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Indian Economy - Understanding the basics of Indian economic system

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If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?

1. Not depending on short-term foreign borrowings

2. Opening up to more foreign banks

3. Maintaining full capital account convertibility

Select the correct answer using the code given below :

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UPSC CSP Previous Year Paper (2020)

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1 only

1 and 2 only

3 only

1, 2 and 3

Explanation:

Statement 1 is correct: Not depending on short term foreign borrowings and focusing on long term plans will give immunity to the economy.
Statement 2 is incorrect: The International movement of capital is not always free; countries restrict flows of capital as and when needed to safeguard their markets from erratic flows of capital. In India, for example, there are restrictions on the movement of foreign capital and the rupee is not fully convertible on capital account.
Statement 3 is incorrect: India's rupee is a partially convertible currency—rupees can be exchanged at market rates in certain cases, but approval is required for larger amounts. Making the rupee a fully convertible currency would mean increased liquidity in financial markets, improved employment and business opportunities, and easy access to capital. Some of the disadvantages include higher volatility, an increased burden of foreign debt, and an effect on the balance of trade and exports.

Hence option 1st is correct.

By: Kamal Kashyap

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