1991 provided ample opportunities to build on the strong foundations in economic, political and social sphere, laid during the pre - reform period of planned development. ii. development experience : post - reform period triggers of reforms the policy reforms in the 1980s provided impetus for high growth and enhanced competitiveness but the growth process turned unsustainable. it manifested in the growing macroeconomic imbalances over the decade in the form of high fiscal deficit, high levels of current account deficit, and increasing levels of short term external debt, besides a repressive and weakened financial system. the immediate provocation for the crisis in 1991 was also a combination of external events that generated liquidity problems on the external front. the gulf crisis of 1991 not only affected india ’ s oil imports due to soaring oil prices but also eroded export markets in west asia, and caused a setback to inward remittances and tourist earnings. the deterioration in exports to eastern europe, with the break - up of erstwhile ussr, accentuated the crisis. around the same time, india ’ s credit rating was lowered, which restricted its access to commercial borrowings and there was unwillingness on the part of normal banking channels to renew short - term credit to indian banks abroad. exceptional financing measures became inevitable, and the overall deficit in 1990 - 91 was financed almost equally by recourse to imf and drawdown of reserves. the severity of the balance of payments crisis in the early 1990s could be gauged from the fact that india ’ s foreign currency assets depleted rapidly from us $ 3. 1 billion in august 1990 to us $ 975 million on july 12, 1991. i would now narrate the story of our exciting journey from the agony of 1991 to relative comfort in 2007, and conclude by mentioning prospects and challenges ahead of us. reform measures during the crisis period, a conscious decision was taken to honor all debt obligations without seeking rescheduling and several steps, including some unconventional ones, like pledging gold with international institutions, were resorted to tide over the crisis. the immediate steps undertaken included, among others, tightening of non - essential imports and availing credit from the imf and other multilateral and bilateral donors. a macroeconomic structural and stabilization programme encompassing trade, industry, foreign investment, exchange rate, public finance and the financial sector was put in place creating an environment conducive for the expansion of trade and investment. it was recognized that trade policies, exchange rate policies and industrial policies

y v reddy : forex reserves, stabilization funds and sovereign wealth funds – indian perspective address by dr y v reddy, governor of the reserve bank of india, at the golden jubilee celebrations of the foreign exchange dealers ’ association of india, mumbai, 8 october 2007. * * * shri sridharan, chairman, fedai, ladies and gentlemen i am happy to be here today with the members of the foreign exchange dealers association of india, popularly known as fedai in the industry. fedai completes 50 years in 2008 and the reserve bank and fedai have shared a unique and symbiotic relationship all these years. since the beginning of the reforms, fedai has partnered with the reserve bank to ensure adoption of best practices in the profession of foreign exchange dealing. fedai also plays a very important role as a communication channel between the reserve bank and the banks authorised to deal in foreign exchange. fedai continues to provide valuable insights in this vital segment of our financial markets. i am happy that on the occasion of its golden jubilee celebrations, fedai is releasing a monograph on its 50 years ’ history and a brochure on foreign exchange facilities, which will assist resident individuals who access these facilities. this is also expected to provide greater understanding and awareness among the authorised dealers ’ branch level staff dealing with customers and enhance the quality of customer service. the topic for the panel discussion today is pertinent in the current context and we in the reserve bank look forward to obtaining a feedback of these discussions. there has been, in the recent past, a growing interest in the magnitudes and working of what may be broadly characterized as national foreign asset funds. despite several overlapping features, they broadly consist of foreign exchange reserves, stabilization funds and sovereign wealth funds. while these funds have the characteristics of being in the public sector, the motives for establishment, sources of funding and institutional arrangements for managing them vary considerably though there is a great degree of consensus on these aspects as far as foreign exchange reserves are concerned. while there are difficulties in generalizations in regard to these funds, other than foreign exchange reserves, due to the sheer variety and complexities of features and arrangements in different countries, it is essential to appreciate the broad characteristics of these funds, in view of their growing importance in global financial flows. for the purpose of today ’ s talk, “ funds ” would refer to stabilisation funds and sovereign wealth funds ( swfs ) that are to be considered separately from the foreign exchange reserves. management of the