With the commencement of the Second Five Year Plan (1956) a severe balance of payments crisis developed in the Indian economy which lasted for about ten years forcing the government of India to devalue the Indian Rupee in June I966. In a payments crisis, an acute shortage of foreign exchange persists. Hence the aim of every government in such a situation is to apply its major economic policies ID a way that they succeed in earning as much foreign exchange as possible and in keeping foreign exchange expenditure to the minimum. The main policies which can earn foreign expenditure for a country are foreign capital, foreign aid and export policy.
The aim of the present study is to analyse the working of these more important exchange earning policies during India’s payments deficit.
In the first chapter we analyse the need for foreign exchange for a developing economy and how a foreign exchange gap can develop in such an economy. The objectives and guidelines of Indian planning are also briefly stated. Then we also provide the background information leading to the payments crisis of 1956-57, and analyse the nature of the payments deficits which last for ten years from 1956-7 to 1965-66
In the second and third charters we discuss the role of foreign capital and foreign aid in the light of India’s need foreign exchange to avert the payments crisis.
In the fourth chapter we analyse the export policy. The analysis attempts to show that proper measures were not taken to increase export earnings. Insufficient export promotion measures were directed to deal with non-traditional exports thus leaving the traditional export sector, which earned the bulk of India's total export earnings, in utter neglect. The invisible export sector which also had the potentiality of earning foreign exchange was also neglected.
In chapter five we discuss briefly how the exchange control operation failed because of the lack of sufficient foreign exchanges reserves, and the devaluation of the Rupee was forced on India.
Thus the study intends to show that, if all these policies had been successfully implemented, more' foreign exchange could have been earned, which could have minimised the severity of the crisis if not eliminated it altogether (assuming, of course, the volume of Import expenditure could not have been reduced).