In which year did India face the severe balance of payments crisis that led to the reforms of liberalisation, privatisation and globalisation?
- A.1985
- B.1991
- C.1997
- D.2008
Correct answer
Explanation
The correct answer is B, 1991. By the middle of 1991 India's foreign exchange reserves had fallen to roughly a fortnight of imports, gold was pledged abroad to raise funds, the country borrowed from the International Monetary Fund and the rupee was devalued in two steps in July. The new industrial policy of 1991 followed, dismantling most industrial licensing and opening the economy. Option A is wrong because 1985 saw a limited liberalisation under Rajiv Gandhi but no crisis of this kind. Option C is wrong because 1997 is the year of the East Asian currency crisis, which India largely escaped, and of the first Tarapore Committee report. Option D is wrong because 2008 is the global financial crisis, in which India's growth slowed but its external position did not collapse. Remember 1991 together with devaluation, the IMF loan and the LPG reforms.
Read the full article: Balance of Payments and Foreign Trade: Key Concepts
Practice Questions
View allThe Balance of Payment Account of an economy is related to the ________.
- A.agriculture sector
- B.external sector
- C.government sector
- D.private sector
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The balance of payments is the statement that records every economic transaction between the residents of a country and the rest of the world in a given period, which is precisely what the external sector of an economy means; it covers merchandise trade, services, income, transfers and capital flows.
Read the full explanation →Which of the following is NOT a Trade Barrier?
- A.Subsidies
- B.Embargo
- C.Export Security
- D.Tariff Barriers
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Export security is not a recognised category of trade barrier; it is not a device that restricts the movement of goods across a border.
Read the full explanation →What are the two main forms of protection used to shield domestic industries from foreign competition in an inward looking trade strategy?
- A.Tariffs and subsidies
- B.Quotas and subsidies
- C.Tariffs and price controls
- D.Tariffs and quotas
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An inward-looking trade strategy, better known as import substitution, was the policy India followed from the Second Five Year Plan until 1991, and it rested on two instruments.
Read the full explanation →What is an indicator of self-reliance?
- A.Increase in imports of the goods which could be produced in the country.
- B.Avoiding imports of the goods which could be produced in the country.
- C.Increase in exports of the goods which could not be produced in the country.
- D.Avoiding exports of the goods which could be produced in the country.
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Self-reliance, the goal set out in India's early plans, means building the capacity to produce at home what the country would otherwise have to buy abroad, so the true indicator is that imports of such goods are avoided.
Read the full explanation →The balance of trade of a country includes which of the following?
- A.Only exports and imports of goods
- B.Exports and imports of goods and services
- C.All current and capital account transactions
- D.Only foreign investment flows
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The balance of trade, also called the merchandise or visible balance, is the difference between the value of goods exported and goods imported; nothing else enters it.
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