The latest balance of payments (BoP) numbers, released by the Reserve Bank of India on Tuesday, do not make a pretty picture. They remind us of two earlier crises.
First, the current account deficit for the third quarter of 2008-09 is the highest such quarterly deficit since 1990, when the Indian economy was staring into an abyss. Second, BoP is in negative territory for the first time since the first quarter of 1998-99, when emerging markets were still reeling under the impact of the Asian financial crisis.
Are these advance warnings of a new crisis? We see little reason to hit the panic button—at least right away.
The September-December quarter was an unusual one, as the world economy tumbled into a deep crisis, trade started shrinking and capital flows dried up. There is little sign that things are easing in the rest of the world. But lower oil prices and a revival in some types of capital inflows should ensure that the Indian economy does not stumble into another 1991-like crisis.