In the year 1991, India faced a crisis in terms of foreign debts. The government was not in a position to pay its foreign debt. The foreign exchange reserves, normally maintained for the import of essential commodities like petroleum etc., were not enough to pay the required imports for fifteen days. This crisis was further intensified by the rise in prices of essential commodities. India approached the World Bank and the International Monetary Fund (IMF) and received a loan of $7 billion to face the crisis. These international organizations put certain conditions before India to get the loan. Like the government will liberalize, remove restrictions on the private sector and government intervention in many areas. It was also expected that restrictions on foreign trade between India and other countries would be removed. India accepted the conditions of the World Bank and IMF and announced the New Economic Policy (NEP).

After 1991, reducing the role of the RBI from regulator to facilitator of financial sector, was _________________.

Liberalisation

The correct answer is Option (2) → Liberalisation

Libralization was one of the key elements of the New Economic Policy (NEP) implemented in India in 1991. The NEP was a series of economic reforms undertaken by the Indian government to address the country's foreign debt crisis. The reforms aimed to liberalize the Indian economy by reducing government control and opening it up to foreign investment.

One of the key aspects of liberalization was the reduction of the role of the RBI from regulator to facilitator. This meant that the RBI would play a less active role in directing the financial sector and would instead focus on creating a more enabling environment for private sector banks and financial institutions.