Which of the following statement (s) is/are correct in the context of reforms in the external sector since 1991?

Statement 1: In 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies.

Statement 2: In present times, only markets determine exchange rates in India based on the demand and supply of foreign exchange.

Only Statement 1 is correct.

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.