 Break-up of the Soviet Bloc: Rupee trade (payment for trade was made in rupees)

with the Soviet Bloc was an important element of India’s total trade up to the
1980s. However, the introduction of Glasnost and Perestroika and the break-up of
the Eastern European countries led to termination of several rupee payment
agreements in 1990-91. As a consequence, the flow of new rupee trade credits
declined abruptly in 1990-91. Further, there was also a decline in our exports to
Eastern Europe—these exports constituted 22 .1 percent of total exports in 1980
and 19.3 percent in 1989; but they declined to 17.9 percent in 1990-91 and further
to 10.9 percent in 1991-92.

The Soviet Bloc break up led to the termination of several rupee payment agreements in 1990-91. The
introduction of Glasnost and perestroika and break-up of the Eastern European countries contributed to
the cause. There was decline in exports to Eastern Europe and the flow of new rupee trade credits
declined abruptly. The exports were 22.1% of total export in 1980 to 10.92% in 1991-92

1979 can be pinpointed as a year where these governmental miscalculations started. In 1979, India
faced a severe drought as well as an oil shock due to the Islamic Revolution in Iran. The government, in
1977, had pushed more revenue from the centre to the state even though the centre’s responsibilities
had not been eased. As a result, the government had to borrow more to sustain, which increased India’s
fiscal deficit.

To add to this, the government increased the food grain procurement price without increasing the issue
price, reduced taxes on agricultural products (which was a major source of revenue in those days) and
increase in fertilizer subsidies. The government was facing major revenue losses.