Which of the following option describes the situation faced by India in 1991 in the best possible way?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Decrease in forex reserves to a level that imports could no longer be financed
In 1991, 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 as everyone lost confidence that whether India would be able to repay back the loan or not.