Read the following statements carefully and choose the correct option regarding Assertion (A) and Reason (R).
Assertion (A): India had to approach the IMF and World Bank in 1991 for a bailout loan.
Reason (R): Foreign exchange reserves had declined to the point that they could barely finance two weeks of imports.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is Option 1 i.e. Both A and R are true and R is the correct explanation of A.
In 1991, India faced a severe Balance of Payments crisis. The foreign exchange reserves plummeted significantly, leaving the country with only enough to sustain roughly two weeks of essential imports.
To avoid a sovereign default, the government air-lifted gold reserves as collateral and approached the IMF and World Bank for a $7 billion bailout, which ultimately led to the LPG (Liberalization, Privatization, and Globalization) reforms.