germany, Australia, Netherlands and Thailand. The most surprising feature has been the place of Germany and the Netherlands among the major investing countries is a welcome trend. However, Japan has been maintaining its place as the fourth largest investing nation in India. It is pertinent to point out here that since 1991 the places of major investing nations are on the change except the USA. USA alone did constitute more than 45 per cent cent.

From the forgoing analysis it is clear that although the liberalisation regime has been in operation since 1991, its impact on the inflow of FDI has notbeen significant. Hardly 25 per cent of the total FDI flows approved has entered India which is a matter of great concern. Similarly, the FDI approvals in case of the USA are very high compared to other major investing nations. Among the most vital factors has been red-tapism or the domination of bureaucracy and its attitude towards India's liberalisation regime.

Trends in external aid

The latest data on India's external aid reveals that there has been a marked decline in external aid to India and this trend is because of the linking of fresh commitments by world's donors to better and timely utilisation which has been at a low ebb. The distinct decrease in concessional aid has resulted in a negative transfer of resources for India which is a matter of great concern for the monetary authorities. Very recently, many vital factors have been identified for higher volumes of untilised balance of committed assistance and this has also resulted in the better prospects of larger new commitments by theworld's major donors. Another vital aspect is the growing perception that India must "graduate out" of concessional funding from International Development Association (IDA). Furthermore this perception is hardening and is operating as a supply side handicap. IDA funding constraints due to a reduction in the total contribution by the major donors underscores the significance of the supply-side handicap.

According to the latest report of RBI, "It cannot be overemphasised that for a country like India larger concessional aid for social sector or socialisation of mankind and infrastructural development continues to be large particularly, when strategies are being put in place to post the economy on a higher path of growth." Hence there has been an urgent need to make all out efforts to improve annual utilisation to a minimum level of 20 per cent of the stock of unutilised aid.

In Indian economy the most vital sectors are energy and infrastructure which are badly needing larger volume of investments toaccelerate the economic growth of the country's economy. The relative share of the said two sectors in the total un-disbursed outstanding loan assistance stood at 28 per cent and 14 per cent respectively. The total pledge for grants and loans ranging between $6 to $7 billion, the recent years the fresh authorisation have shown a declining pattern accounting for less than 55 per cent of the total amounted pledged, reflecting the gamut of domestic and international constraints inhibiting the absorption of assistance.

The debt-servicing payments for the year 1995-96 amounted to $3,782 million which are higher by an amount of $467 million over the year of 1994-95, and for the first time outclassed the total disbursement during the year, resulting into a negative resources transfer under international aid. The figure of total amount un-disbursed at the end of March 1996 stood at Rs 43,829 crore and the share of the World Bank group remained as much as 51.3 per cent followed by Japan and the Asian DevelopmentBank with a share of 28.1 per cent and 14.2 per cent respectively.

Japan is lending nearly 133 billion yen to India during the fiscal year 1996-97 to fund 11 projects in the power and transport sectors.