Passage-1

India’s Balance of Payments (BoP) evolved reflecting both the changes in our development paradigm and exogenous shocks from time to time. The 1991 crisis was preceded by growing BoP vulnerabilities in the 1980s when the Gulf War led to a sharp increase in the oil prices. On top of that, a slowdown in world trade following the recessionary conditions in industrialised countries and the economic disruption in Eastern Europe including the erstwhile USSR had begun to affect India's exports. A large number of Indian workers employed in Kuwait had to be airlifted to India and their remittances stopped. Foreign exchange reserves had already dwindled due to significant drawdown for financing of Current Account Deficit (CAD) in earlier years. During 1990-91, at one point of time, the foreign currency assets had dipped below US$ 1.0 billion, covering barely two weeks of imports. With increasing recourse to the borrowings on commercial terms in the previous years, financing of CAD had also become more sensitive to creditors’ confidence in the Indian economy.

Which one of the following statements best reflects the central idea of the above passage?

(a) The 1991 BoP crisis in India was an unforeseeable event caused by the Gulf War's impact on oil prices and remittances.
(b) India's evolving development strategies had strengthened its BoP, but a series of exogenous shocks overwhelmed these strengths.
(c) The 1991 BoP crisis was the culmination of vulnerabilities in managing the CAD and foreign exchange reserves, exposed and amplified by several external shocks.
(d) The primary structural flaw in India's pre-1991 economy was its over-dependence on remittances from workers in the Gulf region.

Question

Passage-1

India&rsquo;s Balance of Payments (BoP) evolved reflecting both the changes in our development paradigm and exogenous shocks from time to time. The 1991 crisis was preceded by growing BoP vulnerabilities in the 1980s when the Gulf War led to a sharp increase in the oil prices. On top of that, a slowdown in world trade following the recessionary conditions in industrialised countries and the economic disruption in Eastern Europe including the erstwhile USSR had begun to affect India's exports. A large number of Indian workers employed in Kuwait had to be airlifted to India and their remittances stopped. Foreign exchange reserves had already dwindled due to significant drawdown for financing of Current Account Deficit (CAD) in earlier years. During 1990-91, at one point of time, the foreign currency assets had dipped below US$ 1.0 billion, covering barely two weeks of imports. With increasing recourse to the borrowings on commercial terms in the previous years, financing of CAD had also become more sensitive to creditors&rsquo; confidence in the Indian economy.

Which one of the following statements best reflects the central idea of the above passage?

(a) The 1991 BoP crisis in India was an unforeseeable event caused by the Gulf War's impact on oil prices and remittances.
(b) India's evolving development strategies had strengthened its BoP, but a series of exogenous shocks overwhelmed these strengths.
(c) The 1991 BoP crisis was the culmination of vulnerabilities in managing the CAD and foreign exchange reserves, exposed and amplified by several external shocks.
(d) The primary structural flaw in India's pre-1991 economy was its over-dependence on remittances from workers in the Gulf region.

ONLiNE UPSC · Accepted Answer

Statement (a) is not correct: The passage explicitly states the crisis was "preceded by growing BoP vulnerabilities in the 1980s," indicating it was not exclusively caused by unforeseeable events or just the Gulf War.

Statement (b) is not correct: The passage suggests "growing BoP vulnerabilities" and changes in the development paradigm that contributed to these vulnerabilities (e.g., how CAD was financed), not that the paradigm had inherently strengthened the BoP.

Statement (c) is correct: This statement captures the key elements: the 1991 BoP crisis, the pre-existing conditions ("progressively worsening vulnerabilities" like CAD financing, dwindling reserves), and the role of external factors which "critically exposed and amplified the crisis by a confluence of severe external shocks like Gulf War, trade slowdown.

Statement (d) is not correct: While the stoppage of remittances was a contributing factor, the passage lists multiple issues: oil prices, export slowdown, dwindling reserves from prior CAD financing, and sensitivity to creditor confidence, indicating a more complex set of flaws.

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M Question 1	⏱ 0
Passage-1 India’s Balance of Payments (BoP) evolved reflecting both the changes in our development paradigm and exogenous shocks from time to time. The 1991 crisis was preceded by growing BoP vulnerabilities in the 1980s when the Gulf War led to a sharp increase in the oil prices. On top of that, a slowdown in world trade following the recessionary conditions in industrialised countries and the economic disruption in Eastern Europe including the erstwhile USSR had begun to affect India's exports. A large number of Indian workers employed in Kuwait had to be airlifted to India and their remittances stopped. Foreign exchange reserves had already dwindled due to significant drawdown for financing of Current Account Deficit (CAD) in earlier years. During 1990-91, at one point of time, the foreign currency assets had dipped below US$ 1.0 billion, covering barely two weeks of imports. With increasing recourse to the borrowings on commercial terms in the previous years, financing of CAD had also become more sensitive to creditors’ confidence in the Indian economy. Which one of the following statements best reflects the central idea of the above passage? (a) The 1991 BoP crisis in India was an unforeseeable event caused by the Gulf War's impact on oil prices and remittances. (b) India's evolving development strategies had strengthened its BoP, but a series of exogenous shocks overwhelmed these strengths. (c) The 1991 BoP crisis was the culmination of vulnerabilities in managing the CAD and foreign exchange reserves, exposed and amplified by several external shocks. (d) The primary structural flaw in India's pre-1991 economy was its over-dependence on remittances from workers in the Gulf region.