Which reform measure directly aimed to make Indian exports more competitive post-1991?
Show answer & explanation
Correct answer: B
Explanation
Solution: The correct answer is Convertibility on current account.
Explanation:
☛ Following the 1991 economic crisis, India initiated extensive economic reforms focusing on Liberalisation, Privatisation, and Globalisation (LPG).
☛ To enhance export competitiveness, the Indian Rupee was initially devalued by around 18–19% in July 1991 to make Indian goods cheaper abroad.
☛ In March 1992, the Liberalised Exchange Rate Management System (LERMS) was introduced as a transitional dual exchange rate mechanism.
☛ India moved to a unified market-determined exchange rate system in March 1993.
☛ Finally, in August 1994, India established full convertibility of the rupee on the current account by accepting the obligations under Article VIII of the IMF, which facilitated easier foreign exchange access for cross-border trade in goods and services.
Extra Exam-Relevant Facts:
☛ Current Account Convertibility: Means the freedom to convert domestic currency into foreign currency and vice versa for trade in goods, services, remittances, and interest payments.
☛ Capital Account Convertibility (CAC): The SS Tarapore Committee (1997 and 2006) recommended roadmaps for full capital account convertibility, but India still maintains only partial convertibility on the capital account.
☛ Minimum Support Price (MSP): A form of agricultural price support announced by the government on recommendations of the Commission for Agricultural Costs and Prices (CACP), having no direct relation to export currency competitiveness.
☛ Pradhan Mantri Fasal Bima Yojana (PMFBY): Launched in 2016 to provide comprehensive insurance cover against crop loss, focusing entirely on agricultural risk management.
Important One-Liners for Upcoming Exams:
☛ In which year did India adopt full convertibility on the current account? → August 1994
☛ Which committee was constituted by the RBI to suggest a roadmap for full Capital Account Convertibility? → S.S. Tarapore Committee
☛ What was the name of the dual exchange rate system introduced in India in 1992? → Liberalised Exchange Rate Management System (LERMS)
☛ Which Article of the International Monetary Fund (IMF) deals with current account convertibility? → Article VIII
☛ Who was the Finance Minister of India during the introduction of the 1991 economic reforms? → Dr. Manmohan Singh