1991 or worse?

In 1991 our Current Account Deficit was 4.2% of GDP. Our GDP was $288 billion. From October to end of December, 2012 the CAD was 6.7% of GDP compared to 4.4% a year ago. It was 5.4% from July to September. Our GDP is around $1.9 trillion. In 1991 our foreign exchange reserve was $5.8 billion, enough for imports for 3 weeks, now it is $290 billion, enough for 7 months of imports. In 1991 the government borrowed $2.2 billion from the IMF and pledged 67 tonnes of gold with the Bank of England and the Union Bank of Switzerland to raise another $600 million. The rupee was devalued by 24% in 3 days to increase exports. At that time Mr Narasimha Rao of the Congress was the Prime Minister who had the guts to do what it takes and start reforms which has seen high growth rates in recent years. Sadly the present government resorted to massive wasteful expenditure to win elections and has brought us to the brink again. CAD was $32.63 billion in the third quarter compared to $20.16 billion a year ago. Short term debt has risen from 23.3% of GDP to 24.4% and our total external debt is $376.3 billion, which means higher interest payments and worsening of CAD. The trade deficit has increased from $48.6 billion to $59.6 billion and desperate attempts are being made to somehow contain the fiscal deficit to 5.2% of GDP. To finance the rising deficit the government has imposed taxes on every good and service that it can raising inflation and hurting the spending power of consumers resulting in falling sales which, in turn, reduces tax collections. This has also reduced Foreign Direct Investment which is long term investment in businesses in India. In desperation the government has increased the levels of investments in debt instruments by Foreign Institutional Investors and encouraged Non Resident Indians to save in fixed deposits in Indian banks by giving them very high interests while forcing the RBI to reduce interest rates for citizens. Thus FIIs and NRIs can borrow at 0% in the US and get returns of 9% here while our money is losing value because inflation rate is above 10%. This is shown in capital money flows of $8.6 billion compared to $1.8 billion a year ago. Livemint, 29 March. Rajesh Chakrabarty, Exec. Director of Bharti Institute of Public Policy and faculty member of Indian School of Business said the CAD is alarming. " For two consecutive quarters the numbers have come in at more than 5% of GDP. These numbers reflect that the rupee is becoming a weaker currency. It may in turn fuel gold purchases which could again worsen trade deficit. Spurring exports maybe the only option left with the government since it has not been able to curb imports, especially gold." But how? Weakening the rupee will increase inflation and reducing taxes will worsen deficits. The World Famous Economist is no Mr Rao. Is he?