Global Journal of Human Social Science, E: Economics, Volume 22 Issue 2

Dr. Debesh Bhowmik Abstract - In this paper, author tried to establish econometric relation of US grants, credits and assistance to India with exports and imports of USA and India and gross national income of USA during Bretton Woods regime through cointegration and v ector error correction model t aking data from US Bureau of Economic Research and United Nations Conference on Trade and Development. The paper observed that US grants, credits and assistance to India during 1945- 1970 had been growing at the rate of 39.61% per year significantly which had three upwards structural breaks with long run upward cyclical trend. US grants, credits and assistance to India during 1945-1970 had three significant cointegrating equations with exports and imports of USA and India and national income of USA. The vector error correction model is stable, non-stationary and non-normal having problem of autocorrelation. US grants and credits to India have short run causalities from India’s imports and US gross national income. There are long run causalities to US credits and grants to India from both imports of India and USA and from gross national income of USA during the Bretton Woods regime significantly. I. I ntroduction uring the regime of Bretton Woods, international monetary system was in gold exchange standard or rather dollar exchange standard because US dollar was convertible with gold and all other currencies were convertible to US dollar. The exchange rate system was fixed rate with adjustable with ±1% in either side when 1ounce of gold is equal to 35US$.At Bretton Woods, USA and allied countries rejected Keynes plan and accepted White’s plan since USA was the leading and dominant country in the world in terms of international trade, international reserves of gold, capital flows including foreign investment and equity and foreign exchange holdings. Above all, USA was the super power in the world political and military strengths. Therefore, USA could not face any problem to select its currency as key currency to dominate multilateral international payments mechanism. At 1945, India was a colony and its economy was a meagre $30 billion as compared to that US $ 300 billion and that of UK $ 60 billion. During the Bretton Woods era, USA was the creditor country to the world and UK was in war-related debt. India and China tried to lead an effort to unilateral transfers as current account so as to pressure convertibility to encash colonial transfer of sterling balance from UK. India’s share of sterling balance in 1945 was 45% or £1.51 billion-the equivalent of $83.93 billion today. After finalisation of Bretton Woods, USA was refused to take India’s sterling balance in 1949 where sterling balances were paid dawn in 1956.India was forced to abide by “rule based system of international co-operation”. India’s capital inflows started to grow unprecedentedly in terms of aids, grants, loans, foreign equities, portfolios and direct investment to meet the needs of development finance, to correct structural imbalance of balance of payments, to counteract cyclical growth of GDP and inflation. India devalued Rupee in 1949 and forced to depreciate again in 1966 due to IMF structural facility of loan. For example, before first plan, India took 100million SDR, in the 2 nd plan and 3 rd plan, it borrowed 200 million and 375 million SDR from IMF and during 1965-1968, India borrowed 415 million SDR from IMF and took 90million SDR under compensatory financing facility (Reddy, 2000). Even in 1966 March, India received US$ 200 million of stand by arrangement from IMF. In 1966 June World Bank sanctioned US$ 900 million for 3 years and USA sanctioned project assistance amounting to US$ 300 million. IDA also approved loans of US$ 295 million and US$ 642 million in 1967-68 and 1968-69 respectively to India (Srinivas, 2017). D © 2022 Global Journals Volume XXII Issue II Version I 55 ( ) Global Journal of Human Social Science - Year 2022 E Author: Professor, Lincoln University College, Malaysia. Life member, Indian Economic Association, The Indian Econometric Society, Bengal Economic Association, Economic Association of Bihar, Uttar Pradesh Uttarakhand Economic Association, Ex. Rosalind member of London Journals Press). e-mail: debeshbhowmik269@gmail.com Determinants of U.S. Grants, Credits and Assistances to India during Bretton Woods Keywords: Bretton Woods, US grants, credits and assistance, cointegration, vector error correction model, short run causality, long run causality. US current account balance was positive but started to decline after 1963 and tend to negative from 1971.The real exchange index of Dollar started to fall and reached at bottom in 1966 and reached at peak in 1969 then fell down. The ratio of reserve to imports were 22 and 204 for USA and UK in 1951 which fell to 19 and 67 in 1965 respectively. UK devalued sterling by 30% in 1949 and 1967. French devalued 29% in 1967. India devalued 1949 and 1966 respectively (Meltzer, 1991). All these results produced the crisis of reserve currencies. USA and IMF created SDR as reserve and international payments for development finance. The cyclical inflation rate was observed during 1950-1971 although trade openness, international trade volume, living standard increased to a larger extent. But, slowly and steadily US $ liabilities became greater than US gold stock. In 1950, US gold stock was 25billion $ but foreign liabilities were 12 billion dollar. On the other hand, in 1967, US gold