UPSC Prelims 2019 · GS Paper I
Question 65: Economy and Social Development
In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
- 1.The foreign currency earnings of India’s IT sector
- 2.Increasing the government expenditure
- 3.Remittances from Indians abroad
Select the correct answer using the code given below.
AnswerUPSC’s answer is (b).
Statements 1 and 3 are correct. Foreign currency earnings of the IT sector and remittances from Indians abroad bring a steady inflow of foreign exchange, which strengthens the current account and the reserves, so the risk of a currency crisis falls. Raising government expenditure widens the fiscal deficit and can push up imports and inflation, putting pressure on the rupee, so it does not reduce the risk.
- 1. IT sector foreign earnings add to forex inflows.
- 2. Higher government spending widens the deficit and does not reduce crisis risk.
- 3. Remittances are a steady source of foreign exchange.
How you could have got this
- If you were sure statement 2 is not correct, (c) and (d) go: each of them includes 2.
What you needed to know: Higher government spending widens the deficit and does not reduce crisis risk.
- Then, if you were sure statement 3 is correct, (a) goes: it leaves 3 out.
What you needed to know: Remittances are a steady source of foreign exchange.
Only (b) is left. You didn’t need statement 1.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Remittances also reduce the risk, so 1 alone is incomplete.
- (b) Correct: IT earnings and remittances both reduce the risk.
- (c) Higher government expenditure does not reduce the risk.
- (d) Statement 2 is wrong, so this fails.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2019, General Studies Paper I, Series A. The paper on upsc.gov.in.