Question

The economic crisis of 1991 was characterised by

a. Reduced foreign exchange reserves.

b. Rolling over of Indian foreign debt by international creditors.

c. Increase in the fiscal deficit.

d. Sale of gold from reserves.

1. a, b and c only
2. b, c and d only
3. c, d and a only
4. d, a and b only

Answer 1

Correct Answer - Option 3 : c, d and a only

The correct answer is c, d and a only.

• Increase in the Oil Prices swept the Foreign Currency Reserves of the country.
• This led to the reduction of foreign exchange reserves. Hence Statement a is correct.
• The crisis was caused by currency overvaluation, the current account deficit, and investor confidence played a significant role in the sharp exchange rate depreciation.
• It leads to an increase in the fiscal deficit. Hence statement c is correct.
• India was forced by circumstances to borrow against the security of the Gold Reserves.
• That led to the sale of gold from reserves. Hence statement d is also correct.

 

• The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s.