INSIGHT UPSC QUIZ

GS Economy Basics of Indian Economy
Q.

In 1991, Indian government introduced a new set of policy measures which changed the direction of our economy. Which among the following were immediate reasons for such a landmark decision?

1. 

Explanation:

ANSWER: (B) 

In 1991, India met with an economic crisis relating to its external debt — the government was not able to make repayments on its borrowings from abroad; foreign exchange reserves, which we generally maintain to import petroleum and other important items, dropped to levels that were not sufficient for even a fortnight. 

  • The crisis was further compounded by rising prices of essential goods. All these led the government to introduce a new set of policy measures which changed the direction of our developmental strategies. In this chapter, we will look at the background of the crisis, measures that the government has adopted and their impact on various sectors of the economy. 
  • The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. 
  • We know that for implementing various policies and its general administration, the government generates funds from various sources such as taxation, running of public sector enterprises etc. 
  • When expenditure is more than income, the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions
  • When we import goods like petroleum, we pay in dollars which we earn from our exports. 

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