UPSC Previous Year Question | Prelims GS | 2020

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

  1. 1 only
  2. 1 and 2 only
  3. 3 only
  4. 1, 2 and 3

Answer

Correct Answer

1 only

Explanation

Heavy reliance on short-term foreign debt makes a country vulnerable to sudden reversals, so avoiding it helps. Foreign banks tend to cut lending in a crisis and full capital account convertibility exposes an economy to capital flight, so neither gives immunity.

Topics: balance of payments & financial crises, economy, external sector & international institutions, vulnerability to global financial crisis