Why was the rupee devalued in 1991?
Show answer & explanation
Correct answer: C
Explanation
Correct Answer:
To boost exports and attract foreign exchange
Explanation:
In 1991, India faced a severe Balance of Payments (BoP) crisis with very low foreign exchange reserves, making it difficult to finance imports. To address this situation, the rupee was devalued as part of the economic reforms.
The main objective of devaluation was to make Indian goods cheaper in international markets, thereby boosting exports and increasing the inflow of foreign exchange. This helped improve the Balance of Payments position.
Key Points:
• India faced a severe economic crisis in 1991
• Foreign exchange reserves were critically low
• Devaluation was aimed at increasing exports
• It helped bring more foreign exchange into the country
Additional Facts:
• It was part of the New Economic Policy (LPG reforms)
• India also sought assistance from the IMF
• The reforms marked the beginning of liberalization, privatization, and globalization
Important Questions:
Q1: What caused the 1991 economic crisis in India?
Ans: Low foreign exchange reserves and BoP crisis
Q2: What was the main aim of rupee devaluation?
Ans: To boost exports and earn foreign exchange
Q3: What is the 1991 economic reform known as?
Ans: LPG policy