Find the missing step in this chain of events of the 1991 crisis:
There was not sufficient foreign exchange even to pay the interest due to international lenders → ? → India approached the World Bank and the IMF and received a loan to manage the crisis
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → No country or international funder was willing to lend to India
India did not have enough foreign exchange even to pay interest on its loans. When no country or international funder was willing to lend to India, it turned to the World Bank and the IMF.
Option (1) Government expenditure began to exceed its revenue by large margins — Incorrect. This was a cause of the crisis, but it came earlier in the chain, in the late 1980s, before reserves ran short.
Option (2) No country or international funder was willing to lend to India — Correct. With no one ready to lend, India had to approach the IBRD and the IMF.
Option (3) Imports grew at a very high rate without matching growth of exports — Incorrect. This also came earlier in the chain. It is one reason the foreign exchange reserves fell so low.
Option (4) The rupee was devalued against foreign currencies — Incorrect. Devaluation came after the crisis. It was an immediate measure in 1991 to resolve it.
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. India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7 billion as loan to manage the crisis. …” “Foreign Exchange Reforms: … In 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies. …” |