Identify the statement associated with Indian Economic Crisis of 1991 ?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Our foreign exchange borrowed from other countries and financial institutions was spent on meeting consumption.
The crisis of 1991 grew out of poor management of the economy in the 1980s. The government spent more than it earned, and foreign exchange reserves fell so low that India could not pay for its imports.
Option (1) The income from public sector undertaking was very high. — Incorrect. Income from public sector undertakings was not very high; it could not meet the growing expenditure.
Option (2) Our foreign exchange borrowed from other countries and financial institutions was spent on meeting consumption. — Correct. Borrowed foreign exchange was spent on consumption needs, not on raising exports, so there was nothing to repay the loans with.
Option (3) Indian govt. income was greater than govt. expenditure. — Incorrect. In the late 1980s government expenditure began to exceed its revenue by such large margins that the debt could not be sustained.
Option (4) There were sufficient amount of foreign exchange. — Incorrect. Foreign exchange reserves had fallen to a level not enough even for two weeks of imports.
NCERT (2026-27): “…When the government was spending a large share of its income on areas which do not provide immediate returns such as the social sector and defence, there was a need to utilise the rest of its revenue in a highly efficient manner. The income from public sector undertakings was also not very high to meet the growing expenditure. At times, our foreign exchange reserves borrowed from other countries and international financial institutions, was spent on meeting consumption needs. Neither was an attempt made to reduce such profligate spending nor sufficient attention was given to boost exports to pay for the growing imports. In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable.…” |