Assertion (A): Other things remaining the same, a devaluation of the rupee is likely to reduce India’s imports.
Reason (R): Devaluation makes Indian goods cheaper for foreigners and so tends to raise India’s exports.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): Other things remaining the same, a devaluation of the rupee is likely to reduce India’s imports. — True. Devaluation raises the exchange rate, so each dollar costs more rupees and foreign goods become dearer.
Reason (R): Devaluation makes Indian goods cheaper for foreigners and so tends to raise India’s exports. — True. A higher rate makes the rupee cheaper, so our goods cost foreigners less. This is why a government may devalue to encourage exports.
Why R does not explain A?
A is about imports; R is about exports. Cheaper Indian goods abroad raise exports, but they say nothing about what Indians buy from abroad.
The real reason for A: after devaluation a foreign good costs more in rupees, so Indians buy fewer imports.
NCERT (2026-27): “Demand for Foreign Exchange … A rise in price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good. This reduces demand for imports and hence demand for foreign exchange also decreases, other things remaining constant.” “Fixed Exchange Rates … In a fixed exchange rate system, when some government action increases the exchange rate (thereby, making domestic currency cheaper) is called Devaluation. …” |