Question

1. Which of the following sentences would best describe the Indian economy in 1990-91?

(a) High inflation, low foreign exchange reserves

(b) Low inflation, low foreign exchange reserves

(c) Huge current account deficit, fiscal surplus

(d) Current account surplus, huge fiscal deficit​

Answer 1

Answer:

(b) low inflation, low foreign exchange reserves

Answer 2

Answer:

The correct option is A) High inflation, low foreign exchange reserves.

Explanation:

India was facing an economic crisis in 1991. The roots of the economic crisis of 1991 are in 1985 when the India facing balance of payment problems and import swelled. At that time India was facing twin deficit (twin deficit means current account short fall and fiscal deficit)-

• 1. The presentation of public sector was dissatisfied.  
• 2. The vast deficit in trade balance .
• 3. Fall down reserves of foreign exchange  
• 4. High budget deficit  
• 5. High inflation

In 1990–1991 the GDP growth rate decreased to 5.5 percent from 6.5 percent in 1989–1990. The performance of the manufacturing sector was also impacted by the balance of payments issue. In the second half of the 1980s, the industrial growth rate was 8 percent on average. It was 8.6 percent in 1989–90 and 8.2 percent in 1990–91.

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