Which of the following best describes the situation faced by India in 1991?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → A fall in foreign exchange reserves to a level not adequate to finance imports for more than two weeks
In 1991, foreign exchange reserves fell so low that they could not pay for imports for more than two weeks. Imports had grown fast without matching growth of exports.
NCERT (2026-27): “3.2 Background … In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable. Prices of many essential goods rose sharply. Imports grew at a very high rate without matching growth of exports. As pointed out earlier, foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needed to be paid to international lenders. Also no country or international funder was willing to lend to India. …” |