The summer India's gold flew to London

On 4 July 1991 the first consignment of 46.91 tonnes of the Reserve Bank of India’s gold left for London, pledged with the Bank of England and the Bank of Japan against a loan of about $400m.¹ By one account, India’s foreign-exchange reserves had slipped below ₹1,000 crore earlier that year, under $560m at the pre-devaluation rate of about ₹17.9 to the dollar.²

That figure is reported, not verified. It comes from a press reconstruction drawing on former officials, and a second account puts reserves at $1.3bn to $1.5bn during the crisis.³ The ledger keeps both, because the dates and definitions differ and nobody has published a daily series that settles it.

A government that could not pass a Budget

The shock came from the Gulf. Iraq invaded Kuwait in August 1990, and more than 170,000 Indians were flown home by way of Amman.⁴ Brent crude averaged $18.21 a barrel in 1989 and $23.78 in 1990, and remittances from Kuwait and Iraq stopped.⁵ In September 1990 the V. P. Singh government drew $550m from its reserve tranche at the International Monetary Fund without announcing it.⁶

Chandra Shekhar became Prime Minister on 10 November 1990, with Yashwant Sinha as Finance Minister, leading a minority government that depended on Congress support from outside.⁷ He resigned on 6 March 1991 and stayed on as caretaker until 21 June. His government’s Budget was never passed. Standard & Poor’s cut India to BBB- on 7 March, the first of that year’s downgrades; the date and grade of the Moody’s action are not established in the ledger.⁸

The World Bank’s figures show where the reserves went. Year-end reserves, gold included, stood at $8,048m in 1989 and $5,637m in 1990.⁹ External debt was $83,801m at the end of March 1991, and servicing it absorbed 35.3 per cent of current receipts in 1990-91.¹⁰

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1987–90

198619881990199219941996

1. 1987–90

   End of 1987 to end of 1990: reserves fall from about $11.5bn to $5.6bn.

2. 1990

   August 1990: Iraq invades Kuwait. Oil prices jump and remittances from the Gulf stop.

3. 1991

   1991: 20 tonnes of gold sold to UBS with a repurchase option, 46.91 tonnes pledged with the Bank of England and the Bank of Japan, and the rupee devalued in two steps.

4. 1992–94

   By the end of 1994 reserves stand at $24.2bn, more than four times their end-1990 level.

Year-end figures, gold included: the trough of mid-1991 falls between two December readings and does not appear on this line. Source: World Bank WDI. Download CSV

Two gold transactions, two accounts

The first gold went quietly. About 20 tonnes of confiscated gold held by the government was sold through the State Bank of India to the Union Bank of Switzerland with an option to buy it back, raising $200m.¹¹ The consignments were airlifted between 21 and 31 May 1991, during the general election campaign, under the caretaker government; the Indian Express account says Mr Sinha signed off on it. State Bank of India bought the gold back, and 18.36 tonnes were later sold to the RBI.¹²

The second went in July, after the Congress had returned. The RBI pledged 46.91 tonnes in four consignments between 4 and 18 July. The lenders insisted on physical delivery in London and would not accept India’s IMF depository status as collateral. The loan is given as $400m in one account and $405m in another, and the RBI’s annual report for 1991-92, as cited, has it redeemed between September and November 1991.¹³ When the Indian Express reported the shipments, Manmohan Singh told Parliament the pledge was “a painful necessity”.¹⁴

Every figure in these two paragraphs carries the confidence grade reported. A third account, in an encyclopaedia entry the ledger grades unknown, sends the whole 67 tonnes to the Bank of England (47 tonnes) and UBS (20 tonnes). Both versions total $600m; they disagree over which banks held the metal.¹⁵

Both versions total $600m; they disagree over which banks held the metal.

The rupee, twice in three days

P. V. Narasimha Rao was sworn in as Prime Minister on 21 June 1991, with Manmohan Singh at Finance and S. Venkitaramanan at the RBI.¹⁶ Ten days later the rupee was devalued: on 1 July and again on 3 July. The RBI’s own chronology puts the cumulative devaluation at “about 18 per cent” against the dollar.¹⁷ A press account gives the first step as about 9.5 per cent, taking the rate to about ₹23.¹⁸

Annual averages of daily rates show the step. The rupee averaged ₹17.49 to the dollar in 1990, ₹22.71 in 1991 and ₹28.16 in 1992, the last after a dual exchange rate arrived in March 1992.¹⁹ These are averages of daily noon quotations, graded estimated in the ledger.

On 24 July 1991 Mr Singh presented his Budget, and on the same day the government published a New Industrial Policy. Licensing was abolished for all but 18 industries, the asset limit under the monopolies law was scrapped and automatic approval was given for foreign equity of up to 51 per cent in 34 industries.²⁰ Export subsidies went, and import licences for exporters became tradable Exim scrips. “Let the whole world hear it loud and clear. India is now wide awake,” Mr Singh said in his Budget speech.²¹

Who lent, and how much

The IMF lent the most. In January 1991 it approved a first credit tranche of SDR 551.9m, about $789m, and a compensatory facility purchase of SDR 716.9m, about $1,025m.²² Press accounts put the first at $775m or $755m and the second at $1,020m. These are the same drawings, not additional money. Two more compensatory purchases followed, of $230m on 22 July and $648m on 12 September.²³

On 31 October the Fund approved a Stand-By Arrangement of SDR 1,656m, about $2,289m, which the Minister of State for Finance told the Rajya Sabha amounted to $2.2bn over 20 months.²⁴ Most of it was drawn in 1992, and it was repaid by June 2000. The World Bank approved its first adjustment loan to India, $250m, on 5 December 1991, alongside an IDA credit of about $250m.²⁵

Bilateral money is thinner. Press accounts record Germany at DM 685m (about $400m), Japan at $150m with $350m more promised, and the Netherlands at $30m. A snippet of the RBI’s official history gives Japan $300m and Germany $60m.²⁶ Whether those overlap is not established. The Asian Development Bank lent an amount the record does not state, and the ledger found no Bank for International Settlements bridge.

The diaspora’s money

Non-resident Indians held about $12,400m in Indian deposits at the end of March 1990, 70 per cent of it in foreign currency.²⁷ Balances in the two main schemes fell by a net $904m during 1991-92.²⁸ A finance ministry report puts the stock at $13,786m at the end of March 1991, but it uses a different definition, and the ledger flags a repeated figure in the same table as a possible typo.

The government then borrowed back from the same depositors. India Development Bonds, sold through the State Bank of India from 1 October 1991, raised $1,600m over five years.²⁹ By 27 November the Minister of State for Finance, Rameshwar Thakur, told the Rajya Sabha that reserves had “gone to more than Rs. 6700 crores”.³⁰ Year-end reserves were $7,616m in 1991 and $9,539m in 1992. Growth fell to 1.1 per cent in 1991 and consumer prices rose 13.9 per cent.³¹

The next shock came from the money markets. In April 1992 the Bombay securities scam broke, with the fraud put at anything from ₹3,000 crore to ₹5,000 crore.³² The gold, meanwhile, had come home. The price India paid for that July loan, whether as interest, a haircut or a fee, does not appear in any source the ledger has found, and the RBI’s online chronology records the devaluation but not the gold.³³

Footnotes

1. Rangarajan, Forks in the Road, excerpted in ThePrint; The Quint, citing a Rajya Sabha answer and the RBI Annual Report 1991-92. Confidence: reported. ↩

2. Indian Express, “In fact: how govts pledged gold to pull economy back from the brink”, indianexpress.com. The dollar conversion is the ledger’s own. Confidence: reported. ↩

3. Business Standard, “Two months that changed India”, 2 July 2011. Confidence: reported. ↩

4. “1990 airlift of Indians from Kuwait”, Wikipedia; RBI Annual Report 1990-91, as recorded in the conflict_event table. Confidence: reported. ↩

5. Federal Reserve Bank of St Louis (FRED), series DCOILBRENTEU, annual mean of daily spot prices. Confidence: estimated. ↩

6. Business Standard, “Two months that changed India”. A second source in the ledger, a lecture at the Lal Bahadur Shastri National Academy of Administration, gives a figure the ledger reads as about $660m. Both are graded reported. ↩

7. “List of prime ministers of India” and “Minister of Finance (India)”, Wikipedia. Confidence: reported. ↩

8. the1991project.com timeline; Indian Express, as above. Confidence: reported. ↩

9. World Bank, World Development Indicators, FI.RES.TOTL.CD. Confidence: verified. ↩

10. Ministry of Finance, India’s External Debt: A Status Report, 11th issue (2005), Table 4.1. Confidence: verified. The World Bank’s calendar-year figure for 1991 is $84,852m. ↩

11. Indian Express, as above; Rangarajan, excerpted in ThePrint. The press summaries supply the $200m and the name of UBS. Confidence: reported. ↩

12. Rangarajan, Forks in the Road, excerpted in ThePrint. Confidence: reported. ↩

13. Indian Express, as above ($400m); ThePrint and The Quint ($405m). Confidence: reported. ↩

14. Indian Express, as above, as recorded in the ledger’s research notes. Confidence: reported. ↩

15. “1991 Indian economic crisis”, Wikipedia. Confidence: unknown. ↩

16. Wikipedia, “1991 Indian economic crisis” and “Governor of the Reserve Bank of India”. Confidence: reported. ↩

17. Reserve Bank of India, “Chronology 1991 to 2000”, rbi.org.in. Confidence: verified. ↩

18. Business Standard, “Two months that changed India”. Confidence: reported. ↩

19. FRED, series DEXINUS; RBI chronology for the Liberalised Exchange Rate Management System of March 1992. The exchange rates are graded estimated. ↩

20. Business Standard, “Two months that changed India”. Confidence: reported. ↩

21. Business Standard, as above; “Economic liberalisation in India”, Wikipedia. Confidence: reported. ↩

22. World Bank, India Structural Adjustment programme document P-5678-IN (12 November 1991); IMF records of arrangements for India. Confidence: verified. The press figures are from Business Standard (reported) and the Indian Express (unknown). ↩

23. World Bank P-5678-IN; IMF Annual Report 1992. Confidence: verified. ↩

24. IMF records of arrangements and transactions for India; Rajya Sabha debates, 27 November 1991, via archive.org. Confidence: verified. ↩

25. World Bank, Project Performance Audit Report 15774, and P-5678-IN. Confidence: verified. The IDA credit was SDR 183.8m. ↩

26. Business Standard, “Two months that changed India”; RBI, History of the Reserve Bank of India, vol. 4, ch. 12, search snippet only. Confidence: reported. ↩

27. Gordon and Gupta, IMF Working Paper WP/04/48. Confidence: verified. ↩

28. IMF Working Paper WP/04/48. The figure covers NRE and FCNR(A) accounts. Confidence: verified. ↩

29. Ketkar and Ratha, World Bank Policy Research Working Paper 4311; IMF WP/04/48. Confidence: verified. ↩

30. Rajya Sabha debates, 27 November 1991, via archive.org. Confidence: verified. ↩

31. World Bank, World Development Indicators, FI.RES.TOTL.CD, NY.GDP.MKTP.KD.ZG and FP.CPI.TOTL.ZG. Confidence: verified. ↩

32. “1992 Indian stock market scam”, Wikipedia, and the ledger’s notes on the Janakiraman Committee. The same articles give ₹3,000 crore, ₹4,000 crore and ₹5,000 crore. Confidence: reported. ↩

33. Ledger research notes, decade file 1987 to 1997, citing the RBI chronology. The terms were not found, which is not the same as showing they were never published. ↩