In 1991 India flew its gold to London to avoid defaulting
By mid-1991 India had enough foreign currency for roughly three weeks of essential imports. So the government quietly loaded tonnes of gold onto chartered planes bound for London and Switzerland as collateral. The public fury that followed helped usher in reforms that reshaped the Indian economy.
Trouble had been building since 1985. Imports kept rising while the government ran a large fiscal deficit, leaving the country short on both trade and budget. Heavy foreign borrowing through the 1980s, low savings and weak export growth made things worse. Then two outside shocks landed at once. The Soviet Union, India's largest trading partner with bilateral trade above $5 billion a year, fell into turmoil, and the Gulf War sent the price of imported crude soaring.
Confidence collapsed in early 1991. After Moody's cut India's bond ratings in February, Chandra Shekhar's government failed to pass a budget, borrowing grew costlier, and both the IMF and the World Bank halted support. Reserves of $1.2 billion in January had halved by June. To raise money the Reserve Bank of India secretly flew 47 tons of gold to London's Bank of England and 20 tons to UBS in Switzerland in late May, in the middle of a general election. The news caused an outcry, and the government that approved it fell within months.
P. V. Narasimha Rao became prime minister in June and named Manmohan Singh finance minister. The rupee was devalued in two steps, by 9% on 1 July and a further 11% on 3 July, the smaller first cut serving to test the market. Singh's budget speech on 24 July set out deregulation of industry, fewer import licences, more foreign investment and permission for up to 51% foreign ownership in chosen priority industries.
The results are still argued over. Inflation-adjusted output, $266 billion in 1991, had reached $4.18 trillion by 2025, yet critics point to widening inequality, austerity, job losses and environmental harm, and some saw the conditions attached to foreign help as a loss of national autonomy.
Source: 1991 Indian economic crisis
