Read the following statements carefully and choose the correct option regarding Assertion (A) and Reason (R).
Assertion (A): The 1991 reforms boosted India foreign exchange reserves significantly.
Reason (R): Liberalized trade policies increased both exports and capital inflows.
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.
Assertion (A): In 1991, India faced a severe Balance of Payments crisis with reserves barely enough for two weeks of imports. The subsequent LPG (Liberalization, Privatization, and Globalization) reforms successfully stabilized the economy, leading to a steady and significant increase in foreign exchange holdings.
Reason (R): By removing "License Raj" and lowering tariffs, India became more competitive. Liberalized trade boosted exports, while opening the economy encouraged Foreign Direct Investment (FDI) and portfolio investments, directly swelling the forex reserves.