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Which combination correctly identifies the immediate crisis conditions that led India to adopt the 1991 reforms and the exchange-rate step taken in July 1991?

India faced a balance of payments crisis with foreign exchange reserves sufficient for only about two weeks of imports, along with a high fiscal deficit and inflation. In July 1991 the rupee was devalued to boost exports. The other options describe surplus or stable conditions that did not prevail.

  1. ALarge budget surplus and excess forex; rupee was revalued upward
  2. BBalance of payments crisis with forex reserves covering only about two weeks of imports; rupee was devaluedCorrect
  3. CDeflation and falling oil prices; rupee was left unchanged
  4. DSurplus in current account; rupee was pegged to gold

Explanation

By 1991 India faced a severe balance of payments crisis, high fiscal deficit and inflation, and reserves could finance only a couple of weeks of imports. In July 1991 the rupee was devalued to improve export competitiveness. The other options describe conditions that did not exist.

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