In the question given below there are 2 statements marked as Assertion (A) and Reason (R). Choose the correct alternative from the following options.

Assertion (A)- In 1991, the rupee was devalued against the foreign currencies.

Reason (R)- Devaluation was done in 1991 to improve the BOP position of the country .

Both (A) and (R) are true and (R) is the correct explanation.

The correct answer is option 1: Both (A) and (R) are true and (R) is the correct explanation of (A).

Assertion (A)- In 1991, the rupee was devalued against the foreign currencies. This is correct. In 1991, India officially devalued the rupee against foreign currencies. This was a deliberate policy decision taken during the economic crisis, when India’s foreign exchange reserves had fallen to a critically low level.

Reason (R)- Devaluation was done in 1991 to improve the BOP position of the country. This is correct. The devaluation was done to improve the Balance of Payments (BOP) position. By devaluing the rupee, Indian goods became cheaper for foreign buyers, encouraging exports, while imports became costlier, discouraging excessive imports.

Why Reason (R) explains Assertion (A): The main objective behind devaluing the rupee in 1991 was to correct the BOP crisis. Since devaluation directly helps in boosting exports and reducing imports, it was used as a policy tool to improve the BOP position. Therefore, the reason clearly explains why the rupee was devalued.