UPSC Prelims 2020 · GS Paper I
Question 49: Economy and Social Development
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 :
AnswerUPSC’s answer is (a).
Short-term foreign borrowings can be recalled suddenly in a crisis, forcing a scramble for dollars, so not depending on them gives India some immunity. More foreign banks and full capital account convertibility would open the economy further to capital flight and imported shocks. India's capital controls cushioned it during the Asian crisis of 1997-98.
- 1. Less short-term foreign debt means less risk of sudden outflows.
- 2. More foreign banks do not give immunity to a global shock.
- 3. Full convertibility increases vulnerability to capital flight.
How you could have got this
- If you were sure statement 1 is correct, (c) goes: it leaves 1 out.
What you needed to know: Less short-term foreign debt means less risk of sudden outflows.
- Then, if you were sure statement 2 is not correct, (b) and (d) go: each of them includes 2.
What you needed to know: More foreign banks do not give immunity to a global shock.
Only (a) is left. You didn’t need statement 3.
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) Right: only avoiding short-term foreign borrowing helps.
- (b) Wrong: opening to more foreign banks does not shield India from a crisis.
- (c) Wrong: full capital account convertibility raises exposure to capital flight.
- (d) Wrong: includes items 2 and 3, which raise vulnerability.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2020, General Studies Paper I, Series A. The paper on upsc.gov.in.