Consider the following statements about the external sector reforms that began in 1991:
(A) The first important reform in the external sector was made in the foreign exchange market.
(B) In 1991, the rupee was revalued against foreign currencies to resolve the balance of payments crisis.
(C) Now, more often than not, markets determine exchange rates on the basis of the demand and supply of foreign exchange.
(D) Import licensing was abolished except in the case of hazardous and environmentally sensitive industries.
(E) Quantitative restrictions on imports of manufactured consumer goods were fully removed in 1991.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (C) and (D) only
(A) The first important reform in the external sector was made in the foreign exchange market. — Correct. The foreign exchange market came first.
(B) In 1991, the rupee was revalued against foreign currencies to resolve the balance of payments crisis. — Incorrect. The rupee was devalued, not revalued. Devaluation lowers a currency’s value; it raised the inflow of foreign exchange.
(C) Now, more often than not, markets determine exchange rates on the basis of the demand and supply of foreign exchange. — Correct. Exchange rates are now mostly set by demand and supply.
(D) Import licensing was abolished except in the case of hazardous and environmentally sensitive industries. — Correct. Only these industries kept import licensing.
(E) Quantitative restrictions on imports of manufactured consumer goods were fully removed in 1991. — Incorrect. They were fully removed only from April 2001.
NCERT (2026-27): “Foreign Exchange Reforms: The first important reform in the external sector was made in the foreign exchange market. In 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange. It also set the tone to free the determination of rupee value in the foreign exchange market from government control. Now, more often than not, markets determine exchange rates based on the demand and supply of foreign exchange.” “Trade and Investment Policy Reforms: … Import licensing was abolished except in case of hazardous and environmentally sensitive industries. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from April 2001. …” |