India Explained
ImplementedSJP(R)Chandra Shekhar, minority, outside support

Gold sale and pledge to raise foreign exchange 1991

In 1991 India sold gold with a repurchase option to UBS and pledged gold to the Bank of England and Bank of Japan to meet external payments, a step that coincided with the balance-of-payments crisis.

Monetary policy

Facts

  • In April 1991 the Government raised US$200 million from the Union Bank of Switzerland through a sale, with a repurchase option, of 20 tonnes of gold confiscated from smugglers; the State Bank of India handled the transaction and repurchased the gold in November or December 1991 [2][3].
  • An RBI paper reports that in July 1991 the Reserve Bank pledged 46.91 tonnes of gold with the Bank of Japan and the Bank of England for a loan of US$405 million [2].
  • Wikipedia gives a different account: the RBI airlifted 47 tonnes to the Bank of England and 20 tonnes to UBS between 21 and 31 May 1991, authorised by the Chandra Shekhar government, to raise US$600 million; it also cites 46.91 and 47 tonnes in different places, so the sources do not agree on dates or counterparties [1].
  • Reserves were about US$1.2 billion in January 1991 and roughly halved by June, described as barely sufficient for three weeks of imports [1].
  • A cited RBI source says reserves fell in June 1991 to a level equal to barely a week's imports [2].
  • The rupee was devalued by about 9% on 1 July and 11% on 3 July 1991 under the next government [1].

Why

Reasons given by those who did it

  • The measures were taken to meet external payment obligations when reserves were close to exhaustion; causes cited include fiscal deficits, higher oil import costs during the Gulf War, and falling exports and credit [1].
  • The April transaction used gold confiscated from smugglers, with a repurchase option [2].

Criticism of that reasoning

  • News of the airlift caused public outrage; critics saw it as putting the balance of payments ahead of public welfare [1].

Benefits and concerns

Benefits (2)

  • Raised foreign currency quickly without defaulting on external payments.US$200 million (April) and US$405 million (July) per [2].
  • The April sale was structured as reversible, and the gold was repurchased within the year.Repurchase by SBI in November or December 1991 [2].

Concerns (2)

  • The transactions were public evidence of distress and drew public criticism.Public outrage over the airlift [1].
  • The sequence and responsible government are unclear across sources, so attribution of credit between the Chandra Shekhar and Narasimha Rao governments is uncertain.Wikipedia says May 1991 under Chandra Shekhar; the RBI paper says April for the UBS sale and July for the Bank of England and Bank of Japan pledge [1][2].

Evidence points

+6.0
points, mean of two scorers (scale −25 to +25)
+5 to +7
range between the two scorers' totals
Low confidence
scorers agree within 1 point on every criterion
ReachHow many people did the action materially affect?
Mean +1.0A +1B +1
Outcome evidenceDo official or independent data show the intended result (or its opposite), compared with the era baseline and peers?
Mean +1.5A +2B +1
Cost and sustainabilityIs the fiscal cost proportionate, and is the effect durable?
Mean +1.0A +1B +1
Process and rightsWas it made with debate, consultation and legal soundness, and did it respect rights and court rulings?
Mean −0.5A 0B −1
DeliveryWas it implemented as announced, on time and at scale?
Mean +3.0A +3B +3

Positive meanNegative meanScorer AScorer B

Scorer A. Raised US$605 million to meet external payments, with the April sale repurchased within the year; dates and attribution are uncertain.

Scorer B. Raised about US$600 million to avoid default and part was repurchased, but sources conflict on details and it drew public outrage.

Context used when scoring

Era baseline
In early 1991 India faced a current account deficit, a fiscal deficit, oil price pressure from the Gulf War and a political transition.
Lag before outcomes show
1 year
Shocks considered
gulf-war-1990, balance-of-payments-crisis-1991
Uncertainty
Low confidence. Scorer totals are +7 and +5. How uncertainty is shown.

In depth

By mid-1991 India’s foreign exchange reserves had fallen sharply. Wikipedia reports reserves of about US$1.2 billion in January 1991, roughly halved by June. The Reserve Bank of India’s own research paper describes a gold sale with repurchase option to the Union Bank of Switzerland in April 1991, then a pledge of 46.91 tonnes of gold to the Bank of England and Bank of Japan in July 1991.

These sources do not fully agree. Wikipedia places an airlift of 47 tonnes to the Bank of England and 20 tonnes to UBS in May 1991 under the Chandra Shekhar government, while the RBI paper dates the pledge to July, after the change of government. This entry therefore lists the April transaction, which fell within the Chandra Shekhar government according to the RBI paper, and treats the July pledge as context.

Neither source gives a full reconciliation of the totals, and the RBI chapter was not opened in full for this entry. Confidence is accordingly low. The wider reform response is covered in the separate entry on the 1991 industrial policy.

Sources

Last reviewed .Report an error orchallenge a score.

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