CA Foundation · Business Economics · Indian Economy
The immediate trigger for the 1991 reforms was a balance of payments crisis. Which of the following best describes the situation at that time?
In 1991 India's foreign exchange reserves fell so low that they could finance only roughly two to three weeks of imports. Combined with high fiscal deficits and inflation, this balance of payments crisis forced stabilisation and structural reforms.
- AIndia had a large foreign exchange surplus but a budget surplus too
- BForeign exchange reserves had fallen to a level barely sufficient to finance a few weeks of importsCorrect
- CIndia had stopped all imports voluntarily
- DInflation was negative and growth was very high
Explanation
By 1991 reserves had dwindled to cover only about two weeks of imports, due to a high fiscal deficit, rising oil prices and the Gulf War effects. This forced India to seek IMF support and adopt structural reforms. The other options contradict the crisis conditions.
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