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Which statement best explains the immediate trigger for the 1991 economic reforms and the way they were supported?

The 1991 reforms were triggered by a balance of payments crisis, with foreign exchange reserves falling to very low levels. India adopted stabilisation and structural adjustment measures, supported by IMF and World Bank loans. It was not caused by a trade surplus, excess inflows or an agricultural collapse alone.

  1. AA balance of payments crisis with very low foreign exchange reserves, followed by stabilisation and structural adjustment measures supported by multilateral lendingCorrect
  2. BA large trade surplus that required the government to spend surplus reserves on welfare schemes
  3. CA collapse of agricultural output alone, resolved by increasing procurement prices
  4. DExcess foreign investment inflows that needed to be restricted through licensing

Explanation

By mid-1991 India's reserves were enough to cover only a few weeks of imports, creating a balance of payments crisis. Stabilisation measures (short-term) and structural reforms (long-term) were adopted with support from the IMF and World Bank. The other options misstate the cause: there was no surplus or excess inflow.

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