Fourth, higher reliance on monetary financing of deficits also led to rise in inflation to double digit in the early 1990s, adversely affecting the relative price competitiveness of India's exports. Some possible misalignment of exchange rate, thus, resulted in loss of export competitiveness of exports and bias towards imports.
The rising financing requirements described above required not only higher recourse to external debt but also draw down of reserves, which declined to US $ 4 billion by end-March 1990 from US $ 7.4 billion at end-March 1980. (See Table 3 for India's outstanding foreign exchange reserve position; and Tables 4 and 5 for components of external debt and India's external debt indicators, respectively).