The India met with an economic crisis in 1991 relating to ______.
Show answer & explanation
Correct answer: A
Explanation
External Debt -
The 1991 Economic Crisis: Causes and Effects
In 1991, India faced the most severe economic crisis in its history, primarily known as the Balance of Payments (BoP) crisis.
Key Points of the Crisis:
Depletion of Foreign Exchange Reserves: India's foreign exchange reserves fell so low that they barely covered two weeks of imports.
External Debt Burden: During the 1980s, India had borrowed heavily from foreign debt to fund development. By 1991, India was no longer able to pay the interest on this external debt.
Pledging Gold: The situation became so dire that the Indian government had to pledge its gold with the Bank of England and the Union Bank of Switzerland to repay its debt installments.
Immediate causes of the crisis:
Gulf War: The Iraq-Kuwait war caused a sudden surge in crude oil prices, increasing India's import bill.
Decline in exports: The collapse of the Soviet Union resulted in the loss of a major export market for India.
Fiscal deficit: Government spending far exceeded its income.