CSEET · Economic and Business Environment · Indian Economy
Which development immediately preceding the 1991 reforms is regarded as the main trigger that forced India to adopt the New Economic Policy?
The main trigger was a severe balance of payments crisis in 1990-91, when foreign exchange reserves fell so low that they could barely cover a few weeks of imports. This pushed India to seek IMF support and undertake structural reforms.
- AA severe balance of payments crisis with very low foreign exchange reservesCorrect
- BA sharp surplus in the current account
- CA fall in the general price level due to excess supply
- DComplete repayment of all external debt
Explanation
By 1990-91 foreign exchange reserves had fallen to a level covering only a few weeks of imports, creating a balance of payments crisis. A current account surplus or debt repayment would not have forced reform; prices were rising, not falling.
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