The foreign exchange reserve of India dropped to levels that were _____ during 1991 economic crisis.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is Option 1: Not sufficient even for fifteen days.
Explanation:
- In 1991, India faced a severe Balance of Payments crisis.
- Status of Foreign Exchange Reserves: India's foreign exchange reserves had depleted to such a low level that they were barely sufficient to cover payments for essential imports (such as oil and petroleum) for a mere two weeks (approximately 14–15 days).
- Immediate Measures: To overcome this crisis, India was compelled to pledge its gold reserves. India pledged approximately 47 tons of gold with the Bank of England and 20 tons with the Union Bank of Switzerland.
- Resolution of the Crisis: Subsequently, the then Prime Minister P.V. Narasimha Rao and Finance Minister Dr. Manmohan Singh adopted the LPG (Liberalization, Privatization, and Globalization) policy, which came to be known as the 'New Economic Policy of 1991'.
Key Highlights of the 1991 Economic Reforms:
- L (Liberalization): Abolishing the 'License Raj' and reducing trade restrictions.
- P (Privatization): Promoting private sector participation in Public Sector Undertakings (PSUs).
- G (Globalization): Integrating the Indian economy with the global economy.
- Currency Devaluation: The Indian Rupee was devalued against the US Dollar to boost exports.
Important Questions for Upcoming Examinations:
Question: Who was India's Finance Minister at the time of the 1991 economic reforms?
Answer: Dr. Manmohan Singh.
Question: By what other name is the 'New Economic Policy of 1991' known?
Answer: The LPG Model or the Rao-Manmohan Model.
Question: Approximately how much are India's current foreign exchange reserves? Answer: According to the latest figures from April 2026, it has crossed the $700 billion mark (which is in stark contrast to the situation in 1991).