But even as dollars were earned mortgaging gold, dollars were lost as NRIs continued to transfer funds to banks abroad. Given that the priority for the government was to avert external default, there was no other option but to further tighten import controls. The import squeeze began to hurt the economy which, on the one hand, slowed down, and, on the other, experienced inflationary pressure on the price level. The economy was in the throes of what economists define as stagflation.
